| The power to "print" money should be taken away from the Fed and returned to the federal government, where it existed before 1913, and where the constitution places it. |
| To make the story as simple as possible, banks can now borrow money short-term at near zero cost from the US Federal Reserve. The Fed has pushed rates to near zero in order to boost the economy. On the other side, banks can buy up US government bonds that are currently paying around 3.5% interest.
This means that we lend the banks the money that they lend back to us, albeit at a considerably higher interest rate. To take round numbers, let's say that the banks have borrowed $1 trillion from the Fed's various lending facilities. (The Fed's total loans are now over $2 trillion.) Suppose they pay an average interest rate of 0.2% on this money. If the banks then buy up government bonds that pay a 3.5% interest rate, they can pocket the difference of 3.3 percentage points. On a trillion dollars of lending, this will give the banks $33 billion a year in net interest or profit. This is the extra money that the government is paying the banks to borrow back the money that it lent them through the Fed. [T]he banking industry... have the system set up so that they should be able to make money pretty much regardless of what happens, with the risk of bad outcomes all placed on the taxpayers. Source: "Reverse bank robbery" by Dean Baker - guardian.co.uk - Monday 31 August 2009 In the current system, the Fed (actually a conglomeration of privately owned banks) creates money and funnels it into the financial industry. The financial industry then lends it to the government. This generates an enormous profit stream for the financial industry in the form of interest payments on the national debt. A better system would return the power to print money to the congress, where it belongs, so that the congress can create the money and cut out the middleman. That money could then be funneled into public works projects that would create jobs and restore the nations infrastructure without requiring massive interest payments to the financial sector. The worst thing we could do at this juncture is to hand more regulatory authority to the Fed. The Feds reluctance to dicipline the financial sector, along with its inclination to use it's money creating authority to skew the marketplace by bailing out financial institutions while leaving the rest of us to the cruelties of the "free market," are two of the primary causes of the current financial meltdown. The Fed is happy to ensure the health of the financial sector, no matter the cost, in order to protect the bloated incomes of its participants, while at the same time, it is disturbed by the suggestion that tamping down inflation constrains wages in the manufacturing and services sectors, where real products are actually produced. (Never mind inflation, i.e. bubbles, in the financial sector.) Fed chair Ben Bernanke ...insisted [this] would amount to "a takeover of monetary policy by the Congress." He did not appear to recognize how arrogant that sounded. Congress created the Fed, but it must not look too deeply into the Fed's private business. The mystique intimidates many politicians. The Fed's power depends crucially upon the people not knowing exactly what it does. Source: "Dismantling the Temple" By William Greider - The Nation - July 15, 2009 |
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