A system that gives the power to create money to private banks fuses and confuses monetary and financial issues. It’s hard to see clear choices, and when the money system fails, the economy fails along with it.
The Fed’s Board of Governors is tasked with paying attention to the national economy: it must “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Those are economic issues that could be decided in the marketplace. However, with the power to create money, the private banks, financial institutions and their central bank direct the entire economy. So, they are tasked with paying some attention to the economic impact of their choices.
However, the central Fed’s economic goals are impossible tasks. The best decisions require an independent and diverse group of people, so giving a small group of like-minded elites the power to make economic decisions for a $20 trillion (2017) economy is a recipe for poor long- term results.57
The Fed knows this on some level; as I read through the Fed publication, The Purposes and Functions of the Federal Reserve Bank, 2005.58 I was struck by the power they hoped to be able to exercise over our economy - not so much the money supply, but over the entire economy. But they repeatedly use words like, difficult, hard, unpredictable. They readily acknowledge their mission, “to provide the nation with a safer, more flexible, and more stable monetary and financial system,” while maximizing employment and keeping interest rates low, is no easy task. Timothy Geitner, a former Head of the NY Federal Reserve, told Charlie Rose in May 2014, “Financial systems are inherently unstable.” 59 His excuse was a don’t blame me apologia for the 2007 meltdown.
The truth is, all financial systems are not unstable. But systems tied to unstable monetary systems, such as fractional reserve money creation, certainly are.
The Fed acknowledges their own goals often conflict under our current system: more flexible money means less stable; safer may mean fewer jobs; lower interest rates hurt some and not others; their target inflation rate of 2 percent is good for some people in the community and bad for others; maintaining stability and “containing systemic risk that may arise in financial markets” requires prioritizing the health of Wall Street over the health of Main Street.
Our 1913 Federal Reserve Act tied an economic mission to our monetary system, and assigned a central bank the task of using its influence to maintain a healthy economy. Keeping in mind a small elite bunch of group thinkers will almost never make the best choices, we have saddled the nation with a money system that benefits a few, and set it up so it will constantly make second best decisions about how our economy should change, and exercise inadequate and sometimes counterproductive tools to try to make their changes happen.