Yesterday morning, after not getting enough sleep, I sat down to listen to Federal Reserve Chairman, Ben Bernanke, testify before one of those ubiquitous congressional committees. Although I worried that this show might put me to sleep, I wanted to listen to what the nation’s money manager would say. The testimony began, and I heard this:
“Gentlemen, I have come before you today to resign my position as the Chairman of the Federal Reserve System. Before I describe how and when my resignation will take effect I want to explain why I made the decision to take this action.
“Several months ago a member of my staff came to me and ask the question, ‘What if everything we do here does more damage than it does good?’ I decided to pursue the question and asked the staff member to head a study of the question. I have included the details of our study in a paper that I will provide to this committee. I will simply summarize our findings.
“The artificial expansion of the money supply that occurs in the reserve banking system does nothing but harm to the national economy. This monetary expansion acts as a form of taxation for anyone who has any portion of their saving in cash or a cash equivalent. As a result we harm the very people we have claimed to help. In addition, continual monetary expansion sends false messages about capital formation throughout the system. People, believing available credit signals capital formation, make investment they should not make and borrow money that they should not borrow. In short, monetary expansion causes people to make all the mistakes that have lead to this and earlier economic down turns. You will understand this process better after you have read our report.
“In addition to discovering the generalized damage that monetary expansion causes, we came to realize that the two primary objectives of the Federal Reserve — stable prices and full employment — rest on flawed theory.
“First, contrary to what we have advocated for years, markets should not have stable prices. The movement of prices, up and down, provide the signals to the market as to where it should allocate capital. By attempting to stabilize prices we distort those signals thereby causing misallocation of capital resources.
“Second, attempting to stimulate full employment through monetary policy has the same effect I referred to earlier, but it focuses those detrimental effects on the labor market. Briefly, monetary expansion causes employment to increase in segments of the market based on unsustainable demand. We indirectly encourage the creation of dead-end jobs. The market will do much better at allocating jobs.
“I now return to the when and how of my resignation.
“In our research we discovered a little known regulation that allows the governors of the Federal Reserve to liquidate the Federal Reserve Banks. We have already set that process in motion, and my resignation will become effective as soon as the last Federal Reserve Bank has closed its doors. But, I caution the members of Congress that these actions will not by themselves solve the problems of artificial monetary expansion.
“Congress must take action to eliminate the fractional reserve banking system that exists in this country. This country will continue have these severe economic fluctuations until the government removes the legal support of fractional reserve banking.”
With a start, I suddenly awoke from the sleep into which I had slipped. I looked at the television to discover that what I had just heard did not match what Chairman Bernanke had actually said.
Well, I have the right to dream. Don’t I?