Let's take a good hard look at the Federal Reserve

[truedelphi]

This video might help.
http://video.google.com/videoplay?docid=-7065177340464808778

A bit long - some 47 minutes. But it is not the product of any right wing blather.

Among things I would like to see - somebody laying out their definition of what the Federal Reserve should be. Starting with the fact that it should be a government entity and not a private corporation.

Remember, The Fed's main selling point at the time of its creation was that it would help stabilize the economy. Avoid bank panics. See to it that hyper inflation not become economic policy as usual.

I found it curious in poking around the internets yesterday that the economy's money supply was over stimulated during the Roaring Twenties to a troubling 62 %.

And right now we don't simply have hyper inflation happening here - we have it globally. And And right now it stands around 62 %.

You can hardly talk about the fed without talking about their non-protesting of the economic bubbles that have littered the economy for the last fifteen years. First we have the dot com bubble, then the real etate bubble.

or as a recent article in Harper's stated:
"A financial bubble is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression. Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences.

After the dust settled from the 1720 crash of the South Sea Bubble, for instance, British Parliament passed the Bubble Act to forbid “raising or pretending to raise a transferable stock.” For a century this law did much to prevent the formation of new speculative swellings.

Nowadays we barely pause between such bouts of insanity. The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble had fully deflated, a new mania began to take hold on the foundation of our long-standing American faith that the wide expansion of home ownership can produce social harmony and national economic well-being. Spurred by the actions of the Federal Reserve, financed by exotic credit derivatives and debt securitiztion, an already massive real estate sales-and-marketing program expanded to include the desperate issuance of mortgages to the poor and feckless, compounding their troubles and ours."

######

I think the only thing left out of those three paragraphs from Harper's is the need to point the finger at the media - they were and are all too happy to lap up whatever investment adviser from whatever bank has to say about how this "new economy" is not a bubble but a different type of economy than ever witnessed before - a market whose prices can "only go up and never go down."

Barnum would have to amend his statement that you can certainly fool many of the people again and again and again.

[arcadian]

1. The Fed is a central bank that's not a central bank.

It also a federal entity that's not a federal entity.

[razors edge]

2. If the American People ever allow the banks

to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers occupied. The issuing power of money should be taken from the bankers and restored to Congress and the people to whom it belongs. I sincerely believe the banking institutions having the issuing power of money are more dangerous to liberty than standing armies.


We are completely saddled and bridled, and the bank is so firmly mounted on us that we must go where they ill guide.


The dominion which the banking institutions have obtained over the minds of our citizens...must be broken, or it will break us.

Letter to James Monroe, January 1, 1815



The more things change...

[The Doctor.]

3. Kick for later.

[ihavenobias]

4. K & R, thanks for the posting this. I keep meaning to make a point to learn more about this topic

and this'll help toward that end.

[Zynx]

5. It isn't a problem of the Federal Reserve as an institution. It has to do with its appointments.

The economy has been much more stable on balance with stronger and more consistent growth since the Great Depression than in the 160 years preceding it. The problem is that Alan Greenspan led the Fed through a period in which he was far too cavalier with money supply. I urge people to take the long view on this subject and not simply look at the period of 1998-2007 which saw the creation and destruction of two massive asset bubbles.

[truedelphi]

6. Here's a thought

I am not just looking at the period of time from 1998 to 2007.

I am looking at the period of time between the FR's creation in 1913 and a major devastating point in the economy with runs on many banks in 1920.

And then a Great Depression occurring in 1929, a mere sixteen yrs after the Fed's inception, and lasting until we geared up and fought a major war.

We did have stability under the Federal Reserve from the period of 1945 until the late seventies.

But the same people at the Federal Reserve who wanted the war in Vietnam are the same people who did so well even as the nation as a whole finally had to come to terms for paying off the tremendous indebtedness, circa 1978 to 1983, that our nation acquired due to fighting that twenty years' worth of high tech battles in Vietnam.

The major recession of the late seventies and early eighties put a lot of mom and pop farms and businesses out of commission. Then we had the stock market fall in 1987. And a mere thirteen years later the dot com bubble burst. With the mortgage lending practices of 1999 to 2006 putting us in harm's way from the economic fallout we have been girding ourselves against since e late summer 2007.

If the Federal Reserve really was instituted in order to help avoid major recessions and depressions occurring every seven to thirteen years, why does it have such a lousy track record??

[Zynx]

8. The Fed as we currently know it was not really in place until after the Depression.

If you've taken a course on Money and Banking you would know this. For one thing, it's authority was very poorly understood by those tasked with its oversight. Monetary theory in those days was quite primitive.

Also, I would urge you to look at how many major Depressions occurred prior to the formation of the Federal Reserve compared to after it. 1873, 1893, and 1907 were all prior to the Federal Reserve. The entire period from 1873-1879 is sometimes looked at as a period of nearly continuous Depression. 1893-1898 was the worst recession prior to the Great Depression. 1907 was a crisis only averted due to the astute management of the crisis by JP Morgan, but it still hurt the economy badly. Those are just the major episodes.

The period from 1938-1973 was remarkably stable, indeed the most stable in the history of the country. The 1970s inflationary period was a combination of many many factors around the world, not just pertaining to poor monetary management by the Federal Reserve. Commodity prices from food to oil were driven up by factors well beyond the Fed's control. Housing was put under pressure by demographic trends. Global transfers of wealth due to high oil prices caused dramatic amounts of instability

The stock market crash of 1987 has nothing whatsoever to do with the Federal Reserve and it was also not a particularly major panic by historic standards. It was the largest one day decline in the stock market on record, but it had no lasting damage, nor was it caused by monetary inflation. The stock market recovered its highs just 16 months later. That was just classic Wall Street speculation driven to some extent by lax regulations coming from the Reagan Administration. The world of investment banking is one which the Fed has no control over.

As for recently, these bubbles have been Greenspan's fault, but in terms of economic dislocation only the housing bubble is actually worthy of historical note.


Now, as for your spurious claim that the Fed has not prevented major recessions and Depressions, by historical standards there have only been two major recessions since the Depression. These are 1973-75 and 1981-82 both of these were caused, to a great extent, by factors far outside the control of the Federal Reserve. People like to blame the Fed, but in truth the Fed, at least in the case of '81-82 solved the problem the markets alone would not have.

The banking system has certainly been far more stable since the modern Fed came into being in the aftermath of the Great Depression. There is no disputing that at all. Recessions have been milder and also less frequent and growth has been more consistent.

Your version of history simply does not match facts.

[hfojvt]

21. paying off the tremendous indebtedness?

The indebtedness prior to the Reagan tax cuts was nothing compared to the indebtedness after them. Clearly, we didn't have to pay anything off.

Small farms and businesses have been going out of business in good times and bad. They simply couldn't compete with larger farms and businesses. On the farm side, this has been 'helped' by government policy that was caught in a 'market ideology'. Instead of sending aid directly to the small farms, they instead paid subsidies on prices or used a CRP (conservation reserve program) to cut production (and things like ethanol, and high fructose corn syrup) and thus boost the price. Well a higher price naturally provides a larger benefit to the big farms and the corporate farms than it does to the small farms. It's a gain for society, if not for rural areas. For example if you compare Beadle County, SD with its large farms to Sauk County, Wisconsin with its smaller farms in 1987 (an agricultural census I studied while going to graduate school) Beadle has more acreage being farmed with less equipment than Sauk.

[defendandprotect]

16. Of course the problem is a private bank setting economic policy for the US . . . !!!

Yes --- we do have a problem with the FED as an "institution" --- it's a private bank.

What in the hell is a private bank doing setting economic policy for the nation?

And, yes, things do get worse when the private bank then has someone like Greenspan --

an advocate of Ayn Rand -- whose a corporatist Repug in charge.


Our basic problem is with the failures of capitalism which is a system which is highly

connected to patriarchy, organized patriarchal religion and which succeeded feudalism.


It's a ridiculous "King-of-the-Hill" system which is intended to move the nation's wealth

and assets from the many to the few. And, it succeeds mightily.


Unregulated capitalism is merely organized crime.

Again --- it is the Congress' job to regulate the economy -- we elect Congress to do that.


And, it should be the job of our TREASURY to print our money --- not a private bank which

charges us interest on it!


I'd also recommend to you Wm. Greider's book --- "Secrets of the Temple" . . . your

library will have it.






The economy has been much more stable on balance with stronger and more consistent growth since the Great Depression than in the 160 years preceding it. The problem is that Alan Greenspan led the Fed through a period in which he was far too cavalier with money supply. I urge people to take the long view on this subject and not simply look at the period of 1998-2007 which saw the creation and destruction of two massive asset bubbles.
"We fight, get beat, rise, and fight again."-General Nathanael

[The Backlash Cometh]

7. Glad to see someone thinking outside the box on this one.

Bookmarked for later viewing.

[defendandprotect]

9. Left wing/right wing -- whatever . . . the concept of the FED is wrong . . .

back later to actually look at the video ---

[Zynx]

10. What do you propose in its place?

I wish people would consider public policy before some knee-jerk ideology.

[defendandprotect]

14. The Congress, of course . . .!!!

The FED is setting political policy for the nation ---

our economy is made political when a private bank decides the economic future of the nation.

THIS IS A JOB THAT CONGRESS IS ELECTED TO DO --- !!!

Additionally --- and naturally -- THE TREASURY SHOULD RESUME PRINTING OUR MONEY . . .


NOT THE FED --- WHICH PRINTS IT AND CHARGES US INTEREST ON IT!!!



Personally, when I wish for something, it's usually that people would actually read
something --- try Wm. Greider's "Secrets of the Temple" --- your libary will have it!

[Zynx]

19. The Fed gives profits from its operations to the Treasury.

Also, with how inept Congress is on economic matters I would not want them setting policy. I would also shudder to think of the executive branch being in control either. Both of these concepts are far more frightening.

[defendandprotect]

22. Rather, the FED is bailing out investment banks with taxpayer dollars . . .

Did you happen to notice that --- ?


So you "shudder" to think of your elected representatives in control of our economy ---

but have no problem with private banks running our economy . . . ???


hmmm.....



And . . . "profits from the Fed" . . .

Must be a category in our budget I missed, somehow . . ???

[KingFish019]

24. So...

the economy is made political when a private bank sets monetary policy, but not when Congress sets it? You do realize House Reps are up for re-election every two years, and Senators every six?

[MGKrebs]

11. My question would be, what takes it's place?

I would think we want some sort of central control, otherwise we end up with a barter economy or more likely the same guys running things, just with different titles.

I hesitate to try to destroy something without the prospect of something better to put in place.

[truedelphi]

12. Initially, we could start off simply by having

The US Treasury printing the money without giving payment/interest to the private Federal Reserve.

But I share your concern that we need to avoid tipping our hats to a new revolution, and only getting fooled again.

[defendandprotect]

15. Let me suggest that you read something on the subject . . .

the internet has tons of information ---

and Wm. Greider wrote an excellent book --- "Secrets of the Temple" ---

your library will have it ----

[truedelphi]

17. If you read Greider,

You will see that he defends the Federal Reserve, but he stipulates he supports the Fed only as long as it does not get into hyper inflation mode. That is his stipulation.

His book was also written in the eighties, a good ten years before the collusion of the banking/financial institutions with Congress - and that collusion brought about the Banking Reform Act of 1999. Although I am not sure of what part the Federal Rserve played in it, it probably is safe to say that the same banking cliques that make up the Feds had a good deal to do the banks that lobbied for that Banking "Reform" act.

And if you read the OP, you will see that we have not only been playing inside a national hyper inflation mode, but also a global hyper inflation mode - with an over stimulation of the money supply to the tune of 62% above the needs of a stable economy. The abrupt ending of this hyper inflation is what is bringing the housing markets to a stand still.

And who was the Rah rah boy for the housing market boom? I seem to remember - correct me if I am wrong, that none other than Ferd Reserve Cahuirman Alan Greenspan. He was really quite was koo koo for cocoa sub prime markets (And vanilla sub prime markets, and strawberry too!)

Curious fact, the over stimulus of teh American economy to the tune of 62 % was the Exact Amount that historians claim for the Roaring Twenties.

[defendandprotect]

18. That's untrue . . . Greider certainly doesn't defend the Fed and suggests

that it is a sham on the American public ---

His book was written some time ago, however there is nothing that changes the overall concept
which he objects to.

Again --- capitalism, itself, is a ridiculous "King-of-the-Hill" system which is intended to
move the nation's assets --- wealth, resources --- from the many to the few.

Unregulated capitalism is merely organized crime ---
and our problems are largely caused by DE-REGULATION of corporations --

And, again -- we need Congress to assume these responsibilities ---
that's what they're elected to do --

[hfojvt]

20. the capitalism bashing is a little too glib

When did the many ever have the nation's assets? Schumpeter made an excellent point when he said our capitalism has been production FOR the masses. There have always been rich and poor, but in America it is the majority that gets stuff. Stuff like their own cars, like air conditioning, like phones, TVs, DVDs, Ipods, high speed internet, etc., etc. The majority lives pretty well here, although Europe does a much better job of creating more social wealth. It is not capitalism as much as it is Reaganomics that has made things much more advantageous for the rich.

[truedelphi]

23. I read Greider so long ago that I don't remember all that much

And various synopsis of his book on the web suggest what I wrote in my post. I will see if the library has the book, or will order for me.

Here is a very interesting, very recent statement, (07/15,) from Sen Bunning regarding our current economic woes in relationship to the Federal Reserve

It can be found at:
http://tinyurl.com/5p3hj5

If the tinyurl does not work, here is the long form
http://bunning.senate.gov/public/index.cfm?FuseAction=NewsCenter.NewsReleases&ContentRecord_id=2753fd62-c45e-4a40-5ca8-66fa83d52a00

Two of the key paragraphs:
First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money in the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans.

Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go. As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount.

####

He goes on to rail against the planned actions involving Fannie Mae And Freddie Mac.

[slipslidingaway]

13. K&R n/t