Since its founding in 1913, the unelected central planning bureaucrats at the Federal Reserve have been given the incredible privilege of legally creating money out of thin air, which mere mortals like us are not allowed to do. They have also been given the tremendous responsibility of maintaining (1) maximum employment, (2) a stable price level, and (3) low interest rates.
How have they done so far?
Since 1913, the bureaucrats at the Fed have helped cause
- over 20 percent price inflation by printing money for World War I
- the depression in the early 1920s, with over 15 percent price deflation
- the Great Depression of the 1930s, with 25 percent unemployment and over a 10 percent collapse in the gross domestic product (GDP) of the United States
- the “stagflation” of the 1970s, with double-digit inflation and interest rates
- the housing bubble in the first decade of the twenty-first century
- the Great Recession of 2008–9
- a 40 percent increase in the money supply in response to covid
- aggressive interest rate hikes over the past year, which will likely cause the twenty-first recession since the Fed was founded
Of course, there were boom-and-bust business cycles before the Fed was created, due to government laws allowing fractional reserve banks to create money out of thin air, as well as various government interventions in money and banking.
However, we are told the Fed was created to help smooth out the business cycle and create a more stable and prosperous economy.
Below, I review some key economic data before and after the Fed was created to see five important ways the Fed has made the economy worse than it would have been otherwise.
Unemployment Became Much Higher
Unfortunately, unemployment data is not available for most of the nineteenth century, but what data is available shows that unemployment was generally very low since everyone who wanted to work could get a job if they were willing to accept market wages.
There were typically no legal restrictions then that prohibited voluntary work transactions. Thus, wages were allowed to fluctuate according to supply and demand, just like any other price on the free market, which generally led to full employment.
The chart below shows US unemployment rates from 1890 to 1988. The key takeaway is that before the Fed was created, unemployment never reached the incredibly high levels seen during the Great Depression of the 1930s, which occurred more than seventeen years after the Fed was created to “smooth out” the business cycle. Let’s also not forget that unemployment rose to 10 percent or more during the Great Recession of 2008–9 and the covid panic of 2020.
Figure 1: Unemployed workers and unemployment rate, United States, 1890–1988
Inflation Has Been Much Higher
Inflation is where the Fed’s track record of failure is most obvious.
The chart below shows the US Consumer Price Index of inflation from 1775 to 2012. Outside of brief inflationary spikes driven by money printing to fund wars, inflation was virtually nonexistent prior to the creation of the Fed in 1913. Since then, inflation has skyrocketed, particularly after all ties between the US dollar and gold were severed in 1971. As a result of this inflation due to Fed money creation, the dollar has lost 97 percent of its value since 1913.
Figure 2: Consumer Price Index, United States, 1775–2012 (level, 1775 = 1)
Interest Rates Became Much Higher
The chart below shows US long-term interest rates from 1790 to 2011. While interest rates have always been volatile before the Fed, they never reached the all-time high levels they reached in the early 1980s. Those high interest rates were the market’s reaction to the double-digit inflation of the 1970s caused by the Fed’s aggressive money creation.
Figure 3: Long-term interest rates, United States, 1790–2011
Economic Growth Has Been Slower
While it is hard to compare the economy in different centuries, the fact is that economic growth was higher before the Fed was created than after. The chart below shows real GDP growth from 1800 to 2020. Growth was higher from 1800 until the Fed was created in 1913, as shown by the steeper slope of real GDP growth before 1913 as compared to after 1913.
Figure 4: Real GDP in 2012 dollars, United States, 1800–2020
During this time of unprecedented economic freedom (except for the obvious evils of slavery) and minimal taxation, the US went from being an economic backwater to perhaps the wealthiest country in the history of the world by 1913.
While other government economic interventions and taxation have contributed to slower growth since 1913, the Fed shares a good deal of the blame. The Fed contributes to slower economic growth by helping cause the boom-and-bust business cycle, which causes the waste of scarce resources on bad investments, lowering worker productivity and real wage growth below what it would have been otherwise.
Government Deficits and Debt Have Skyrocketed
By creating money out of thin air to buy the US government’s debt, the Fed enables the federal government to spend much more than it takes in with taxes.
The charts below show US government deficits and debt as a percentage of GDP since 1857. Prior to the Fed’s creation in 1913, sizable budget deficits only occurred during wars such as the Civil War. There were budget surpluses (yes, surpluses!) in most of the other years.
However, since the Fed was created, budget deficits have been the rule, reaching as high as 30 percent of GDP during World War II and 15 percent during the covid panic. Deficits are currently 5.4 percent of GDP. Before 1913, that level was only exceeded during the Civil War.
As a result of all this deficit spending, US debt to GDP has skyrocketed since the Fed was created. Debt to GDP rose to 30 percent during the Civil War, before falling back toward 0 percent before World War I. It has been over 30 percent for most of the years since 1913, even exceeding 112 percent during World War II. Publicly held debt to GDP is currently at 93 percent and rising.
Figure 5: US government budget deficits and surpluses as well as debt held by the public (percentage of GDP), 1857–2023 and projections to 2053
Conclusion
Along with the Soviet Union, the Fed has proven that central planning of the economy by a small group of government bureaucrats does not work.
The fact is that the Fed was not created to help the economy. It was created by bankers to help fractional reserve banks create even more money out of thin air and bail them out when they get in trouble.
Money and interest rates are the lifeblood of our economic system, and they provide key signals for consumers and businesses. By constantly manipulating both the money supply and interest rates in the belief that they know more than millions of people, the Fed creates tremendous economic instability, which wastes scarce resources and lowers living standards, particularly for the poorest among us.
Money is just a medium of exchange to make life easier and more productive than barter. The supply of money we have now gets that job done. There is no need to change the money supply.
With 100 percent bank reserves, we would not have to worry about bank runs, a decline in the money supply like in the 1930s, inflation, and the boom-and-bust business cycle. We also wouldn’t need government bureaucrats like Jay Powell pretending they can centrally plan the economy.
If the economy were ever set free of the constant money and interest rate manipulation of the Fed and fractional reserve banks, it would lead to unprecedented economic stability and prosperity.
About the Author
Jon Wolfenbarger is Founder and CEO of Bull And Bear Profits, an investment website. Send him email. Article cross-posted from Mises.
Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.
Let’s just drop all the parsing and keep it simple:
LAEL BRAINARD, the vice chairperson of the Fed is a WEF member and pro–CCP!
Got it????
(Yet not a single mention of this in this article???? Frigging ever wonder why???)