“The Federal Reserve is not your friend,” writes Judy Shelton in The Weekly Standard . Its policies encourage “unjustified risks in pursuit of monetary gain,” give incentives for “speculative conniving instead of virtuous endeavor,” offers reasons to borrow beyond our means to repay. Friends don’t do that to friends.

The heart of the problem is the freedom that the Fed has to create money, which foments “a destabilizing fissure between the real economy and the precarious world of high finance.” Because money creation is “out of sync with productive economic growth, the link between honest effort and reward is damaged.”

Fed policy is skewed to favor certain kinds of economic activity: there is “an increasingly divisive tension between high-profit activities conducted at trading desks for big money-center banks and next-to-nothing returns offered to average savings account holders. The Fed’s aggressive liquidity injections are showing up as asset bubbles in sophisticated global financial markets even as domestic consumer price indices show only modest increases; this two-tier effect favors ‘whales’ who can wager millions on exotic credit instruments while stiffing modest savers with negative real returns.”

Shelton worries not only about the distortion of economic incentives, but about the social consequences. We might say, she worries about the consequences of Fed policies on the American soul. Patience, prudence and restraint don’t get rewarded. Can America remain productive without those virtues? Can America be virtuous if our economy undermines virtue?

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