excerpts from: Dismantling the Temple
The Nation
July 15, 2009
by William Greider
…Where did the central bank get all the money it is handing out? Basically, the Fed printed it, out of thin air. That is what central banks do. Who told the Fed governors they could do this? Nobody, really–not Congress or the president. The Federal Reserve Board, alone among government agencies, does not submit its budgets to Congress for authorization and appropriation. It raises its own money, sets its own priorities…
…Sometimes, the Fed pretends to be a private organization. Other times, it admits to being part of the government…
…President Obama inadvertently made the political problem worse for the Fed in June, when he proposed to make the central bank the supercop to guard against “systemic risk” and decide the terms for regulating the largest commercial banks and some heavyweight industrial corporations engaged in finance.
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Six reasons why granting the Fed even more power is a really bad idea:
1. It would reward failure…
2. …Fed policy was a central force in destabilizing the US economy [that] shifted economic rewards away from the real economy of production, work and wages and toward the financial realm.
3. …The central bank…is deeply invested in protecting the banking behemoths that it promoted, if only to cover its own mistakes.
4. …The Fed can’t be trusted to defend the public in its private deal-making with bank executives…
5. The Fed will be bound to embrace the ["too big to fail"] doctrine more explicitly as “systemic risk” regulator…
6. This road leads to the corporate state–a fusion of private and public power, a privileged club that dominates everything else from the top down. This will likely foster even greater concentration of financial power, since any large company left out of the protected class will want to join by growing larger and acquiring the banking elements needed to qualify. Most enterprises in banking and commerce will compete with the big boys at greater disadvantage, vulnerable to predatory power plays the Fed has implicitly blessed.
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a reconstituted central bank: concentrate on the Fed’s one great purpose–making monetary policy and controlling credit expansion to produce balanced economic growth and stable money. Most regulatory functions would be located elsewhere, in a new enforcement agency that would oversee regulated commercial banks as well as the “shadow banking” of hedge funds, private equity firms and others.
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the Constitution prescribes: “The Congress shall have the power to coin money [and] regulate the value thereof.” It does not grant the president or the treasury secretary this power. Nor does it envision a secretive central bank that interacts murkily with the executive branch.
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Congress has already created models for how to do this. The Congressional Budget Office is a respected authority on fiscal policy, reliably nonpartisan.
Congress needs to create something similar for monetary policy.
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Restore anti-monopoly laws and make big banks get smaller. If the financial system’s risky innovations are too complicated for bank examiners to understand, then those innovations should probably be illegal.
Many in Congress will be afraid to take on the temple and reluctant to violate the taboo surrounding the Fed. It will probably require popular rebellion to make this happen, and that requires citizens who see through the temple’s secrets. But the present crisis has not only exposed
the Fed’s worst failures and structural flaws; it has also introduced citizens to the vast potential of monetary policy to serve the common good. If Ben Bernanke can create trillions of dollars at will and spread them around the financial system, could government do the same thing to finance important public projects the people want and need? Daring as it sounds, the answer is, Yes, we can.
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Given the vast shortcomings in US infrastructure, the country will never catch up with the backlog through the regular financing of taxing and borrowing…
…The Fed would continue to create money only as needed by the economy; but instead of injecting this money into the banking system, a portion of it would go directly to the capital investment fund, earmarked by Congress for specific projects of great urgency. The idea of direct financing for infrastructure has been proposed periodically for many years by groups from right and left.
