[Editor's Note: The following post is by TDV Managing Editor, Redmond Weissenberger, and is excerpted from the October edition of the TDV Issue. Subscribe here for more articles like this.]

Lest some dark blemish emerges from Janet Yellen’s record, it appears she will be the next Chairwoman of the Federal Reserve. Wall Street and the big banks are cheering on the decision as Yellen will likely continue with her predecessor’s quantitative easing-to-infinity-and-beyond policy. That means more money printing, more economic distortion, more demand for gold, and a greater bust waiting for all of us just around the bend.

The idea that anyone would be chosen who feels differently on the efficacy of central banking is laughable. Yellen is a proud member of the university-industrial complex that just so happens to have its members in higher echelons of power. The mindset of these government-supported academics is the same across the board: the state is a necessary part of life and the free market is in dire need of bureaucratic regulation. Ben Bernanke will be leaving the Fed thinking he saved the global economy from collapse with his faithful money printer. When Yellen takes the reins, she will be inheriting an economy desperately addicted to easy money and credit. If she thinks that her smarts alone can find a pain-free way out of the mess Bernanke created, she has all the hubris Hayek was referring to when he talked about the fatal conceit.

So with a new Fed Chairwoman soon to be chosen, the timing couldn’t be better considering America’s poor domestic situation. Washington is knee-deep in the middle of a partial shutdown. The government is headed toward its statutory debt limit. If the cap is not heightened to some arbitrary number, there is worry Uncle Sam will skip his creditors.

We would all be so lucky.

Congress will eventually cave and lift the debt ceiling, giving the green light for more endless spending and borrowing. The politicians in Washington will do everything they can to maintain “American exceptionalism” and keep their credit rating. The notion of default is so poisonous to their ears, they will do everything possible to avoid it. 

Except for the inconvenient fact that the U.S. government has already defaulted on its obligations, or at least has done so twice in the last century. In the midst of the Depression, Franklin Roosevelt ordered the confiscation of gold and unilaterally devalued the currency in relation to the metal. The people were thus stripped of a great deal of purchasing power. Then in 1971, Nixon cut all ties between the dollar and gold. He effectively told creditors who thought they could redeem their dollars for something of concrete value to take a hike.

The nomination of Yellen to head the Fed guarantees Washington will continue to float in a large sea of debt. She will make sure to squeeze the last bit of value out of the dollar as she keeps the money printer on high to keep the juiced-up economy from beginning its long comedown. Default is already in the cards somewhere in the near future. And it won’t be Uncle Sam’s first time.

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