Most Americans would probably agree, if the Federal Reserve hadn’t come to the rescue in the 2008 financial crisis, the United States (and the world) would have sunk into another Great Depression.
However, most Americans don’t realize that the Fed caused the financial crisis of 2008 by keeping interest rates artificially too low for too long, fostering “irrational exuberance” and insanely leveraged mortgage bubbles.
How do you know I’m telling you the truth?
Ask yourself two questions:
- What caused the financial crisis?
- Where was ground zero?
If you don’t immediately and automatically, instinctively and historically know the answers to both questions, I’m afraid you don’t know what you don’t know.
Thank the Arsonist
The financial crisis wasn’t about saving people’s houses, jobs, the economy, and the country.
That’s what it turned into. That’s what the Fed said it was fighting for. But that wasn’t the financial crisis.
The financial crisis was the result of big banks and investment banks overleveraging themselves in mortgage-backed securities and mortgage derivatives products and failing into insolvency.
The country’s biggest banks and investment banks were ground zero.
It was a financial crisis, not an economic crisis.
Of course, it immediately turned into an economic crisis. That’s always going to happen when the country’s biggest banks and the banking system fails.
The Federal Reserve had to come to the rescue. To the banks’ rescue, not ours.
As a byproduct of rescuing the country’s “too-big-to-fail” banks, all of which are much bigger now, the Fed takes credit for saving the economy and the country from another depression.
In other words, we should be thanking the arsonist, the Federal Reserve System, for putting out the fire they started in our house.
The Fake Federal Reserve System
If the Fed didn’t exist and didn’t manipulate interest rates down for long periods, for the primary benefit of the Fed’s constituents, the big banks that own it, free market mechanisms would cause rates to rise (most of the time gradually) and temper irrational exuberance.
Free markets aren’t perfect, but if they’re free from gross manipulation, they’ll keep our capitalist democracy from turning into some kind of command economy, centrally planned by the likes of the Fake Federal Reserve System.
Fake because the Federal Reserve System has nothing to do with the federal government, other than printing its own money (yes, those dollars in your pocket are owned by the Federal Reserve and say it right on top of every bill) to buy Treasury bills, notes, and bonds to keep successive governments from having to tax the public more than they do to pay for everything they ply voters with.
Fake because System was substituted for Bank. The founders of the Fed knew their baby vulture would never fly if they’d called it what it was – America’s Private Central Bank.
The Fed is a cancer on the American public and it needs to be removed by Congress, which will never do it, so that means We the People.
The Ten Most Terrifying Words in the English Language
I explained last week that the Fed’s “dual mandate” had turned into a “triple mandate” now that they have admitted they’d manipulate interest rates and their balance sheet to affect the stock market, as well as bond market, the currency market, and the economy.
We don’t need the Fed. The economy and country would be much better off having free markets determine capital allocation and the level of interest rates and foster growth of the economy.
Some emergency government powers should be incorporated into free markets and applied under predetermined circumstances. That’s all we’d need in any kind of extraordinary emergency.
Readers of my column last week weren’t so sure. Here are their questions and my answers about what should replace the Fed, why and how:
- Why kill it? We just don’t or ever needed them? Nothing & no one needs to perform those functions? – Andrade M.
I say kill the Fed because it is out of control. It determines the country’s pace of economic growth based on what it thinks the country needs in terms of access to credit, credit provided for profit by their bank constituents, that’s why they often keep interest rates too low for too long.
There’s no Constitutional justification for a private central bank. That’s been argued since the founding of the United States.
We only need the Federal Reserve to rescue us when the Federal Reserve lights our house on fire. That’s a pretty good reason to kill the Fed, no fire, no rescue needed.
And, make no mistake about it, rescue means the Fed rescuing the private banks it shepherds as their private central bank.
The free market can easily perform all the functions the Fed’s tasked itself with, with bank oversight and regulation being the only exception.
Clear, simple, transparent prudential regulation should guide banking in the United States.
- And what would you have in place of the ‘Evil Fed’? By now we know that truly free markets always get out of hand and need restraints. – James B.
The biggest problem free markets have is when banks get out of hand.
Economies don’t get out of hand.
Bubbles can form in any market, the stock market, real estate, or tulips, that’s going to happen. But if the free market is free to operate, those bubbles will burst, and overpriced assets will crash.
If private investors and speculators are at risk and not our institutions, so be it.
We don’t need to replace the Fed with another construction that safeguards banks from themselves and their greed.
All we need is to recognize that banks are utilities and regulate them simply.
Utilities, which are essential in every respect, are regulated so we’re not price-gouged by them, and so they can’t speculate for self-interested profiteering and blow themselves up. Because not having electricity isn’t an option.
Banks have become like utilities.
Big “too-big-to-fail” banks are essentially utilities providing services that are absolutely essential. Yet, they can make hundreds of billions of dollars in profits and blow themselves up in the process, endangering depositors, the economy, and the country.
Why? Because they can, because they have the Fed to bail them out and bail out the country.
We’ve come to accept, if not be grateful for, the Fed for saving banks and the economy.
The simple solution is to mandate 25%-50% reserves for all banks with assets over $200 billion dollars. Reserve requirements, how much cash a bank must keep against loans it makes, should rise as the level of assets (loans) a bank makes rises.
That way any bank can get as big as it wants and won’t be a threat to itself or the economy.
While banks would be far less profitable, they’d be forced to make more and better loans to make money.
Access to credit is what the economy needs. Making more credit available across the economy would benefit the entire economy and Americans on all socio-economic levels.
It’s time to “utilitize” big banks and retire the Federal Reserve Bank.
- I am afraid we can only hope the King falls on his own sword! American’s need to know they are not Federal and they have no Reserve; they are private banksters! They are stealing our standard of living by enabling a credit-based economy providing cheap money and the time is coming when the piper has to be paid! – Robert L.
Ronald Reagan famously said, “I’ve always felt the nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.'”
Maybe even more terrifying is hearing, “I’m from the Federal Reserve and I’m here to help.”
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