Essay: A Secret Danger: Why the Federal Reserve System is Harmful

Updated: Feb 8

To centralize all power in one source can be both a comfort and a distress; a comfort on one hand because that centralization could be in a good thing, a distress on the other hand because that centralization could be in a bad thing. Over the course of American history, some groups have tried to give more power to the Federal Government while others advocated for less. Recent debates have come to rise on this issue with more refined discussions on the government’s control of the economy following the Recession of 2009. From glory to malfeasance, the Federal Reserve has been accused on all.

The Federal Reserve Bank (or Federal Reserve System) was the early twentieth-century government and progressive’s initiative to 1) replace the Bank of the United States, 2) control the currency, and 3) take power away from the powerful private banks of New York (Schweikart and Allen 521). One of the hidden impetus for such a governmental agency was the disdain its founders had for J.P. Morgan and company in their ability to bail out the Federal Government ( and Sowell). It was concluded that never again should a single man or group of men, running privately held companies, have such financial clout. Thus, on Jekyll Island, a proposal was created for the Federal Reserve System and its individual banks (Schweikart and Allen 522). Since then, not only has the “Fed” (as it became known) provided economic and financial instability to the nation, it is also quickly becoming one of the most dangerous and carelessly used weapons of the federal government.

The Federal Reserve System was a harmful initiative and remains as such to this day. It has created inflation in the United States, it has created an economic liability, and it has not even accomplished the initial goals its founders set for it to do. Therefore, the Federal Reserve System is a disease and cancer of the United States and world economy ( and Sowell).

There is much more than sufficient propaganda provided by modern-day progressives and the government itself to promote adulation for the Fed. Seldom can you find individuals who will openly oppose the Fed and see it for what it really is: a corrupt institution. Due to its significance, it is important to understand the Fed’s role in inflation. Before the Federal Reserve was established, the U.S. had been on the post-civil war gold-standard since 1879 and the economy was soaring (Woods 74). As noted by economist Thomas Sowell, being on the gold standard does not eliminate inflation or deflation, but rather it keeps those things out of the control of the government (Sowell 355). The money supply can still change on the gold-standard because the amount of known gold on earth changes, but this change is not up to one group of people. After the Fed was established, however, the United States abolished the gold-standard in sort order. This became a problem because the government could determine the amount of currency in the system, thereby allowing for massive inflation and deflation.

More striking than this development is the fact that the creators of the bank wanted it to happen. According to Thomas E. Woods, an economist, “[the Fed was] designed to give the United States a ‘flexible’ currency that can be inflated in order to suit the needs of government and financial institutions.” (Woods 74). The utility of this was in a fear of the gold-standard. When the economy boomed, as it had been in the years leading up to the Fed’s creation, the money supply would stay the same. This meant that money was now worth more than before, thus creating a problem wherein someone would now owe more debt to another than they had previously (Sowell 346). Although this seems a minor problem (as it was) and though it has some simple solutions (as it had), it was enough of an issue to push the public opinion against the gold-standard. So now, since the creation of the Fed, the dollar has lost 95% of its value (Woods 74). Furthermore, there has never been an economic crash under the gold standard, but there has been under paper money and all hyper-inflation happening under a paper-money system (Woods 80).

After the removal of the gold standard and the creation of the Fed, politicians would merely print as much money as they could get away with politically to win reelection ( and Sowell). In this way, politicians and the government were in fact taxing the people in a hidden way; for that is all that inflation is. In theory, the Fed was supposed to oppose the gold-standard in its ability to be ever-expanding and decreasing as needed. As Woodrow Wilson said, “[the Federal Reseve] provides a currency which expands when it is needed and contracts when it is not needed” (Sowell 352). Contrary to this idea, the Fed has only provided a currency with constant expansion and no contraction. In summary, then, the Federal Reserve has been the nation’s biggest and only vulnerability when it comes to inflation.

In any case, aside from the problem of inflation which the Fed creates, it also causes many reasons to worry due to the ability it has to centralize economic power in the government. As noted above, this causes a liability of unparalleled magnitude. As is plainly and eloquently noted by Thomas E. Woods, “... the fed, supposedly the source of economic stability, is giving us instability. This alleged guardian of the dollar has actually been lowering the dollar’s value. And this institution, supposedly the great bulwark of capitalism, is in fact a central-planning agency at odds with the basic principles of a free market” (Woods 73-4). Putting all power in one institution of man has gone badly throughout history and the same is the case with the Fed. It has already been discussed how the Fed lacked any competence to manage the money supply of the nation and failed miserably worse than the all too imperfect gold-standard, but this is subordinate to the centralization liabilities it creates. Bank failures were supposed to decrease and eventually disappear under the Fed, but the largest bank failure happened after the Fed was established (Sowell 362). More frightening is the fact that it is not now in the hands of many individuals to determine the economy as much as it is in the hands of few individuals. Before the Fed, individual banks could individually collapse and they would be balanced out by other banks succeeding; after the Fed, if one bank collapsed, the whole system had a grave potential to.

It does not take economic or political knowledge to easily and logically conclude that it is better to have a system wherein a colossal amount of mistakes must be made for dilapidation instead of one mistake. However, it seems that and is provable that the Federal Reserve was not made nor is run on such easy and logical common sense. But let us, in being fair, take a step back and look at what the Fed wished to accomplish. These things, put into three categories were, as stated above, to 1) replace the Bank of the United States, 2) control the currency, and 3) take power away from the powerful private banks of New York. Although these goals are not the best, they are at least decent. However, decent as they may be, they were never achieved. The Fed has, in magnificently horrid ways, failed to control the currency; they have not replaced or even replicated the BUS of Alexander Hamilton (as unproductive an institution as that was); and, although they have, “decentralized” power in the New York Banks, they have not decentralized common power at all but have put as much as can be grabbed into the government. Therefore, not only has the Fed failed to help the economy by creating inflation and creating undue liabilities, but it has also failed to even accomplish its own goals.

Of course, though, this may not seem so bad. After all, the Founders of The United States created a country that has not lived up to its goals in its entirety. The difference lies in that the United States has and continues to move towards accomplishing its goals and bettering the lives of its citizens and the world, while, on the other hand, the Fed continues to move away from its goals, and, as stated aptly by Thomas Sowell, “[the Fed] never made things better” ( and Sowell). Additionally, the founders of the U.S. admitted that the U.S. did not start out as perfect and had to move towards being better and better; the founders of the Fed and the advocates thereof have always maintained that the Fed was absolutely wonderful and was always doing its job. This is an overt Orwellian lie and should be confronted as such.

In the end, the Federal Reserve System does nothing good for the United States economy because it allows massive inflation, it is a liability, and it does not even accomplish its own lack-luster goals while the proponents therein promote nonsensical trash. The vast amount of power bestowed on the Fed and its dangerous policies allow for more political and economic leverage by politicians than the American voter is even aware of. The destruction of the money supply along with the economic liability the Federal Reserve System creates is unasked for and must be stopped. A political initiative started with progressives in the early twentieth-century must be stopped by the new progressives of this era who are looking for a better and more prosperous America. The secret danger of the Federal Reserve System will either be exposed or it will fall in on itself and all of us.

Works Cited, and Thomas Sowell. “Thomas Sowell: Federal Reserve a ‘Cancer.’” YouTube, uploaded by, 12 Jan. 2011,

Schweikart, Larry, and Michael Allen. A Patriot’s History of the United States: From Columbus’s Great Discovery to America’s Age of Entitlement, Revised Edition. 10th Revised ed., Sentinel, 2014.

Sowell, Thomas. Basic Economics. 5th ed., Basic Books, 2014.

Woods, Thomas. Rollback: Repealing Big Government Before the Coming Fiscal Collapse. First Edition, Regnery Publishing, 2011.

Have any thoughts? Any other ideas? I would encourage you to add them to the comments section below by signing up for FREE.