Most Americans have no idea what the Federal Reserve is, despite it being one of the most important institutions affecting their lives. Most of the foundersparticularly Thomas Jefferson and James Madison (later Andrew Jackson and Abraham Lincoln) opposed what is today the Federal Reserve. All opposed or destroyed a private central bank because they did not want the country to be beholden to speculators and moneyed interests. Sometimes ignorance is bliss, sometimes it's misery.
Today, on the cusp of another Quantitative Easing program set to commence, perhaps its time to let people know what the game is.
Some points first:
- The real and overall economy can not be controlled. If this were possible every country in the world would have continual, sustainable and exponential economic growth every year. There would be no recessions let alone "Great Recessions" or depressions. The reality is that the best that poliymakers can hope for is to influence the economy with various incentives and stimulations.
- Fiscal policy attempts to incentivize and stimulate the real economy through taxes and government programs (spending). Notable recent attempts would be the Bush tax cuts of 2001 and 2003 as well as the Bush-Obama economic Stimulus packages of 2008 and 2009 respectively.
- Monetary policy attempts to incentivize and stimulate the real economy with changes in the supply of money, typically through the manipulation of interest rates. Notable recent attempts were the lowering of the federal funds rate to 0% to foster more bank loans and therefore economic growth from business activity created by the loans as well as the First round of quantitative easing where the Federal Reserve created money to buy mortgage-backed securities and long term treasury bills to improve the credit market.
OK, most Americans understand fiscal policy. They deal with trying to control spending in their personal finances and vote on taxes and spending in local, state and federal elections via candidates who, in theory, run on a fiscal policy platform they will execute once elected. In contrast, monetary policy is not even understood theoretically by most Americans.
Beyond the theory is the practice, and the practice is basically giving away the nation's wealth to speculators and moneyed interests. Even if the Federal Reserve were not packed to the gills with financiers who directly benefit from its policies (case in point Jamie Daimonwho is both CEO of JP Morgan AND a member of the board of directors of NY Fed Reserve ), its stated reason to be and strategy are suspect. According to Ben Bernanke, current Chairman of the Federal Reserve, "Monetary policy works for the most part by influencing the prices and yields of financial assets, which in turn affect economic decisions and thus the evolution of the economy." Did you get that? The entire strategy is to stimulate Wall Street, it's not a byproduct or ancillary aspect of the policy it's the whole idea!
The game is to take the wealth, in the form of money and credit, from the American worker and taxpayer and give it to Wall Street. The hope is that by stimulating Wall Street's "financial assets" wealth will trickle back down to that worker and taxpayer...somehow.
Beyond the ethical problems with robbing middle class Peter to pay rich Paul are the economic distortions created by the game. The constant stimulation of Wall Street by the Federal Reserve leads to speculative bubbles that eventually burst. Those bursts cause more damage to the real economy than any positive effect the bubble had - making the entire process a net negative.
As if to add insult to injury, the American worker and taxpayer is often forced to bailout the same moneyed interests, who using the mechanism of the Federal Reserve, stole their wealth in the first place. The system is truly feudal with the FIRE sector ruling over the country like nobles as we all serve them like serfs, but then again the average American is only a pawn in their game.