|
Post by The 99 Declaration on Feb 1, 2012 8:54:27 GMT -5
The immediate formation of a non-partisan commission, overseen by Congress, to audit and investigate the short-term and long-term economic risks and benefits in eliminating the Federal Reserve Bank and transferring all its functions to the United States Treasury Department and a truly independent, non-partisan, publicly owned central bank. It is widely believed that the housing bubble and collapse of financial markets in 2007- 2008, and trillion dollar bail-out was partially caused by the mismanagement, incompetence, and acquiescence of the Federal Reserve Bank.
|
|
|
Post by christophercarney on Feb 3, 2012 9:59:59 GMT -5
This is one of the most important grievances from the list, as money or more aptly the monetary system is the foundation for the entire economy and has served as the platform for which the 1% has subjugated the rest of us and relegated us to essentially third-world status in terms of savings and financial security.
There are enormous stakes here and we must make sure we follow due diligence in reforming the Federal Reserve system, with whatever connotations that statement brings. Ending/reforming the Federal Reserve is but one aspect of true monetary reform, what to do next is also just as critical. For instance, do we transfer all monetary issuance power to the Treasury and Congress, as specified in the Constitution? Do we form a new central bank, somehow beholden to Congress and the people? Or do we dispense with a central bank all-together (the 235 plus year history of this Republic is a nothing but an on-again off-again marriage with central banks, culminating with the third incantation that we have had since 1913 in the present Federal Reserve system).
Unfortunately, the questions do not stop there. What form of money do we use? Today we have a debt-backed currency, where debt is instantly created the moment money is created, hence the enormous $15 trillion national debt. I think most of us can agree this system is immoral - Why should the US government have to pay interest on its own money? I believe the answer is we go back to a kind of debt-free currency, but what system should we choose? Gold and silver has worked many times throughout the world and throughout this country's history, though this system is not without its problems. Do we issue a new kind of paper currency? If so how do we monitor the money printers to make sure they don't print more than is needed, which leads to inflation and a rise in overall prices?
Do we make a Constitutional amendment to ban the authority of Congress to borrow money (Article I Section 8), which was used as a rationale for the creation of the Federal Reserve system?
Do we repeal legal tender laws, and allow competition for different types of money, as happened in the middle to late 19th century in this country, and allow the best forms to win out in the free market? Notice the Constitution does not make specific mention of paper money, only that gold and silver must be used to settle transactions by the states.
Do we forget the entire Constitution as it pertains to money and come up with something entirely new?
These are but a sampling of some of the questions that a serious study must attempt to answer in an investigation of the Federal Reserve. There are many others.
|
|
|
Post by hendrimike on Feb 3, 2012 10:03:15 GMT -5
Wow, so many great questions. So much that would need to be answered. Very daunting and it is much more than just, "This is a problem and needs to be changed.".
|
|
|
Post by tdrivertom on Feb 3, 2012 23:39:04 GMT -5
I agree with many of the comments by Christopher. The wording of this grievance seems to have been watered down or minimized. Change the wording from "Review/Reform the Fed Reserve TO: Reform/End the Fed. The Federal Reserve System is the root source of many of the financial problems in this country.
|
|
blake
New Member
Posts: 27
|
Post by blake on Feb 5, 2012 19:07:24 GMT -5
I believe we should leave the Fed as the central bank. Every industrialized country since the 12th century has had one. It’s not their banking operation that is the problem. The problem comes from their multiple roles of banking, regulatory over site and setting monetary policy. The Fed sets the prime interest rates and the retention rate, and then they decide who receive this rate through the Discount Window. Right now the Fed decides what the rules are, then they enforce the rules, and then they also play on the same field as everyone else. Then we wonder how the Fed makes so many mistakes.
We need to separate the Fed functions. We can start by moving the Feds over site duties over to the Consumer Protection Agency. The next one isn’t as easy. Where to move monetary policy, it would be natural to think of placing that duty with the Treasury. This may give the Executive branch too much power. Another solution may be to set up a separate public commission to set monetary policy. This has the effect of putting each duty the current Fed into separate identities. Hopefully the Fed can do a better job of banking if it does not have too many things to juggle at once.
As far monetary policy goes my biggest worry would be in avoiding the call to go back to the Gold Standard. Reinstating the Gold Standard would be disastrous to our economy. The first problem with the Gold Standard is that we do not have enough gold to cover the size of our economy today. The next problem with the Gold Standard is that even if had enough gold to back the dollar we would need an ever increasing amount of gold to grow the economy. This can be done in three ways. First by mining or buying gold, but there is a finite gold amount of gold to be mined in the first place. The next way is to inflate price gold artificially. With gold being a finite commodity price inflation would happen naturally. This would cause other commodities to inflate and general inflation to increase with it. The last method would be to simply take some else’s gold. Rome did it for centuries, but even they ran out of people rob around them.
|
|
|
Post by christophercarney on Feb 5, 2012 23:34:21 GMT -5
If you're going to move the Fed's functions over to other agencies, then the obvious question is why keep them around at all? For nostalgia?
Just because every industrialized country has had a central bank since the 12th century (I'll take your word on that), that does not mean we should have one too. This is basic logic. Besides, look at all the income inequality going on around the world, especially here in the United States. It is tied to the role that central banking holds in our economy. Shouldn't we shoot for something higher? Something that benefits everyone? History has proven that central banks favor the 1%. It leads to a managed economy, where the money power is separate and "anesthetized" from the government, leading to the conditions we have today, where the central bankers create money where it is used first by the banks and corporations, and by the time it is filtered down to the man on the street, inflation has already reared its ugly head.
You have to make a case for why we should even have a central bank in the 1st place, which would first require a discussion of the role of a central and and how/if those roles could be replicated elsewhere (autonomously) by the government itself, or possibly by the free market.
The gold standard is a separate discussion and is also quite convoluted.
|
|
blake
New Member
Posts: 27
|
Post by blake on Feb 6, 2012 21:08:56 GMT -5
Your response seen to me to be a endorsement of allowing the free marks to using it’s unfetter hands any way they see fit. I guess you would include the banks in this free market. The economics down fall in 2008 was not caused by the central banking operation at the Federal Reserve. It was caused by the banks themselves when they decided to use credit default swaps funds (legal) and to make loans using robo-singing (illegal). The housing bubble was cause by greedy people and greedy corporations. If the banking industry brought itself down by itself then how could we have any faith in the “free market”? Free markets are the most powerful economic idea known to man. When left to own their affairs, every civilization will end up choosing the free markets system. Almost as if as humans we are prewired for the free market system. The problem is that the free market has its draw backs. The biggest is its total lack of any intelligent. The free market can’t see, it can’t plan, and it has no restraint. The free market is just a random collection economic activity, with no predetermined emergent outcomes. The free market will not regulate itself because there is no soul, no person, or even an organization to change, it’s just random psychology. How do you change that?
When an economic system is small supply and demand remains couple and very little over-site is necessary. However when economy becomes large and complex supply and demand can become decoupled and this leads to “bubbles” that causes economic down turns. A central banks job is to act an economic sponge and means to influence the economic psychology. The problem is that we have Fed Reserve Bank and not a central bank. The Fed is both an active bank and at the same time acts as a bank regulator. This leads to the problem of the Fed hiding things from us by ordering the over-site department to stand-down. The FDIC and other over-site functions should be separated from the Fed and moved elsewhere. A Separate publicly vetted committee should be setup for the setting of monetary policy. Monetary policy should only be set in the full view of the public since we are the ones who will have to live with the outcome. Maybe if didn’t give the Fed contradicting motivations they would act better.
Allowing the government to assume the Feds power would be no different than what we have today. The same conflict would exist. The next time it will be the government that is hiding the truth because there would be economic and political pressure to do so. Our fore father had it right with the concept of separation of power and the check and balances. I do not see how breaking up the Fed between banking, over-site, and monetary policy doesn’t accomplish that.
|
|
|
Post by christophercarney on Feb 7, 2012 11:46:48 GMT -5
|
|
|
Post by christophercarney on Feb 7, 2012 12:01:57 GMT -5
blake, it would take several pages to fully answer all your statements in enough thoroughness, so I will start, for now, with your first assertion that the economic downfall of 2008 was not caused by the Federal Reserve.
You say it was caused by the banks themselves when they decided to play the credit default swaps market and engaged in the robo-signing of all those home loans. Let's look at the first aspect, which is just one sliver of the overall OTC (over-the-counter) derivatives market, currently estimated anywhere between $600 trillion and $1 quadrillion globally (yes I said quadrillion).
My question to you is, who do you think gave these banks (which are now down to just 5) the money at 0% interest to invest in these funds in the first place? The Federal Reserve, even before the crisis in 2008, regularly purchased securities in the open market (thus providing liquidity), as part of its Federal Open Market Committee (FOMC) functions to target a specific interest rate. The banks, in turn, get money at close to 0% interest (now it IS 0%).
Surely you can see that without this "spigot" there is less money sloshing around to chase highly leveraged credit instruments, such as mortgage backed securities (this should have been illegal from the start - so yes I blame the large banks for that but I also blame the regulators who were conned into believing this wouldn't lead to a blowup in the housing market).
But without getting off-topic, it was the Federal Reserve who was directly responsible for injecting so much liquidity into the banking sector in the first place, by targeting such ridiculously low interest rates. All of this made possible because we have a central bank who unilaterally decides what is best for our economy by deciding how much money should be in the system at any given time. Look at what's happened since 2008 as a result. How can anyone make a case that this is a good thing?
|
|
|
Post by christophercarney on Feb 7, 2012 12:15:40 GMT -5
Btw blake, before I say anything else I wanted to thank you for your thoughtful and intelligent post. I really appreciate it on this matter as I'm used to many folks just screaming and calling me things like wacko and crazy.
|
|
blake
New Member
Posts: 27
|
Post by blake on Feb 7, 2012 20:06:08 GMT -5
Thank you for your kind words and this nice forum to speak on such a complex subject as Federal Reserve Banking. I’m also glad to see that we agree on much of the history leading up to the 2008 financial collapse. I agree with your assertion that the Fed lower the prime rate to zero, and this lead to an overly liquidated market. This is why the Fed should not be setting monetary policy. The natural question becomes, “Then who should?” There is a school of thought that says the free market will do that equitably. The problem with this notion is that if we allow the free market to decide monetary policy what will really happen is that the biggest bank will now be main the drivers behind setting monetary policy. As you stated there is only 5 of them. So instead of a public commission, which every setup we end up choosing, setting monetary policy the largest banks do. As I previously mention I find the notion of trusting the banking industry dubious at best. Especially with their recent illegal activities that had nothing to do with low interest rate.
The secondary problem is the free market has no ability any for a coherent plan. This will lead to a chaotic and turbulent market with the rates being set randomly according to which ever economic psychology is in vogue at the moment. With no central bank to absorb the random jitters of the market the economy will bounce between boom and bust at a pace that will hard to keep-up with.
So if free markets can’t be trusted, the Fed is broken, and the government is corrupt how do we move forward? My first instinct is to go first principles, to what has work before. Breaking up the fed allows us to set monetary policy publicly, regulate the banks, and smooth out economic randomness with separate entities. Right now this is impossible because the Fed has so many different roles to play that can’t do any of them well. From the Fed own actions it obviously favor its’ banking operations over monetary policy or over-site. So I say let them do banking, and we will set monetary policy ourselves and we will regulate the banks together.
|
|
|
Post by christophercarney on Feb 7, 2012 22:12:34 GMT -5
I can see this discussion is starting to go the route of a centrally managed one vs. the free-market. And maybe this is the right time to discuss it, as it inevitably comes up.
As far as setting interest rates goes, yes there is a school of thought that says the free market can do this. The question is can it do it reasonably well and better than how the Fed has done it? Answering the second part first, I don't see how anyone can do a poorer job of managing interest rates than the Fed has done, particularly in the last 12 years. So if we are in agreement on that then we can move on to who exactly should set the interest rate.
You bring up a good point that the 5 largest banks would be left in control of setting the interest rate, more or less. This is one of the confounding problems in having an intelligent discussion about this, because the system is so forked up, that we need to delineate what should be done in an ideal world, and what should be done given our disaster of a banking system, or more aptly a crony monopolistic banking system. We end up with possibly two entirely different solutions as a result.
My main problem with a public commission is that it is similar to the Fed in that it is centrally managed, therefore power and corruption tends to manifest itself more readily. History usually has proven this. The other problem is, again using the history of the Fed as a guide, and assuming the public commission would have all the tools and economic forecasts available as the Fed has had, that setting interest rates has historically been behind the 8-ball when it comes to deciding what the prudent rate should be for the economy. This is due to a number of reasons, one of which is price increases sometimes take 12-18 months to show up after the money supply is inflated. The bottom line is the public commission is always examining past data to set the rate going into the future, even though the full consequences of rate and monetary policy has yet to even manifest from the previous 12 months or so.
When you say the free market has no ability for a coherent plan, I don't disagree with you. My response is that is exactly the definition of a free market. It is free to do as it chooses, within the confines of what is reasonable (most of the time anyway). The plan is a level of organization that goes beyond any single human or group of humans. The power in this system is that it is very difficult to corrupt. I disagree with the statement that a free market would tend to favor a chaotic and turbulent environment for a few reasons. One, we have had exactly those conditions the last 12 years WITH a central bank, and two, ideally speaking (again having to make the connotation with ideally), there is no basis for that assessment. To fully be sure though, we would have to examine past history to see how the free market has fared in setting interest rates in this country, in the period of time when it wasn't managed by a central bank. I will need to investigate that more and will get back to you.
I do know that ironically, we have had more recessions and more boom-bust periods in our history WITH the Federal Reserve, and the boom-busts have been of greater magnitude as well. That can be easily proven and I can cite sources if you would like. The idea that a central bank smooths out random jitters and gyrations is unfortunately a convenient myth.
I have to stop here because you bring up banking, and it is virtually impossible to make my point about letting the free market dictate interest rates without tackling the banking issues in this country. This unfortunately adds more layers of complexity to the problem and why it is typically so difficult to reach consensus because there's just so much wrong with the system.
I will attempt to make a case for the free market shortly, but only with the assumption that the banking system is reformed (grievance #15) in the proper manner, including reinstating Glass-Steagall and outlawing the trading of derivatives. Otherwise the free market answer is a no-go for as you said, we cannot leave it up to 5 banks to figure it out for us.
Eventually we need a discussion of the other powers of the Fed and how they should be reformed/removed, such as being the "lender of last resort" for the US Treasury, engaging in currency swaps with other countries, lending emergency loans directly to countries and corporations, and last but not least, promulgating this debt-backed monetary system we have where the US government has to pay interest on every dollar it borrows from the Fed. It would also be helpful to reference the Constitutionality of these powers as well. For now though let's stick with the interest rate dilemma.
|
|
|
Post by christophercarney on Feb 7, 2012 22:16:17 GMT -5
Actually the banking reform grievance is #14. My mistake.
|
|
blake
New Member
Posts: 27
|
Post by blake on Feb 7, 2012 23:16:49 GMT -5
I'm looking forward to reading your case for the free market. I'll be interested how this self emergent regulation happens form a random collection economic activity and psychology.
|
|
blake
New Member
Posts: 27
|
Post by blake on Feb 8, 2012 17:33:39 GMT -5
I can see the difficulty in discussing Fed reform without bringing up banking reform in grievance #14. To that end I would like to propose combining the 16th and 14th grievance. Monetary policy and banking reform is inexorably connected in so many ways it would be imposable to discuss one without the other. It would be far easier to work all this out in one place.
On your first concern about a public commission I would like to point out corruption is an unfortunate side of our human condition. That’s not to excuse it; I’m just saying that where there are people involved corruption is something that has to be plan for. The bottom line is to come up with a system that project confidence and trust, usually in this country we use the concept of separation of powers and check and balances to achieve this. The genius in this is that we can gain trust in the system by not trusting the people in the system. Whether we choose the free market or a public commission we will need to plan for corruption because it will happen. Your second issue is a little easier to answer, in that the tools for projecting future monetary policy are universal and standardize. Anyone who tries to project monetary policy will use the same data set as anyone else who tries. It is not the data set that corrupts the projections; it’s the bias from outside concerns that causes the problem with forecasting. Remove the outside influences and we would get more accurate projections.
The free market had a short term of setting monetary policy between the Civil war the turn of the 19th century. I don’t have a lot of knowledge of that era. I do remember for banks it was called the “Wildcat Era”. I’m not sure why. I agree we both may need to take a look at that time period to make a better assessment of the free market ability to set monetary policy.
|
|