[Congressional Record Volume 158, Number 63 (Monday, May 7, 2012)]
[Extensions of Remarks]
[Page E706]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     THE FEDERAL RESERVE AND THE 1%

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                        HON. DENNIS J. KUCINICH

                                of ohio

                    in the house of representatives

                          Monday, May 7, 2012

  Mr. KUCINICH. Mr. Speaker, an op-ed in the April 19, 2012 Wall Street 
Journal by Mark Spitznagel explains how the Federal Reserve's monetary 
easing program, in place since the financial crisis of 2008, has 
continued the massive transfer of wealth from the Middle Class directly 
to the richest.

             [From the Wall Street Journal, Apr. 19, 2012]

                       How the Fed Favors The 1%

                          (By Mark Spitznagel)

       A major issue in this year's presidential campaign is the 
     growing disparity between rich and poor, the 1% versus the 
     99%. While the president's solutions differ from those of his 
     likely Republican opponent, they both ignore a principal 
     source of this growing disparity.
       The source is not runaway entrepreneurial capitalism, which 
     rewards those who best serve the consumer in product and 
     price. (Would we really want it any other way?) There is 
     another force that has turned a natural divide into a chasm: 
     the Federal Reserve. The relentless expansion of credit by 
     the Fed creates artificial disparities based on political 
     privilege and economic power.
       David Hume, the 18th-century Scottish philosopher, pointed 
     out that when money is inserted into the economy (from a 
     government printing press or, as in Hume's time, the 
     importation of gold and silver), it is not distributed evenly 
     but ``confined to the coffers of a few persons, who 
     immediately seek to employ it to advantage.''
       In the 20th century, the economists of the Austrian school 
     built upon this fact as their central monetary tenet. Ludwig 
     von Mises and his students demonstrated how an increase in 
     money supply is beneficial to those who get it first and is 
     detrimental to those who get it last. Monetary inflation is a 
     process, not a static effect. To think of it only in terms of 
     aggregate price levels (which is all Fed Chairman Ben 
     Bernanke seems capable of) is to ignore this pernicious 
     process and the imbalance and economic dislocation that it 
     creates.
       As Mises protege Murray Rothbard explained, monetary 
     inflation is akin to counterfeiting, which necessitates that 
     some benefit and others don't. After all, if everyone 
     counterfeited in proportion to their wealth, there would be 
     no real economic benefit to anyone. Similarly, the expansion 
     of credit is uneven in the economy, which results in wealth 
     redistribution. To borrow a visual from another Mises 
     student, Friedrich von Hayek, the Fed's money creation does 
     not flow evenly like water into a tank, but rather oozes like 
     honey into a saucer, dolloping one area first and only then 
     very slowly dribbling to the rest. The Fed doesn't expand the 
     money supply by uniformly dropping cash from helicopters over 
     the hapless masses. Rather, it directs capital transfers to 
     the largest banks (whether by overpaying them for their 
     financial assets or by lending to them on the cheap), 
     minimizes their borrowing costs, and lowers their reserve 
     requirements. All of these actions result in immediate 
     handouts to the financial elite first, with the hope that 
     they will subsequently unleash this fresh capital onto the 
     unsuspecting markets, raising demand and prices wherever they 
     do.
       The Fed, having gone on an unprecedented credit expansion 
     spree, has benefited the recipients who were first in line at 
     the trough: banks (imagine borrowing for free and then buying 
     up assets that you know the Fed is aggressively buying with 
     you) and those favored entities and individuals deemed most 
     creditworthy. Flush with capital, these recipients have 
     proceeded to bid up the prices of assets and resources, while 
     everyone else has watched their purchasing power decline.
       At some point, of course, the honey flow stops--but not 
     before much malinvestment. Such malinvestment is precisely 
     what we saw in the historic 1990s equity and subsequent real-
     estate bubbles (and what we're likely seeing again today in 
     overheated credit and equity markets), culminating in painful 
     liquidation. The Fed is transferring immense wealth from the 
     middle class to the most affluent, from the least privileged 
     to the most privileged. This coercive redistribution has been 
     a far more egregious source of disparity than the president's 
     presumption of tax unfairness (if there is anything unfair 
     about approximately half of a population paying zero income 
     taxes) or deregulation.
       Pitting economic classes against each other is a divisive 
     tactic that benefits no one. Yet if there is any upside, it 
     is perhaps a closer examination of the true causes of the 
     problem. Before we start down the path of arguing about the 
     merits of redistributing wealth to benefit the many, why not 
     first stop redistributing it to the most privileged?

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