Thomas Sowell: The Federal Reserve
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SUMMARY:
In this video Thomas Sowell explains the federal reserves policy of quantitative easing and assets purchasing program following the 2008 financial crisis. He argues that this policy is not only ineffective at achieving its aims of reducing unemployment but also carries a significant risk of currency debasement.
The process of quantitative easing essentially creates new money in the economy to boost spending and investment in order to keep unemployment low. The primary way central banks such as the federal reserve do this is by purchasing government bonds the public doesn’t want by printing new money.
The consequences of this is that the increased amount of money in the economy amounts to a hidden tax on income because it steals the value of any money people have saved. In the case of 2008 it also failed to stimulate the economy when it was needed because the large financial institutions sat on the money and didn’t lend it.
Sowell argues the reasons central banks make these policy blunders is because despite their independence they still have to operate within very narrow limits set by legislators.
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