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Wednesday, April 9, 2008

The Fed Should Be Nationalized

Further to one's April 8th post on the Fed, one notes that Wikipedia states that: "The system [i.e., the Federal Reserve System, established by the Federal Reserve Act of 1913, which stipulates that its chairman and board of governors are to be selected by the president] is organized much like private corporations so that it can generate revenue independently without the need for congress [i.e., congressional authorization]." The Fed itself says in its Frequently Asked Questions [FAQ] document: "It [i.e., the Federal Reserve System] is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, [and] it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms." Question--if the Fed isn't funded by Congress, who does fund it? But more importantly, the fact that the Fed, by its own admission, is not directly and immediately accountable in its day-to-day operations to the executive branch or the legislative branch or the public electorate makes it an intrinsically anti-democratic institution. Its power to raise or lower interest rates has a profound effect on the economy and the lives of the wage-earners who comprise it, yet when was the last time a collective of economically savvy wage-earners was asked what its view was on interest rates?

The Fed goes on to say, in the FAQ document, that the nation's currency must be "elastic." It defines "elastic currency" as: "Currency that can, by the actions of the central monetary authority [i.e., the Fed itself], expand or contract in amounts warranted by economic conditions." A decision to expand the money supply by printing more currency or to shrink it by taking currency out of circulation has an
enormous effect on the overall economy. The CCTV show one watched the other night quoted a banker as saying: "Give me control over a nation's money supply, and I don't care what its laws are."

The Fed's FAQ document goes on to say: "It [i.e., the Federal Reserve System] is not 'owned' by anyone . . . . [I]t is an independent entity within the government, having both public purposes and private aspects." The Fed well knows who "owns" the system, that is to say the country. A show on PBS the other night about health care stated that the top 1 percent of the American population possesses 38 percent of the nation's wealth. And the crucial question of the proportion of "public purposes" to "private aspects" is left in the dark. Not being directly and immediately accountable to the president, congress or the public in its day-to-day functioning, the Fed has no reason to be transparent in its deliberations or decision-making protocols. Secrecy is often the enemy of democracy. The recent bailout of Bear
Stearns was brokered by the Fed with no opportunity for public input. Could it be that "public purposes," the safeguarding and promotion of the public good, predominate over the "private aspects," i.e., the self-interest of the bankers who run the Fed and their constituencies? Or do the "private aspects" predominate, say by a ratio of 90 to 10? With the current system, we'll never know. In today's NYTimes, Michael Grynbaum (p. C4) quotes an expert on Fed policy saying: "It's a club, and the members of the club tend to be supportive of a club, and particularly of the chairman. It's not popular to dissent." And they deliberate behind closed doors. Why isn't there a Federal Reserve Record, comparable to the Congressional Record?

The Fed is described as a "quasi-public" entity. It's important to realize that that which is "quasi-public" is also "quasi-private." Which ideology predominates during the Fed's deliberations, the public element or the private? It would take a credulous person indeed to imagine a roomful of bankers abandoning the ideology of self-interest and self-aggrandizement that defines the essence of a capitalist banker as they decided on economic matters that had a bearing on their personal assets and class affiliation.

Conclusion--the Federal Reserve System is an anti-democratic institution with near totalitarian control over the nation's banking and economic policies. It should be abolished as soon as possible and replaced by a national banking commission characterized by transparent protocols and public deliberations. An institution that would be immediately and directly accountable to congress and wage-earner collectives, the new People's Reserve System would be explicitly dedicated to serving the public interest.

And so the statement, posted here on April 8th, by one's local community-access cable TV channel that "The Fed is a private corporation" was inaccurate, and I am grateful to the careful reader who led me to look into this matter. The Fed is a "quasi-private" entity. But since the extent to which the public interest predominates in its operations cannot be known, it may in effect be a private corporation.

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