More ammuniton for Fed skeptics

23 01 2012

It used to take a special kind of kook to criticize the Federal Reserve System (or more generally, the very concept of central banking). Mainstream economists looked down on them; they were derided as tinfoil hatters or conspiracy theorists when they were acknowledged at all.

A central banking system might use its political influence to strangle mainstreet and enrich its Wall Street cronies? Poppycock!

No matter that their criticisms of the Federal Reserve–that it completely failed in its stated objectives while enabling both wanton government spending and empowering special interests–have been borne out by history time and time again.

The only thing stable about the dollar is its constant devaluation

But the most recent round of global economic turmoil has called more attention to Fed practices, and the unfolding Eurozone trainwreck certainly hasn’t bolstered skeptics’ faith in central banking. A brief but illuminating post at Zero Hedge provides critics with yet another round of anti-Fed ammo: this chart.

Larger, zoomable chart here

The chart shows banking crises from 1810 to 2010 as a percentage of world GDP “in crisis.” Note that the frequency of the crises remained relatively unchanged after the establishment of the Fed in 1913–but the intensity (as shown by the percentage of world GDP in crisis) increased.


Of course, I can think of a couple of caveats off the top of my head. For one, statistics have improved dramatically since the 19th century; I am not sure how sound GDP figures were gathered for any time before the 1930s, when the concept of GDP was developed.

More importantly, though, the map measures crises in terms of percentage of world GDP; it stands to reason that the percentage “in crisis” at any given moment is liable to increase as global trade ties the economic welfare of distant countries ever closer together.

Then again, nearly all countries represented here have modern central banks, which were supposed to fix the problem of crises in the first place.




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