What if rich bankers had the power to give themselves free money, creating it out of thin air? What if this decision were made not by elected officials, but by unaccountable lords of crony capitalism?
This is reality in America today. The institution with this power is called the Federal Reserve. It only gives free money to rich banks, not small businesses or ordinary people who could use some financial help -- those people are left to suffer the consequences of rising prices and increasing economic inequality. And there is no way we can vote to replace the officials at the Fed who are responsible for this reverse Robin Hood economic policy -- they don't have to run for election!
The free money for the rich is called "quantitative easing" (QE). Here's how it works: The Federal Reserve buys federal treasury bonds from big banks, at an artificially high price. The banks pocket the profit and invest it in other assets such as stocks, driving up their price and making more money. The Fed could buy the treasury bonds directly from the U.S. Treasury Department, but that wouldn't give free money to the banks, which is the whole point of QE.
The Fed also buys toxic mortgage-backed securities from banks that want to get these bad investments off their books. The Fed doesn't help homeowners struggling with bad mortgages, however.
In other words, an unelected institution, the Federal Reserve, is giving corporate welfare to wealthy investment banks, and stiffing everyone else.
This is obscene. There are plenty of struggling businesses and people themselves who could use the money -- and make much better use of it in the economy, stimulating demand and creating jobs -- rather than giving it to banks that use it to make more money for themselves and their executives rather than loaning it out into the real economy.
Furthermore, the policy of quantitative easing artificially inflates the stock market and other markets around the world, creating financial instability and increasing the likelihood of a crash, another 2008-style financial crisis, and another round of bank bailouts (even more corporate welfare for irresponsibly over-leveraged investment banks).
In 2013, the S&P 500 index went up 30%. So far in 2014, it's already down 5%, and falling fast. Emerging markets are in even worse shape, and currencies such as the Turkish lira and Argentine peso are collapsing. Why? Because the Fed decided to "taper" the QE.
In other words, the financial markets became addicted to QE, like a drug, and when it's withdrawn -- when even a little bit of the QE is reduced -- markets and currencies around the world begin to crash.
The world economy has become trapped in a nightmare scenario, in which the only way to "prop up" the markets and prevent financial catastrophe is to keep creating more and more money and giving it to rich banks, so that they can inflate the next bubble (stocks, commodities, housing, student loans, whatever). The economy is now just a big, rigged game of "bubble musical chairs." Round and round the free money for the rich goes, first into one asset class, then another, as bubbles form and pop -- enriching the insiders with political connections every time, but destroying the wealth of ordinary people in the process. From the point of view of the bankers who run the Federal Reserve, perhaps this is a feature, not a bug.
One day -- and that day may be coming soon -- the music is going to stop. When the last bubble is blown, what may "pop" is the entire economic system as we know it. Something will have to be created to replace it. We'd better start thinking about what that should be.
The kind of collusion, corruption, and systematic threat to the financial well-being of the public that we see today with the United States Federal Reserve has no place in a democracy. We must find a way to stop the vicious cycle of free money for the rich and repeatedly inflating and popping asset bubbles, and transition to a more stable, sustainable economy for all.
Most importantly, we must make sure that the new economic system has an aspect of democratic accountability: The people who decide how much money to create and whom to give it or lend it to must be required to run for office and compete for the votes of the people. A "Federal Reserve" type of institution -- a central bank for a society -- must answer to the public at large. Otherwise, we are simply living in a dictatorship of the bankers. We the people must figure out how to change this and create a better, more democratic economic system for everyone.