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My Father and the Federal Reserve Bank

Due to time restraints this treatment of the Federal Reserve Bank and the effects it had on my Father's business will be substantially shorter than I would like it to be. Hopefully, at some future date I can take up the topic again in a little more detail.

During the early to mid-1970s my Father, who had successfully managed a number of "dime stores" from the store management level to the entire west coast of the U.S., went into the retail business for himself and built a successful and profitable chain of three stores in Washington state. Two of these stores were in relatively small towns – Forks and Twisp, Washington – that relied on logging and the lumber industry.

For a time business boomed. The businesses grew. Our standard of living increased and we lived a very comfortable life. All of this changed in the period of the late 1970s to early 1980s. Inflation began to increase dramatically, and the Federal Reserve Bank, led by Chairman Paul Volcker, hiked interest to unprecedented levels in an effort to lower inflation.

Increased interest rates had multiple negative effects on my Father's businesses. First off, increased interest rates ground real estate and the construction industry to a halt. This, in turn, negatively effected the logging industry and lumber mills that were the economic backbone of where the businesses were located.

Even worse, my Father had taken out variable interest rate loans. Initially, these loans had very favorable interest rates. However, with the Federal Reserve's policy of high interest rates, many businesses and individuals were unable to pay their loans. This was not the case with my Father's businesses. However, due to deteriorating economic conditions, the bank called his loans and forced him into bankruptcy.

The mill in Twisp, Washington was eventually closed and then taken down to the bare ground. Forks, Washington is now more well-known for the Twilight vampires that for its lumber industry.

There is no doubt in my mind that my Father made some mistakes. However, I think the business could have survived if not for the extremely high interest rate environment. While extremely high interest rates were something he might have planned for it was, at the same time, something that had never occurred in his lifetime. Looking back, it also might have been better to have had the stores in more economically diverse areas so that a downturn in one sector of the economy would not have had such a large effect on the business. It may also have been better to have expanded more slowly in order to have more cash reserves to sustain the business through an economic downturn. Hindsight, of course, is 20-20. 

On the other hand, the policies of the Federal Reserve Bank were devastating economically and altered the future of whole industries and changed the futures of many areas and individuals. The FED is not the free market. It is a banking cartel that attempts to manipulate the free market for the benefit of its members and the politicians who serve at their pleasure. Over time, this constant economic manipulation and mutual covering between the bankers and the politicians creates a climate of economic instability and less opportunity for small businessmen, like my Father, to participate in the economy and prosper.

The Federal Reserve and political "leadership" in Washington, D.C. make decisions that have real consequences in the lives of real people. In the case of my Father, the consequences were negative and long-lasting. He lost the business that he spent a decade building. He ended up spending the better part of his remaining years paying debts and other obligations related to the failure of the business. He worked many long, difficult days on the road as a sales representative for various companies to support his family. Against all of this he bore up pretty well and only rarely fell into self-pity.

Unfortunately, to some degree, he was a victim to an economic system that was not designed to further his interests, but the interests of others. I have tried to learn lessons from his experience. For instance, when I have taken out mortgages on homes, I always choose a fixed interest loan rather than a variable rate. I saw up close what a variable interest loan could do, and it wasn't pretty. From my Father and the business I also gained a basic understanding of how a business is run, profit margins, cash flow, advertising, choosing a location, etc. They were all valuable lessons. But, the most important lesson, only realized years later, is that the free market is no longer free. Instead, the market is manipulated, and the chief manipulator is the Federal Reserve Bank.
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