By Brian O’Brien
11/19/2015
It is repeated like a mantra. The independence of the Federal Reserve is vital to sound monetary policy.
The argument goes that an independent Fed is able to base its decisions on sound economic principles rather than political expediency.
Because of constant pressure from electoral cycles, Congress cannot be trusted to make impartial monetary decisions. Congress might easily fall into the trap of inflationary policies and financial irresponsibility to gain short term political advantage, which can cause long term economic harm.
Fed independence removes political concerns from the monetary equation to allow for a more stable monetary system.
The consensus is that bankers are more responsible than our elected representatives when it comes to regulating our money supply.
Responsible bankers. Yes, it’s laughable. An oxymoron. But this was the logic that convinced Congress to delegate away its monetary authority to an independent central bank. And this is the logic that continues to be used to argue against more scrutiny of one of the most powerful agencies in the United States today.
Over a century ago, the Federal Reserve was deliberately designed to ensure its independence from Congress. The 12 regional Federal Reserve Banks were organized as private corporations that are owned and controlled by their shareholders, which are the member banks in each region. These 12 Federal Reserve Banks control the money supply. The Federal Reserve Board of Governors in Washington, D.C. conducts monetary policy and has oversight of the regional Federal Reserve Banks. The President of the United States selects the seven members of the Federal Reserve Board of Governors who are confirmed by the Senate. The Fed Governors serve staggered 14-year terms that span multiple presidential terms to ensure that no president can select all the members of the board. And because the Fed is self-funded by the revenue it collects from government bonds, no government agency controls its budget.
In 2007 on PBS's News Hour, Alan Greenspan, who served as Fed Chairman from 1987 to 2006, clarified the relationship between the government and the Fed. “Well, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take,” he said.
No other agency of government has as much independence as the Fed. Arguably, no other agency of government has as much power.
Whenever Congress threatens to increase its scrutiny of the Fed’s decisions and actions, the press and Fed officials will recite the mantra that the Fed must retain its independence.
On Nov. 4, Fed Vice-Chair Stanley Fischer reiterated the mantra during a speech at the 2015 Herbert Stein Memorial Lecture National Economists Club. Fischer stated that economic theory has long postulated that central bank independence results in low inflation and financial stability. “The theoretical case for monetary policy independence focused on countering inflationary biases that were likely to exert themselves in the absence of an independent central bank,” he said. “Such a bias could result from political pressure to boost output in the short run—for example, before an election—or to use a central bank's power to issue money as a means to finance government spending.”
Federal Reserve Chairwoman Janet Yellen repeated the mantra on Nov. 16 in a letter to House Speaker Paul Ryan and Minority Leader Nancy Pelosi regarding the proposed Fed Oversight Reform and Modernization Act (FORM), which seeks to tie interest rate policy to a mathematical rule.
"Unfortunately, the FORM Act attempts to increase transparency and accountability through misguided provisions that would expose the Federal Reserve to short-term political pressures," Yellen said.
According to CNBC, the White House issued a veto threat for the bill reasoning that the proposal would politicize the Fed's monetary policy decisions.
This wasn’t the first time a Fed chair has spoken out against a threat to Fed independence. In 2009, Fed Chairman Ben Bernanke was outspoken in his opposition to the Federal Reserve Transparency Act and lobbied Congress to oppose the bill, which sought to subject the Fed to an audit from the Government Accountability Office. The Fed had previously resisted a partial audit in 2011 which revealed that between 2008 and 2009 the Fed had provided $16 trillion in secret low-interest loans to American and foreign banks and businesses during the downturn caused by the housing the bust. This $16 trillion was on top of the $700 billion Troubled Asset Relief Program (TARP) bailout of the banks that Congress authorized in 2008.
The 2011 partial audit revealed that the Fed had doled out more money to banks than the gross domestic product of the United States—an amount nearly five times the size of the U.S. government's annual budget. This money not only went to America's biggest banks, but to foreign banks in Europe and Asia, and Congress had no knowledge of it. The mainstream media largely ignored the results of the audit.
The partial audit revealed that William C. Dudley, who was a senior official at the Federal Reserve Bank of New York at the time, owned stock in the insurance firm American International Group (AIG) when the Fed bailed it out.
The Federal Reserve Transparency Act had the support of both Democrats and Republicans in the House and passed 327 to 98. However, Senate Majority Leader Harry Reid refused to allow the Senate's version of the bill to come to a vote.
Bernanke wrote letters of praise to Congress members who had opposed the bill. “While the outcome of the vote was not in doubt, your willingness to stand up for the independence of the Federal Reserve is greatly appreciated,” Bernanke wrote. “Independence in monetary policy operations is now the norm for central banks around the world—and it would be a grave mistake were Congress to reverse the protection it provided to the Federal Reserve more than 30 years ago.”
When it comes to Federal Reserve independence, the media comes down firmly on the side of the Fed.
“We really don't want the posturing blowhards who have brought us government shutdowns, mindless cuts in government services and six years of legislative gridlock in charge of managing our money,” business columnist Darrell Delamaide wrote in a Feb. 3, 2015 article in USA Today.
In July 2009, during the depths of the housing bust, MediaNews Group newspapers in Northern California ran an editorial in defense of Fed independence. The op-ed stated that Bernanke was taking criticism from both sides of the aisle in Congress due to the Fed's failure to uncover unsound lending practices by financial firms.
“It is essential that the central bank remain independent of congressional influence, which could result in financial decisions by the Fed being based more on partisan politics than sound economics,” the editorial stated. “The Fed should be given a chance to show that with some additional new authority, it can keep a check on the lending practices of financial institutions without the aid of a new consumer protection bureaucracy and the meddling of Congress.”
This mantra of central bank independence is not a uniquely American phenomenon. Most central banks around the world are independent from their national governments. Most are owned by their member banks and regulated by the Bank for International Settlements (BIS) in Basel, Switzerland.
The BIS is a private corporation not under the jurisdiction of any country and operates above the laws of any nation. Its officials are unelected and unaccountable to governments. The salaries of its employees aren’t even subject to taxes. In Basel, the central bankers of the world act in concert, by agreements arrived at in secret meetings and conferences, not subject to the scrutiny of the press or oversight by any government agency.
Since the formation of the Fed, our nation has experienced a century of economic turbulence. We have lurched from economic crisis to economic crisis. Under the stewardship of the Fed, we experienced our worst economic collapse, the Great Depression, which many argue was caused by the Fed. Yet the mantra of Fed independence is repeated decade after decade even as financial turmoil continues to roil the economy to our present day and Fed actions become increasingly suspect and economically harmful to most Americans except the richest few. All the while, supporters of central banks repeat the mantra of central bank independence as if it is a sacrosanct economic truism and a necessity for economic stability, despite historical evidence to the contrary.
Where did this mantra come from?
The origin of the mantra can be traced back at least two centuries to a very specific group of people who had a very specific agenda. Georgetown historian Carroll Quigley told us the origins of the axiom of central bank independence in his book Tragedy and Hope.
Quigley tells us the concept was promoted by the international banking dynasties of Europe that rose to wealth and power in the 19th century. “The names of some of these banking families are familiar to all of us and should be more so,” Quigley wrote. “They include Raring, Lazard, Erlanger, Warburg, Schroder, Seligman, the Speyers, Mirabaud, Mallet, Fould, and above all Rothschild and Morgan.”
Quigley wrote, “The influence of financial capitalism and of the international bankers who created it was exercised both on business and on governments, but could have done neither if it had not been able to persuade both these to accept two ‘axioms’ of its own ideology. Both of these were based on the assumption that politicians were too weak and too subject to temporary popular pressures to be trusted with control of the money system; accordingly, the sanctity and values and the soundness of money must be protected in two ways: by basing the value of money on gold and by allowing bankers to control the supply of money. To do this it was necessary to conceal, or even mislead, both governments and people about the nature of money and its methods of operation.”
Quigley tells us the international bankers had an agenda, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. “This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations.”
The international bankers abandoned the gold standard in 1971 when it no longer suited their purposes. But they cling to the axiom of central bank independence as if it is a life and death matter. Central banks must be independent from elected officials to ensure the agenda of the international bankers can continue to be implemented without political pressures from elected representatives of the people.
Many Americans today agree that monetary policy is too important a matter to be left in the hands of elected congressmen. But if monetary decisions are too important for our elected representatives, what about other important decisions, such as the decision to go to war? Or the decision to raise taxes? Or to make laws?
Under the Fed's logic, why should any important decision at all be left to congressmen who are subject to electoral pressures? But isn't the whole point of the electoral cycle to make our representatives accountable to the public—so that we can throw them out of office and replace them if they are making decisions that are adversely affecting our lives?
Congress was designed by the Founders to represent the interests of the states and of the American people at large. Congress members are directly elected to give we the people our most direct voice in the federal government.
Congress represents us, for better or worse. It is the voice of the people and of the states in the federal government, yet it is often maligned in our media.
Under the current monetary system, when monetary policy set by the Fed results in economic hardship for the American people, we use the power of the ballot box to throw the bums out of Congress and throw the bum out of the White House; but the bums who set the monetary policy remain entrenched at the Fed safe from the electorate, free from blame, and free from the threat of losing their jobs. There is no accountability for their actions.
It is Congress that created the Fed and it is in Congress where the Fed's biggest critics speak out against it today. Congress, impelled by the will of the people, has the power to kill the Fed. The bankers and the owners of the media know this. A strong anti-Congress propaganda effort has been at work to turn the people against any congressional action that would weaken the Fed's power.
Power in the United States today is concentrated in the Federal Reserve Bank. Today is the time for action to be taken against the bank—to fully audit it, arrest anyone involved in malfeasance, shut it down and put in place a new monetary system that is not controlled by a small clique of international financiers and the shareholders of banks and multinational corporations. We need to put Congress back in charge of monetary policy as the Constitution specifies.
Inflation hurts the majority of the American people the most when prices for the necessities of life rise while our wages stagnate and the value of our savings declines. If Congress were in charge of monetary policy, wouldn’t we throw the bums out of office if inflation started to adversely affect us? Wouldn’t we elect people who promised not to cause inflation?
Whether you believe Congress should take back its monetary authority depends on whether you believe in the American experiment of self-government. The current ruling class does not believe in the American experiment and prefers to have unaccountable private bankers in control of the money supply.
Since rule by the international bankers has been a disaster that is continuing to worsen, giving self-government and the Constitution another chance is at least worth a shot. If we continue with the current system, we are going to lose our country, our independence, our prosperity and our freedom.
When you hear arguments that the Fed must retain its independence, don’t believe the propaganda.
Independence of the Fed is a scam. It is about profit and power, nothing more. We the people must take back our money from the bankers and take back our country. What is needed is a popular movement that organizes to elect monetary reformers to Congress. It can be done.
Brian O’Brien is the author of “The Tyranny of the Federal Reserve.”
The argument goes that an independent Fed is able to base its decisions on sound economic principles rather than political expediency.
Because of constant pressure from electoral cycles, Congress cannot be trusted to make impartial monetary decisions. Congress might easily fall into the trap of inflationary policies and financial irresponsibility to gain short term political advantage, which can cause long term economic harm.
Fed independence removes political concerns from the monetary equation to allow for a more stable monetary system.
The consensus is that bankers are more responsible than our elected representatives when it comes to regulating our money supply.
Responsible bankers. Yes, it’s laughable. An oxymoron. But this was the logic that convinced Congress to delegate away its monetary authority to an independent central bank. And this is the logic that continues to be used to argue against more scrutiny of one of the most powerful agencies in the United States today.
Over a century ago, the Federal Reserve was deliberately designed to ensure its independence from Congress. The 12 regional Federal Reserve Banks were organized as private corporations that are owned and controlled by their shareholders, which are the member banks in each region. These 12 Federal Reserve Banks control the money supply. The Federal Reserve Board of Governors in Washington, D.C. conducts monetary policy and has oversight of the regional Federal Reserve Banks. The President of the United States selects the seven members of the Federal Reserve Board of Governors who are confirmed by the Senate. The Fed Governors serve staggered 14-year terms that span multiple presidential terms to ensure that no president can select all the members of the board. And because the Fed is self-funded by the revenue it collects from government bonds, no government agency controls its budget.
In 2007 on PBS's News Hour, Alan Greenspan, who served as Fed Chairman from 1987 to 2006, clarified the relationship between the government and the Fed. “Well, first of all, the Federal Reserve is an independent agency, and that means, basically, that there is no other agency of government which can overrule actions that we take,” he said.
No other agency of government has as much independence as the Fed. Arguably, no other agency of government has as much power.
Whenever Congress threatens to increase its scrutiny of the Fed’s decisions and actions, the press and Fed officials will recite the mantra that the Fed must retain its independence.
On Nov. 4, Fed Vice-Chair Stanley Fischer reiterated the mantra during a speech at the 2015 Herbert Stein Memorial Lecture National Economists Club. Fischer stated that economic theory has long postulated that central bank independence results in low inflation and financial stability. “The theoretical case for monetary policy independence focused on countering inflationary biases that were likely to exert themselves in the absence of an independent central bank,” he said. “Such a bias could result from political pressure to boost output in the short run—for example, before an election—or to use a central bank's power to issue money as a means to finance government spending.”
Federal Reserve Chairwoman Janet Yellen repeated the mantra on Nov. 16 in a letter to House Speaker Paul Ryan and Minority Leader Nancy Pelosi regarding the proposed Fed Oversight Reform and Modernization Act (FORM), which seeks to tie interest rate policy to a mathematical rule.
"Unfortunately, the FORM Act attempts to increase transparency and accountability through misguided provisions that would expose the Federal Reserve to short-term political pressures," Yellen said.
According to CNBC, the White House issued a veto threat for the bill reasoning that the proposal would politicize the Fed's monetary policy decisions.
This wasn’t the first time a Fed chair has spoken out against a threat to Fed independence. In 2009, Fed Chairman Ben Bernanke was outspoken in his opposition to the Federal Reserve Transparency Act and lobbied Congress to oppose the bill, which sought to subject the Fed to an audit from the Government Accountability Office. The Fed had previously resisted a partial audit in 2011 which revealed that between 2008 and 2009 the Fed had provided $16 trillion in secret low-interest loans to American and foreign banks and businesses during the downturn caused by the housing the bust. This $16 trillion was on top of the $700 billion Troubled Asset Relief Program (TARP) bailout of the banks that Congress authorized in 2008.
The 2011 partial audit revealed that the Fed had doled out more money to banks than the gross domestic product of the United States—an amount nearly five times the size of the U.S. government's annual budget. This money not only went to America's biggest banks, but to foreign banks in Europe and Asia, and Congress had no knowledge of it. The mainstream media largely ignored the results of the audit.
The partial audit revealed that William C. Dudley, who was a senior official at the Federal Reserve Bank of New York at the time, owned stock in the insurance firm American International Group (AIG) when the Fed bailed it out.
The Federal Reserve Transparency Act had the support of both Democrats and Republicans in the House and passed 327 to 98. However, Senate Majority Leader Harry Reid refused to allow the Senate's version of the bill to come to a vote.
Bernanke wrote letters of praise to Congress members who had opposed the bill. “While the outcome of the vote was not in doubt, your willingness to stand up for the independence of the Federal Reserve is greatly appreciated,” Bernanke wrote. “Independence in monetary policy operations is now the norm for central banks around the world—and it would be a grave mistake were Congress to reverse the protection it provided to the Federal Reserve more than 30 years ago.”
When it comes to Federal Reserve independence, the media comes down firmly on the side of the Fed.
“We really don't want the posturing blowhards who have brought us government shutdowns, mindless cuts in government services and six years of legislative gridlock in charge of managing our money,” business columnist Darrell Delamaide wrote in a Feb. 3, 2015 article in USA Today.
In July 2009, during the depths of the housing bust, MediaNews Group newspapers in Northern California ran an editorial in defense of Fed independence. The op-ed stated that Bernanke was taking criticism from both sides of the aisle in Congress due to the Fed's failure to uncover unsound lending practices by financial firms.
“It is essential that the central bank remain independent of congressional influence, which could result in financial decisions by the Fed being based more on partisan politics than sound economics,” the editorial stated. “The Fed should be given a chance to show that with some additional new authority, it can keep a check on the lending practices of financial institutions without the aid of a new consumer protection bureaucracy and the meddling of Congress.”
This mantra of central bank independence is not a uniquely American phenomenon. Most central banks around the world are independent from their national governments. Most are owned by their member banks and regulated by the Bank for International Settlements (BIS) in Basel, Switzerland.
The BIS is a private corporation not under the jurisdiction of any country and operates above the laws of any nation. Its officials are unelected and unaccountable to governments. The salaries of its employees aren’t even subject to taxes. In Basel, the central bankers of the world act in concert, by agreements arrived at in secret meetings and conferences, not subject to the scrutiny of the press or oversight by any government agency.
Since the formation of the Fed, our nation has experienced a century of economic turbulence. We have lurched from economic crisis to economic crisis. Under the stewardship of the Fed, we experienced our worst economic collapse, the Great Depression, which many argue was caused by the Fed. Yet the mantra of Fed independence is repeated decade after decade even as financial turmoil continues to roil the economy to our present day and Fed actions become increasingly suspect and economically harmful to most Americans except the richest few. All the while, supporters of central banks repeat the mantra of central bank independence as if it is a sacrosanct economic truism and a necessity for economic stability, despite historical evidence to the contrary.
Where did this mantra come from?
The origin of the mantra can be traced back at least two centuries to a very specific group of people who had a very specific agenda. Georgetown historian Carroll Quigley told us the origins of the axiom of central bank independence in his book Tragedy and Hope.
Quigley tells us the concept was promoted by the international banking dynasties of Europe that rose to wealth and power in the 19th century. “The names of some of these banking families are familiar to all of us and should be more so,” Quigley wrote. “They include Raring, Lazard, Erlanger, Warburg, Schroder, Seligman, the Speyers, Mirabaud, Mallet, Fould, and above all Rothschild and Morgan.”
Quigley wrote, “The influence of financial capitalism and of the international bankers who created it was exercised both on business and on governments, but could have done neither if it had not been able to persuade both these to accept two ‘axioms’ of its own ideology. Both of these were based on the assumption that politicians were too weak and too subject to temporary popular pressures to be trusted with control of the money system; accordingly, the sanctity and values and the soundness of money must be protected in two ways: by basing the value of money on gold and by allowing bankers to control the supply of money. To do this it was necessary to conceal, or even mislead, both governments and people about the nature of money and its methods of operation.”
Quigley tells us the international bankers had an agenda, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. “This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations.”
The international bankers abandoned the gold standard in 1971 when it no longer suited their purposes. But they cling to the axiom of central bank independence as if it is a life and death matter. Central banks must be independent from elected officials to ensure the agenda of the international bankers can continue to be implemented without political pressures from elected representatives of the people.
Many Americans today agree that monetary policy is too important a matter to be left in the hands of elected congressmen. But if monetary decisions are too important for our elected representatives, what about other important decisions, such as the decision to go to war? Or the decision to raise taxes? Or to make laws?
Under the Fed's logic, why should any important decision at all be left to congressmen who are subject to electoral pressures? But isn't the whole point of the electoral cycle to make our representatives accountable to the public—so that we can throw them out of office and replace them if they are making decisions that are adversely affecting our lives?
Congress was designed by the Founders to represent the interests of the states and of the American people at large. Congress members are directly elected to give we the people our most direct voice in the federal government.
Congress represents us, for better or worse. It is the voice of the people and of the states in the federal government, yet it is often maligned in our media.
Under the current monetary system, when monetary policy set by the Fed results in economic hardship for the American people, we use the power of the ballot box to throw the bums out of Congress and throw the bum out of the White House; but the bums who set the monetary policy remain entrenched at the Fed safe from the electorate, free from blame, and free from the threat of losing their jobs. There is no accountability for their actions.
It is Congress that created the Fed and it is in Congress where the Fed's biggest critics speak out against it today. Congress, impelled by the will of the people, has the power to kill the Fed. The bankers and the owners of the media know this. A strong anti-Congress propaganda effort has been at work to turn the people against any congressional action that would weaken the Fed's power.
Power in the United States today is concentrated in the Federal Reserve Bank. Today is the time for action to be taken against the bank—to fully audit it, arrest anyone involved in malfeasance, shut it down and put in place a new monetary system that is not controlled by a small clique of international financiers and the shareholders of banks and multinational corporations. We need to put Congress back in charge of monetary policy as the Constitution specifies.
Inflation hurts the majority of the American people the most when prices for the necessities of life rise while our wages stagnate and the value of our savings declines. If Congress were in charge of monetary policy, wouldn’t we throw the bums out of office if inflation started to adversely affect us? Wouldn’t we elect people who promised not to cause inflation?
Whether you believe Congress should take back its monetary authority depends on whether you believe in the American experiment of self-government. The current ruling class does not believe in the American experiment and prefers to have unaccountable private bankers in control of the money supply.
Since rule by the international bankers has been a disaster that is continuing to worsen, giving self-government and the Constitution another chance is at least worth a shot. If we continue with the current system, we are going to lose our country, our independence, our prosperity and our freedom.
When you hear arguments that the Fed must retain its independence, don’t believe the propaganda.
Independence of the Fed is a scam. It is about profit and power, nothing more. We the people must take back our money from the bankers and take back our country. What is needed is a popular movement that organizes to elect monetary reformers to Congress. It can be done.
Brian O’Brien is the author of “The Tyranny of the Federal Reserve.”
What a load of crap.
ReplyDeleteEconomic crises were much more frequent and worse before the Fed was created. It was not a decision of the Fed to abandon the gold standard. Central banks that are not independent have a much higher inflation rate than the independent ones. Monetary policy is conducted by the FOMC, not the Board of Governors. Etc.
A few points. The worst economic crisis in American history, the Great Depression, occurred after the Fed was created. Obviously, economic crises were not much worse before the Fed if the worst crisis in American history occurred after its creation. The housing bubble and subsequent financial crisis of 2007-2008 threw millions of Americans out of their homes and jobs. It was the worst housing collapse in American history--caused by risky bank lending and the policies of the Fed. The Fed was created in response to the Panic of 1907 to stop such crises from occurring again. But we have had far worse crises than the Panic of 1907 under the Fed's watch.
DeletePresident Nixon abandoned the gold standard in 1971. The gold standard was originally promoted by 19th century international bankers, such as J.P Morgan, who also gave us the Fed. Keynes called gold a barbaric relic. Most central bankers today are Keynesians and have abandoned the principles of the gold standard because it no longer suits their purposes.
Hyperinflation in the Weimar Republic occurred when Germany had an independent, privately owned central bank, the Reichsbank. The stagflation of the 1970s (high inflation, low wage growth) occurred under the Fed's watch. The dot-com bubble, housing bubble, tuition inflation, healthcare inflation, etc., all under the Fed's watch. Today, we appear to be in a stock market bubble caused by the Fed's QE policy, which has pumped billions into the stock market and inflated it.
The FOMC is made up of the Fed's Board of Governors plus five presidents of the 12 regional Federal Reserve Banks, which are privately owned corporations that pay dividends to their shareholders.
Three systems analysts of ETH Zurich, Vitali, Glattfelder, and Battiston, have shown the existence of a "super entity" which they call the Network of Global Corporate Control that controls 40 % of the assets and 60% of the earnings of the 43,000 companies traded on the capital markets. http://arxiv.org/PS_cache/arxiv/pdf/1107/1107.5728v2.pdf
ReplyDeleteThe Fed is nestled in the center of the Network of Global Corporate Control. Stay tuned as a coalition for the rule of law consisting of the BRICS, the G-77 (134 developing countries), and the US minus the Fed carves up that octopus. This is predicted with 90% likelihood by a power transition model from the US Department of Defense: https://s3.amazonaws.com/khudes/sentia+model.pdf
https://twitter.com/KarenHudes, on facebook at https://www.facebook.com/karen.hudes.10/ and many of the posts are at http://www.frank-webb.com/karen-hudes---updates.html . On Tuesdays at 6:00 pm EST I have a television series on DCTV, "The Network of Global Corporate Control" , which is livestreamed over the internet at http://dctv.org/Live archives are at https://www.youtube.com/user/KarenHudes