by Sheldon Richman, FFF

In Washington, the rule is: If a little poison doesn’t cure the patient, give him more.

This rule is being applied not only to health care, where massive doses of government intervention are being prescribed to treat the toxicity of past government intervention. It’s also being used in the attempt to end the recession.

When Barack Obama took power he told the American people that an “economic stimulus” bill was indispensable to fixing the economy. Sensible economists warned against it, but no politician wants to be perceived as doing nothing. So logic and well-reasoned economic theory were once again tossed out in favor of massive government spending: close to $500 billion for state and local governments and special interests. But even on its own terms, the “stimulus” was no such thing. Most of the spending was far off into the future. The government says that only $60 billion of $499 billion has been allocated in the five months since Obama signed the bill. It’s hard to believe, but there is a limit to how fast federal, state, and local governments can spend money.

That raises the question: how stimulating can stimulus be? The answer is: not much. The politicians promised it would reduce unemployment, but the jobless rate continues to rise, standing now at 9.5 percent.

The lack of improvement is so acute that even Vice President Joe Biden says the administration underestimated how bad the economy was and congressional leaders are talking about a second stimulus package.

Again, on its own terms, this is just silly. If the bureaucrats can’t spend half a trillion quickly enough to goose the economy, what’s the point of giving them more money?

Of course, we can only take the stimulus logic on its own terms for the sake of argument. The stimulus logic is wrong, so things are worse than described.

Even if the government could have spent the half trillion in the first 24 hours, it wouldn’t have fixed the economy. That’s because the problem isn’t inadequate spending. The problem is the distortions in the economy that the government caused through pervasive intervention. Thus more intervention through spending will only make things worse.

First, let’s look at what’s wrong with the stimulus logic. Government has no money that it hasn’t first lifted one way or another out of the private sector. It creates nothing of value. The federal budget is deep in the red, so to increase spending the Treasury has to borrow the money. But borrowed money obviously is already in the economy, and the lenders would have been willing to lend it to finance productive private ventures had the government not borrowed it instead. There can be no net stimulus if government is simply reallocating capital.

Moreover, government reallocation is not merely a neutral substitution of its projects for private ones. Government doesn’t have to make a profit or risk going out of business. So its spending is not driven by the need to satisfy consumers who are free to spend their money as they like. In contrast, entrepreneurs invest capital with an eye to satisfying what consumers see as their most important demands.

Government spending is dictated by the political agenda, while private investment is shaped by consumer welfare and efficiency considerations.

Bottom line: government adds nothing, but rather takes resources that already exist and devotes them to inferior purposes.

That is only the beginning of trouble. The government’s debt will sooner or later be covered by the Federal Reserve’s expansionary monetary policies. While the Fed can create money, it can’t create real resources. So the new money will bid up the prices of all kinds of goods and shift purchasing power from the mass of people a favored few. That is as much a tax as one collected by the Internal Revenue Service. The inflation will further distort the structure of the economy and pave the road to the next downturn and next round of unemployment.

The “stimulus” isn’t working because it can’t work. A new “stimulus” is therefore idiotic. Freeing the economy is the only path to sustainable prosperity.

Sheldon Richman is senior fellow at The Future of Freedom Foundation, author of Tethered Citizens: Time to Repeal the Welfare State, and editor ofThe Freeman magazine. Visit his blog “Free Association” atwww.sheldonrichman.com.

The letter which I read on the air yesterday, sent to some listeners in Provo, Utah from Senator Orrin Hatch, has raised some questions and resulted in several emails.  I was hesitant to send out the original letter because of the receiver’s names and address being prominently attached to that letter, posing potential privacy problems.  The letter I have is a scan of the original, in PDF format.

In order to placate those who are inquiring, however, I gave the letter to Aaron Turpen to see if he could extract it and/or remove the names.  He’s done both.  Below, I’m pasting in the text of the letter (sans greetings and salutations), as well as a scan of the document with complete headers and so forth included.

Thanks for listening!  Here’s the letter text:

Thank you for writing to express your support for legislation that would abolish or regulate the Federal Reserve Board, essentially removing Federal regulation of banking and returning the nation to the “gold standard.” I appreciate hearing from you.

There have been a number of bills introduced in both the Senate and House addressing the Federal Reserve.

You may be interested in the Federal Reserve Transparency Act (H.R. 1207, S. 604). H.R. 1207 was introduced in the House of Representatives by Rep. Ron Paul on February 26, 2009. Rep. Paul has long been a vocal critic of the Fed and has supported its abolition for some time. H.R. 1207 and S. 604 would amend title 31 of the United States Code, to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States and the manner in which such audits are reported.

A Senate bill, S 513 was introduced by Senator Bernie Sanders on March 3, 2009. S. 513 would direct the Board of Governors of the Federal Reserve System to publish on its website, with respect to all loans and other financial assistance it has provided since March 24, 2008.

All the Senate bills have been referred to the Senate Committee on Banking, Housing, and Urban Affairs where they are pending. The House bills are pending in the House Committee on Financial Services.

Since the Federal Reserve Act was signed into law in 1913, the Federal government has had a role in ensuring the integrity of our country’s financial system in order to protect American investors and consumers against such problems as bank failure. The Federal Reserve System is a mixture of public and private entities. The Federal Reserve Board has been granted the authority by Congress to set monetary policy and to regulate commercial banking activities. While the Federal Reserve System was established as an independent agency, the President of the United States appoints the seven members of the board with the appointments subject to confirmation by the Senate. Congress also has the power to modify the Federal Reserve System.

The system also receives extensive feedback from representatives of the public through frequent meetings with members of the Executive Branch and appearances before congressional committees.

While many people have questioned the constitutionality of the Federal Reserve System based upon provisions in the Constitution which give Congress power to “coin money and to regulate the value thereof,” the Congress has appropriately assigned these authorities to government agencies. For example, the Internal Revenue Service (IRS) has been given authority to collect taxes. Similarly, the Federal Reserve System has been delegated the authority to establish monetary policy.

The Federal Reserve System is responsive to the needs of the economy, especially the stock market. Compared with virtually all foreign central banks, the Federal Reserve System appears to be very forthcoming in disclosing policies and open to receiving suggestions. Therefore, I am hesitant to support proposals to further erode the independence of the Federal Reserve System or to intrude on the setting of monetary policy. Over the last 25 years, the level of inflation has been quite stable and low, even compared to the period before we created the Federal Reserve.

Rest assured that I will keep your comments in mind should this legislation be taken up by the full Senate.

Again, thank you for writing.

And a scan of the document:

by Aaron Turpen, RestoreTheRepublic.com

by Paul Joseph Watson

A Senate amendment based on Congressman Ron Paul’s successful House bill to audit the Federal Reserve was blocked by the Senate yesterday evening on procedural grounds, as Jim DeMint slammed the Fed for refusing to disclose where trillions in bailout funds had gone, while a top Obama administration advisor called for a second “stimulus” package to be prepared.

Republican Senator DeMint had attempted to get a provision attached to the 2010 spending bill that would have removed restrictions on auditing the Fed’s discount window operations, funding facilities, open market operations and agreements with foreign central banks and governments.

However, the amendment was blocked by Senate authorities who claimed that it violated rules for provisions attached to spending bills.

Of course, when the elite want to get their own legislation rammed through, such as the recent climate bill in the House, it’s perfectly fine for Congressmembers to be prevented from even reading it, for it to have 300 pages added at 3am in the morning before the vote, and for all kinds of pork barrel to be attached. But God forbid should representatives actually try to pass something that would benefit the American people and not the private bankers that are beyond all scrutiny and above the law.

DeMint said that the Fed has enjoyed a monopoly over money and credit in the United States since 1913 yet has never been transparent or accountable to Congress, while during that time the dollar has lost 95% of its purchasing power.

“The Federal Reserve will create and disburse trillions of dollars in response to our current financial crisis,” DeMint said. “Americans across the nation, regardless of their opinion on the bailout, want to know where the money has gone,” he added, referring to the Fed’s refusal to disclose where trillions in bailout funds has gone.

“Allowing the Fed to operate our nation’s monetary system in almost complete secrecy leads to abuse, inflation and a lower quality of life,” said DeMint.

A Reuters article about the Senate’s move to block the bill said that the Federal Reserve was “facing growing pressure as it tries to heal the ailing economy.”

In reality, the Federal Reserve has done nothing to “heal” the economy as unemployment outstrips expectations and the financial picture only looks bleaker every day. The private, run for profit Fed has taken trillions in “stimulus” funds and refused to even divulge where it has gone, even under threat of lawsuits file by Bloomberg.

Meanwhile, people like Ben Bernanke have committed financial terrorism by threatening an economic collapse if the Fed is allowed to be audited.

Any real audit of the Fed would of course create a giant roadblock for the Obama administration’s plans to launch a whole new program of looting and grand larceny in the guise of a second “stimulus” package.

“We should be planning on a contingency basis for a second round of stimulus,” Laura D’Andrea Tyson, a member of the panel advising President Barack Obama on tackling the economic crisis, said on Tuesday,”reports CNBC.

This is precisely why Senate authorities, bought and paid for by the private bankers that now own the United States, have blocked efforts to audit the Fed, because they know that the fallout will spell disaster for their place on the power peanut gallery and in turn end the ceaseless feasting at the trough of the battered, bruised and shaken-down American taxpayer.

Watch a clip of DeMint’s comments on the Senate floor yesterday.

by Aaron Turpen