Sunday, October 23, 2011

The Federal Reserve

I am unable to physically join the OWC movement but I was reminded that there are still things I can do to show solidarity with the protesters.  One way is to furnish food or blankets for the protesters .  Blogging, Tweeting, and Facebooking are others.  Call your local protest group and ask what they need.  I will write a blog. 

I want to point out one other thing.  To discredit any uprising the opposition will create havoc and chaos (sometimes violently) and do it from within.  Thereby discrediting the peaceful aspect of the movement.  Beware of such news and be skeptical of it.

Before I posted on this subject knew I needed to inform myself.  One thing I discovered was just how little I knew about the Federal Reserve and how it works.

Alternet  had the following article by  Jake Blumgart on the subject.  I decided that I might not be the only one who is  uninformed about our central bank.  I am copying excerpts from the article.  It's rather 'wonky' but important to understand.   To read the entire article go here:

 1. “Ending the Fed” is a Terrible Idea

First, a quick primer on what the Fed is and what it does. The Federal Reserve is America’s central bank, which means that it supervises the banking system and controls the supply of money.  The Fed has a dual mandate “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”  

There are many legitimate reasons to critique the Fed and how it fulfills its mandate. But the “End the Fed” movement isn’t interested in reform. As one popular Youtube occupier/ranter puts it, “this is all because our government prints too much money...that's fake money that they printed out of thin air...there’s not going to be a middle class in ten years, end the federal reserve...get corporations out of our politics!”  

(My comment:  He's an idiot and even I can see that we need the Federal Reserve.  We need to fix it and not abolish it.  He doesn't understand how it works.  I am trying to.)

  “The United States used to have a gold standard instead of discretionary monetary policy. That meant that the value of a dollar would ebb and flow with the discovery of gold mines. The problem with [this] kind of that you can't respond to economic shocks, and when depressions happen they're really severe.”  

2. The Gold Standard is an Awful Idea 

We left the gold standard in the 1930s because it greatly exacerbated the Great Depression. As deficits ballooned, people feared the dollar would be worthless and began exchanging their cash for gold, which the government had to provide under the rules of the gold standard. The nation’s dwindling gold supply became policymakers’ first concern—instead of, say, unemployment levels of over 20 percent—and they decided to balance the budget to restore confidence. Taxes were raised, spending slashed, and the depression grew even worse. The dollar wasn’t able to react to the needs of the economy: It could only be responsive to the whims of the gold supply. 

3. The Good and Bad of Modest Inflation

Ron Paul and those who think like him hope the gold standard would serve as a hedge against inflation, -- right now America is suffering from the opposite problem. The problem isn’t inflation, it’s unemployment, crushing debt and stagnant growth: issues that can be assuaged through monetary stimulus. 

 -- core inflation levels—the kind that exclude food and energy—are currently at record lows and have been for quite some time.  In fact, one of the easiest ways to achieve the Occupy movement’s goals of lower unemployment and household debt would be to use monetary stimulus to mildly increase this measure inflation.  

“The Fed can target higher rates of inflation which would be very effective in lowering the real interest rate and reducing people’s debt burden,” says Dean Baker, co-director of the Center for Economic and Policy Research, a progressive think tank.

American corporations are currently sitting on massive cash reserves. If the Fed announced a higher inflation target those horded assets would soon be worth less, thus incentivizing spending. -- mild inflation would ease the debt loads crushing many Americans.

 Household debt is currently 90 percent of GDP. As nominal wages and incomes rise, debt amounts would remain stable (and drop in real value), easing the path to solvency for many and freeing up money for spending, and growth.  

inflation is good for debtors and bad for creditors.

4. Don’t End the Fed, Make it Accountable to the Needs of the 99 Percent

The Federal Reserve needs an Occupy Wall Street-shaped wake up call. Instead of waving nonsensical “End the Fed” signs and aping the talking points of a reactionary Republican, occupiers should demand that the Fed be made more democratically accountable and that policymakers seriously execute its dual mandate to maintain stable prices and full employment.  

One significant step toward these goals would be the democratizing of the Fed’s Open Market Committee (OPM), which controls interest rates, the nation’s money supply—the monetary policy side of the institution. There are 12 seats on the OPM: one for the Fed chairman, one for the vice-chairman, and five for the other Fed governors selected by the president and approved by Congress. Then there is the president of the New York Fed and a rotating cast of four of the 11 other regional Federal Reserves. Regional fed presidents are appointed, in large part, by representatives of the banking industry who want to keep inflation low to preserve the value of the debt it holds. True to form, many of the mostreactionary voices on the OPM are regional Fed presidents.  (My take: It's like putting the fox in charge of the hen house.) 

Barney Frank is working on legislation to remove the regional Fed presidents from the OPM and replace them with presidential appointees who would be more democratically accountable.

Part of the reason the Fed has been so subdued in its pursuit of monetary stimulus is that the right has been so fierce in fighting against it. (Remember when Rick Perry called Bernanke’s policies “almost treasonous”?) It is long past time that the left started taking an interest in the Federal Reserve and pushing for monetary stimulus to ease unemployment and the debt burden. Ignore the siren song of Ron Paul and other “End the Fed” types. Occupy Wall Street should fight to ensure that the Federal Reserve works for the many, not the few.  

After I posted this RonW commented on the ownership of the Federal Reserve.  This information took me to Fact Check on the Federal Reserve and this is what I found:

Federal Reserve Board: As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It 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, 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. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

Listen to Representative DeFazio.  It's short and worth your time.


Nancy said...


You have a real talent for explaining complex issues and making us understand what is happening in the political world.

I'm not certain that I ever did understand the Federal Reserve and,to tell the truth, I'm not sure I truly "Get it" now but I'm more enlightened now than I was BEFORE I read your post today.

Thanks for taking the time to research and print this.

Darlene said...

*Nancy - I honestly don't know what good it does to understand it, but at least we can discount the Ron Pauls and their wrong headed solutions,

Rummuser said...

Darlene, your post made me do some research on our own Central Bank. We have our Reserve Bank of India,the Federal Reserve's counterpart for India. It does exactly the same thing and so far, has kept India alive and kicking, thanks to the very nature of its existence, which is non political. It has had some very hard nosed Governors and continues its tough love very effectively. It is thanks to its excellence that we missed the after shocks of the downturn everywhere. I would not like to tamper with it.

RONW said...

I believe the Rothchilds are the majority owners of the Federal Reserve. As in, the US gov't does not own the Fed Reserve.

Darlene said...

*Rummuser - India's economy is not in trouble and I am happy to note that one country is getting it right. Europe and the U.S. are on the verge of getting it very wrong and if they continue the austerity route we will see another Great Depression.

*RONW - Thank you for the information. You are right. The U. S. Gv't does not own the 12 Federal Reserve Banks. I should have done further research and I thank you for your input. I have added an additional explanation to my post just above the video.

Kay Dennison said...

Thank you!!!! I'm delighted with

Darlene said...

*Kay Dennison - You're most welcome.

Anonymous said...

Darlene--Although I understand that all of our wars have been paid for by inflation, and although I understand that inflation may be good for the investor, I cannot see how even mild inflation is really good for the elder population. Many elders are reliant upon retirement incomes that are not adjusted for inflation. In future, this will be less of a concern since fewer people are expected to have those retirement incomes.
Cop Car

Darlene said...

*Cop Car - Inflation could help the elders that still have investments (higher interest rates), but will definitely hurt the rest of us.

naomi dagen bloom said...

Good work--and much thoughtfulness here, Darlene. My thought is you'd have been a key player in any Occupy effort and what you've done here is precisely what those of us old can do.