FW: THE LIGHTHOUSE: April 3, 2001from THE LIGHTHOUSE VOL. 3, ISSUE 13 April
THE FED'S Y2K RECESSION OF 2001
Investors puzzled by the recent stock-market fall and economic slowdown
should cast their eyes at the Federal Reserve's bungled Y2K policies.
According to Paul Craig Roberts, former undersecretary of the U.S. Treasury
and research fellow at The Independent Institute, current economic
turbulence can be traced directly to the Fed's response to anticipated
public fears of the so-called millennium bug.
"The Federal Reserve, thinking that Americans would withdraw a tremendous
amount of cash to protect themselves against computer crashes, added excess
liquidity during 1999," Roberts writes in a recent syndicated column. "But
Americans did not hoard cash. Consequently, the liquidity found its way into
"With the smooth transition to the year 2000," Roberts continues, "the Fed
realized that it had made a policy mistake by pumping up the monetary base
to inflationary levels. Reacting to its own prior miscalculation, the Fed
withdrew the excess liquidity. The result was higher interest rates and
lower stock prices."
Will this cause a recession in 2001? Roberts thinks so.
In addition to the economic hardships caused by the Fed's monetary mischief,
Americans have had to suffer from bad policies passed in the aftermath of
Fed-caused recessions, and their fallout, says Roberts. The Great Depression
was triggered by the Fed allowing the money supply to collapse by one-third.
The ensuing big-government programs of the New Deal "slowly altered the
American character, accustoming people to trade off freedom for security,
much like free men after the fall of Rome became serfs in exchange for
military protection," writes Roberts.
All the more reason, then, for Americans who care deeply about freedom and
self-responsibility to think seriously about alternatives to the Federal
See Paul Craig Roberts's op-ed, "Fed Mistake Transformed the United States,"
For a fascinating debate on how best to replace the Federal Reserve
System -- with fractional-reserve free banking, or with 100%-reserve
banking -- see "Should We Let Banks Create Money?" by George Selgin, at
http://www.independent.org/tii/lighthouse/LHLink3-13-6.html and "Banks
Cannot Create Money" by Jorg Guido Hulsmann, at
For information on private deposit protection, see "Regulatory Moral Hazard:
The Real Moral Hazard in Federal Deposit Insurance" by Bert Ely, THE
INDEPENDENT REVIEW (Fall 1999), at
For more about Federal Reserve blunders, see Roger Garrison's review essay,
"The Great Depression Revisited," THE INDEPENDENT REVIEW (Spring 1999) at
http://www.independent.org/tii/lighthouse/LHLink3-13-10.html and "Is
Macroeconomics Believable?" by Ben Bolch in THE INDEPENDENT REVIEW (Spring
1998), at http://www.independent.org/tii/lighthouse/LHLink3-13-11.html.
For a detailed critique of central banking, see MONEY AND THE NATION STATE
edited by Kevin Dowd and Richard H. Timberlake, at
This archive was generated by hypermail 2b30 : Mon May 28 2001 - 09:59:44 MDT