The Federal Reserve

In Economy on February 15, 2009 at 5:33 pm

I’ve recently been studying the Federal Reserve system and I’ve learned some interesting facts. First, “The Fed” is not a government agency. It is a collection of private banks under the governorship of a board, some members of which are government appointees. The rest are representatives of various interests, among them agriculture, manufacturing as well as banking and financial.

It’s interesting the control that this organization has on the U.S. economy and disturbing to realize that the Fed is not wholly acting in the interest of the taxpayer. By controlling the expansion and contraction of the money supply, the Fed can manufacture booms and economic bubbles such as we’ve seen with housing. It does this in several ways, among them, lowering the interest rate at which banks can borrow short term capital. When this capital is cheap, banks can lend more to consumers and investors who, in turn, purchase homes, invest in businesses, buy cars and the like. But this can only be sustained for a limited amount of time. At some point the Fed either has to print more money to cover the demand, which increases inflation, or they have to raise interest rates to slow down the borrowing process. This causes lenders to shorten up the credit supply and call in loans, bursting the bubble.

The trouble with the Federal Reserve Bank is that they can manufacture this cycle at will. If, for instance, the banking interests on the Federal reserve board of governors wish to increase their holdings in a particular sector of the economy, they have unregulated power to create and then burst a bubble, devaluing the assets that they wish to acquire so that they can be purchased at a bargain. Conspiracy theorists will tell that that this was the cause of the 1929 collapse and subsequent depression.

Whether the Fed has or has not used undue influence to further the fortunes of the banking elite is immaterial. The trouble is that they have the power, without oversight, to do so if they wish.

Do some research… just Google “Federal Reserve”. The stuff that Ron Paul has to say about it is generally right on. The Mises Institute has some interesting views as well.

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