How Long Before the Fed's Days Are Numbered?

It's no stretch to say the Federal Reserve is garnering a lot of attention these days.

On Wall Street, there's a big debate over whether the Fed's next big move will come too soon or too late. In Washington, the Administration is promoting a plan to give the central bank new powers to oversee systemic risks. Over in the House of Representatives, maverick Republican Ron Paul has gathered more than 245 co-sponsors for a bill requiring an audit of the Fed. In the media, there are questions about whether President Obama will allow Fed Chairman Ben Bernanke to keep his job when his term ends in January. And finally, some commentators are wondering whether this allegedly autonomous institution will retain its independence in a post-crisis world.

But few seem to be asking what I believe is the key question: how long before the Fed's days are numbered?

Before you dismiss my words as a rant, hear me out. Why, for example, is the power to commit substantial resources on taxpayers' behalf, to influence many of the most important commitments and relationships of businesses, individuals, and governments, and to initiate economic and regulatory policies with far-reaching consequences, in the hands of unelected officials with unexceptional abilities and no real accountability?

And even assuming the current arrangement has been the default choice up until now, does that mean things are destined to stay that way? The financial crisis has forced many people to rethink all sorts of assumptions, structures, and approaches. Against this backdrop, there are many reasons to believe that the broader question of why we have a Federal Reserve at all will gain traction in the period ahead.

For one thing, we have a group of individuals, entrusted with the job of reading the economic tea leaves and enacting policies in response, which not only failed to anticipate the worst financial crisis this century, but has yet to make a usefully accurate forecast since the disaster started. Remember, Chairman Bernanke is the man who maintained that the subprime meltdown would remain "contained." He also said in March that he could see the now elusive "green shoots" sprouting throughout the economy.

And once the crisis began to unfold in earnest, what was the response of those charged with looking after our nation's economic and financial interests? Cynics might describe it as Keystone Cops-like chaos. On the one hand, we've had a reactive whirlwind of aggressive monetary measures that, while creating the semblance of stability, have resolved little and stymied desperately-needed restructuring. Worse still, a broad swath of corporate America is now dependent on government support for its continued existence.

Add that to the alphabet soup of Fed-devised bailouts and rescue plans, nearly all of which seem to have been designed to reward failure, subsidize mostly insolvent but politically powerful businesses, and obscure the reality of how bad things are, and you have a system that could be characterized as even more dysfunctional than it was before the bubble burst. While it might seem like tranquility, it is more likely the calm before the (next) storm.

Then there is all the damage the Federal Reserve caused before now. Most of those who've analyzed the facts and thought about how we got this point -- I don't mean the clowns on Wall Street or the commentators spouting nonsense from both sides of the aisle -- lay a great deal of the blame on the bubble-blowing policies initiated during the Greenspan era.

And if you want to go back even further, ask yourself how is it that an institution charged with maintaining stability has overseen so many crises through the years and allowed our nation's currency to lose more than 95 percent of its purchasing power since the Fed's creation in 1913?

America's central bank hasn't just failed in its economic mission. It's track record as a regulator also leaves a lot to be desired. Among the many questions people should -- and will -- be asking is: how come the Fed was ignorant of and did little to rein in the leverage and lending misadventures of America's banks, many of which have long had Federal Reserve examiners ensconced in their offices? Moreover, how is it that an institution that should have known about the intricacies of derivatives was so oblivious to the threats posed by these "weapons of financial mass destruction"?

The truth is, aside from those periods when conditions and markets have set out a relatively easy path for central bankers to follow, the Federal Reserve has not lived up to its mission or its promise.

Pretty soon, a growing number of people are going to be wondering why we need this institution at all.

Comments

[ChadO]

You know I bet a bunch of Dems are setting out there right now drinking some box wine and thinking, when is Obama going to break the machine?

Obama would be torn down so fast if he did the following:
1-Cared about poor people and letting them keep the very little they have by not letting their money supply be deluded.
2-End The War.
3-Give Mexican immigrants a right & faster way to become citizens. So they can hold their head up high with the pride that they made this choice to be American the right way. We had Ellis Island why can't we have Ellis River.

[Billy Hell]

It's extremely rare and refreshing to find someone publicly challenging the existence of Federal Reserve. Thank you Michael Panzner.

Digging into the formation of the Fed and a bit of history into the ownership of the Bank of England is enlightening. The Rothschild family dynasty sure has a lot to answer for.

[gbrooks]

Agreed Billy.

I just became a fan of Panzner's.

"Give me control of a nation's money
and I care not who makes the laws."

--Mayer Rothschild

[FederalReserveSystems]

Perhaps we need a congress that can get rid of these criminal legislative acts....

All of this criminal activity is added on top of the ORIGINAL criminal act.....Wh­ich I consider treason, I believe that Congressman McFadden was right when he said "This is the biggest act of treason Congress has ever been involved in."
http://home.hiwaay.net/~becraft/mcfadden.html

Further it appears that the Federal Reserve System was designed to be a more "perfect" economic system originally. Then, when reality set in the "Federal Reserve System" instead of increasing the money supply and encouraging others to save and earn - actively increased spending more & more which is the very opposite effect.

By increasing spending and encouraging the population to spend more & more, they in turn devalued the currency as the more they spend the more the inflation rises. So they "take the tax back" from everyone else, while spending speeds up, meaning there is just no way out of the bubble.

Ron Paul was right that the flux nature of the Federal Reserve is the real concern...

Passing the Federal Reserve and preceding "Central Bank Cartel" amendments was indeed just that. It was the ushering in of an archaic, dead, phased out slave model that no one wants anymore...­.
And it's all because of an international group of bankers. The Fed appears to be completely illegal. It's a shame most of the media has never talked about it in their 100 plus years....

[profreedom]

The first step to ending the Federal Reserve is to support an audit. Hopefully then the average person will finally be able to understand what it has done to the US economy. Tell your senator to become a cosponsor of S 604.

[thrashertm]

The Fed is at the center of this financial crisis, has given out trillions to its cronies, and thoroughly deserves to be audited. Support HR 1207!

Furthermore, why do we tolerate the Fed when they have failed in their primary purpose - to preserve the value of the dollar? As the article commented, the dollar has lost 95% of its value since 1913. We need to take away their printing press.

[ironmanjakarta]

Actually the Federal Reserves true purpose, according to the Federal Reserve Act, was:

“...to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

google: The Federal Reserve sets the nation's monetary policy to promote

That's why they think it's ok to print so much money. Their purpose isn't to preserve the value of the dollar, just to maintain stable prices, etc..

[Glacial]

But... they haven't done that. Try comparing the price of just about anything today with its equivalent 80, or 50, or even 30 years ago!

For example, a gallon of gas in 1959 cost between 15 and 25 cents, a loaf of bread was 20 cents, a postage stamp was 4 cents...

[Mikeikon]

Stable prices is the same exact thing as the value of the dollar. The more money you print, the higher prices become because there is more money chasing the same number of goods.

[Mikeikon]

Increase in the money supply = Inflation.

[october2009]

Getting rid of the destructive Fed Bank is necessary however we need to replace it with NOTHING.

We've got to allow the market to set interest rates. We can't have a group of bankers or politicians have a monopoly over our money.

We need to have the right to choose our money.

[Antifascist-08]

October

You have a rather naive concept of money. Frankly, anyone who tells me the "market " should set anything is just out of touch.

Hello, there is no "market." The "market" is just a bunch of big time crooks who decide what they want to offer the rest of us. if you think that the "market" is a cure for anything, you are badly mistaken. Where we are now is the result of the "market" at work.

The "market" is also not the answer for anything that is socially relevant. The "market" is a mythical flawed economic principle that appeals mostly to people who haven't done their homework and like simplistic answers to things. It was also not what the founding fathers had in mind.

[Mikeikon]

The market is how we became the wealthiest nation on Earth, and how countless other nations have pulled themselves out of poverty. Economics is all about the ability of free markets to increase productivity. The market is not "a bunch of big time crooks"--it is YOU and ME. It is everyone who chooses to trade his labor or his property rather than be self-sustaining.

The market is what follows from the principles of life, liberty, and property, and it is most definitely what the founders had in mind.

[ucjb]

If you don't want to audit the FED, can I borrow your check book?

[althusius]

According to Matt Taibbi in Rolling Stone, "This is the world we are living in now...It's a gangster state, running on gangster economics.­.." Support HR 1207 to audit the Fed.

[Henry]

I've read that after the end of ww2 that the occupation forces in Japan and Germany laid down the plans for central banks that were of the architecture of the federal reserve of the USA. You can bet your boots that in the country of Iraq there has been laid a central bank that has the architecture of the federal reserve. Globalism need and architecture for control of banking on a uniform basis and an international control that crosses national differences with little resistance. When you realize the large financial goals of free trade you'll see that the fed is as integral part of the goal as is the military. The fed is fascist by nature and of necessity. There is no such thing as military dominance of the world, however there is such a thing as financial dominance of the world.

[joebhed]

Yes, of course the FED's days are numbered.
But who is working on the exit strategy?

It seems difficult to come right out and say what is REALLY wrong with the FED.
Two things .
1. They have FAILED in their mission, and they have failed miserably.
We approach the abyss of the second,(po­st-Ten-Tri­llion-reco­very) phase of financial armageddon. There is not enough debt-money in the system to make the debt-service payments on existing debt-monies, and NOBODY wants any more debts.
2. The role of the FED in CREATING the nation's money supply is properly a role of the government of the sovereign people of this country.

In 1933, almost FOUR YEARS after the 1929 Crash, some of the most best known and capable economists in the country prepared a Plan for dealing with the need for a stable "means of exchange" to promote economic stability, and to end these BOOM ! - bust business cycles.

The Chicago Plan for Monetary Reform recognized the proper role of government in creating the nation's money WITHOUT CREATING DEBTS, and called for banks to operate on the full-reserve system.

The debt-money system is broke and insolvent.
Look it up.
http://www.financialsense.com/fsu/editorials/2005/1212b.html

It's time to give debt-free money a try.
Read Milton Friedman's "Fiscal and Monetary Framework for Economic Stability".
It's about the separation of the monetary powers BETWEEN government and bankers.

[Henry]

Joe,
The full reserve system does not allow for growth in money supply. With no increase permitted to money supply there would be no ability for loans. Does the idea of paying 100% down on a car or home purchase appeal to the people of the country? We've already been there and we have already evolved passed those dark ages.

[Jon Spurgfin]

I am so glad that we 'evolved' past those dark ages! What we have 'evolved' to is great! - I think we can all agree on that!

Why do we think that giving someone (the Fed) the ability to create money out of thin air and distribute it to whomever they choose is a good evolution? I must admit - It is good if you have that power. I don't - therefore I am for fair and sound money.

The notion that you would have to pay 100% down on a car or home purchase is stupid. You can still get a loan. You just have to get it from someone who has the assets to back it.

[IvanKaramasov]

I agree with Jon. Henry you are just plain wrong on the idea that loans do not exist in an economy that doesn't have an ever expanding fiat money supply. We didn't have such a system until less than a century ago and there were plenty of loans issued before that. The difference is that the rate that a loan must be paid back is determined by the market. Under the current system real value must be taken from the economy at large (including you and me) and redistributed to those with special privilege at artificially low rates. When rates are determined by the market and not artificially lowered then if too many people borrow too much (i.e. the situation that lead to the current crisis) then the rates will in turn go up causing those who shouldn't be borrowing not to borrow so much (i.e. what people are saying would have prevented the current crisis). It is truly amazing how little the average American understands about the most basic economic principles. It is as if economically speaking most people still believe in a flat earth even after we've observed it from space. Keynesian economists would lead us to believe that despite the fact that the earth appears to be round when viewed from every angle it is actually flat and we are simply too stupid to understand.

[Sean 6399]

Money for loans should come from the deposits of savers in non-demand accounts. By non-demand accounts I mean things like certificates of deposit, where the depositor does not have immediate access to their deposit. The bank can take these kinds of funds and use them to issue loans.

Fractional reserve banking is nothing more than legalized fraud.

[Prognosis Boom]

There would still be the ability for loans, it couldn't be fiat money though. It's unsustainable to continue to decrease the required amount of capital on hand. The idea of a banker with no accountability loaning out money funded by unwitting participants for a profit is unappealing to me. Of course, I'm not that banker.

You may think you have x dollars in your bank account, but if you're last in line to get your money you may only have 0.10*x.

Also, paying 100% on a car or home would be a lot more feasible if the values weren't artificially inflated. We've actually regressed from those times.

[Iscarius]

The important factor is the value of the money, rather than supply. As supply goes up, value goes down. And believe me, credit existed before 1913.

[Shandooga]

Don't get your hopes up. There is more to the "Fed" than meets the eye. Don't think they don't have a plan, a backup plan and a worst-case­-scenario.

[joebhed]

Very true.
But, do they have an 'exit strategy'?

[FederalReserve]

Of course we have a plan. As a private corporation we always have a way out which screws the public and enriches us further. We've decided there is no longer a use for a US based central bank as we're now moving to a global bank.. The new global reserve bank will now issue the world currency. Do you think China is going to sit around and watch its holdings in our currency go worthless? The dollar is going to lose its value (purposely engineered by us as usual) and the Chinese and other creditors will simply agree to swap their holdings with something more valuable issued by the new global reserve bank. And you the people led by your Messiah will as usual just beg us to save you from these horrible times and accept the dissolution of the US as a sovereign nation and embrace the new world financial order.

At that instant, there won't be a need for a US Federal Reserve; you can audit it all you want.

[MadAppraiser]

POWER IS TAKEN, NOT GIVEN!!! Gloria Steinem's quote defines the political folly of dismantling the American central bank. The dissolution of the American central bank is an interesting, academic hypothesis that is hardly a political reality. A political revolution would be required to irradiate nearly a century of intricate lobbying, and federal enabling legislation!

United States politicians and media commentators throw around impressive terms like national debt, and Federal Reserve rarely defining the economic, or political impact. Outside of the Huffington Post (HP) contributors few Americans have any significant knowledge of the American central bank's origins, and original brain trust. Even, fewer American citizens comprehend the original objectives of the American central bank, and the important design features upon which the American central bank functions.

Sometimes you have to realize your functional capabilities in terms of political and economic ideals, I have! The American central bank's political, and economic footprint is too large for America to contest.

[Billy Hell]

Regrettably what you say is true.