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Uncovering The Fed: The Federal Reserve and its Critics
In the early 20th century, a financial crisis led panicked citizens to withdraw all their money at once, damaging banks. By 1913, Congress responded with the Federal Reserve Act, creating 12 regional banks acting as a federal bank to deal in local and global affairs with both private banks and the federal government.
Is the Fed still doing its job today? What secrets are being kept from us and how are the Fed's ations impacting our economy?
Some say the Fed was meant to create a balanced economy, while others argue its purpose was to inorganically manipulate free enterprise, rescusing banks that we'd be better off without.
Complaints Against The Fed- Overly secretive
- Should be fully audited
- Encourages bad, risky investments by softening the blow of bad decisions
- Causes economic bubbles
- Makes the pain of recessions worse by covering up and exasperating problems that the market would correct on its own
- Caters to banks and financial insiders
- Systematically allows the value of money to decrease as a result of inflation
- For 100 years before the Fed, money retained or gained value over time
- Discourages people from saving for the future
- Doesn't hold government spending in check
Explanations By The Fed- Needs level of secrecy in order to maintain independence from political pressures and make wise decisions
- Monitoring of the Fed could create uneccessary economic panic
- Keeps inflation stable
- Softens the blow of recessions and prevents depressions
Other Fed Issues- Savers and investors have lost money to the big financial institutions
- $400 bill in government losses
- TARP still owes taxpayers $118.5 billion
- Fed claims to have gotten paid back for loans, but secrecy remains an issue
The Gold StandardThe gold standard was a method of valuing money based on the price of gold, a real tangible object with value. The gold standard was eventually abandoned by the Fed.
Why We Left The Gold Standard
- Gives the government more flexibility for dealing with economic recessions
Benefits Of The Gold Standard
Holds government spending in check with upper limits
Reducing The Fed's InfluenceWhat would things look like if the Fed had less influence?
- Interest rates would be higher
How Do We Fix A Broken Fed?- Boot Bernanke
- Get big bankers and corporate interests off the Fed boards
- Uphold higher lending standards
- Ensure the Fed doesn't bend its own rules for personal interests
- Work for the whole economy and not just the banks
- Consider a return to the gold standard (removing the clout of monetary policy)