Should we abolish the FED?
Jan Ptacin
The Congress created the Federal Reserve System in 1913 through the enactment of the Federal Reserve Act. Arguably, if so desired, the Congress could repeal the mandate of the FED (Koba 2012). In the act the FED received it's 'dual mandate' of maximizing employment and stabilizing inflation, and a third objective of long-term interest rate moderation. The FED, as a system comprising of 12 regional banks, united through the Board of Governors and the Federal Open Markets Committee (FOMC), represented a new type of central bank. It aimed to balance public and private ownership as well as to accommodate the political lobby of both progressives and established banking institutions. Its institutional set-up makes the FED independent of the election cycle. This should ensure objective, data-backed monetary policy and prevent the government's incentive to lower interest rates and or enhance credit creation via other means. Today, the FED's balance sheet is over 20 % of the nearly $21 trillion U.S. economy, a figure that reached 25% after the intervention preventing a further escalation of the 2008 Great Recession. Experts question the efficacy and the conduct of specific types of monetary policy, however. C ould there be an alternative to the Federal Reserve’s monopoly on the creation of money?
Table 1: Board of Governors of the Federal Reserve System (U.S.), All Federal Reserve Banks: Total Assets
As of today, over 1 in 10 Americans are in favour of abolishing the system despite not knowing what the FED does (White 2017). A 2017 WalletHub survey found that 16% of Americans think the Federal Reserve creates consumer credit scores, which it does not. Furthermore, over half do not know when the FED last raised interest rates (White 2017). Speeches of former Chairman Alan Greenspan, which introduced the word fed-speak to the mind of the educated public, the covert loans to systemically important institutions (including foreign investment banks such as UBS or Credit Suisse) totalling over 16 trillion dollars, as well as accusations of artificially low interest rates contributing to the Great Recession are only a few of the many reasons the electorate fears the FEDs political unaccountability. A 2010 Bloomberg Report even shows that over 50% of Americans believe the FED 'should be reined in or abolished' following the general lack of transparency in its practices. The Federal Reserve's effective,
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