The Fed's "Independence" Argument Is False

George Washington's picture

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B9K9's picture

Zero Hedge has such a well informed reader base that it represents an excellent place in which to educate people as to the true nature of the Fed. First of all, let us dispense with the notion that it acts in the interests of its "owners", the private banks that comprise its nominal control. Secondly, let us deflate the belief that some sort of evil conspiracy was cooked up to create the Fed in the first place.

If we are to win the battle for free-markets, the primary culprit must first be indentified: the US government. Yes, it is they who created this monster and it is they who did it for a very simple reason: to enable the further growth of government via stealth taxation ie inflation. It is a mistake to think Ben is executiving monetary policy on behalf of the individual banks. They are simply (extremely) well paid agents doing the work of the federal gov't.

Murray Rothbard discusses the emergence of government created central banking in this paper:

Here's a key excerpt:

But if government can find ways to
engage in counterfeiting—the creation of new money out of
thin air—it can quickly produce its own money without
taking the trouble to sell services or mine gold. It can then
appropriate resources slyly and almost unnoticed, without
rousing the hostility touched off by taxation.
In fact, counterfeiting
can create in its very victims the blissful illusion of
unparalleled prosperity.

Counterfeiting is evidently but another name for inflation—
both creating new “money” that is not standard gold
or silver, and both functioning similarly. And now we see
why governments are inherently inflationary: because inflation
is a powerful and subtle means for government acquisition
of the public’s resources, a painless and all the more
dangerous form of taxation.

Anonymous's picture

yeah the government is more smart then the FED.
Our money will be safe...

ps: I bought a bag of cheezy pufs today and the vending machine didn't give me my change back! I NEED A BAILOUT MISTER CONGRESMAN!

gigeze787's picture

On MTP Greenspan attempted to imply that his policies were not influenced by "political short-term considerations." But that is exactly what he did by giving Bush a green light to massive deficit spending and an "ownership society" based on Alt-A and Subprime loans. Greenspan should be in jail...

NBC MTP, Sunday, 13 Dec 2009 - transcript (video at link):

MR. GREGORY:  Are you worried about the Fed's independence?

DR. GREENSPAN:  Very much so.

MR. GREGORY:  What do you think the consequences of some of the legislation on Capitol Hill are now?

DR. GREENSPAN:  If, in fact, specifically, they take away the amendment that was passed in 1978 which prohibited the GAO, the General Accounting Office, from auditing monetary policy, if that is removed, I think that will very significantly compromise Federal Reserve independence.  And what you will be getting is a monetary policy more dedicated to political short-term considerations, not to the longer-term considerations which the Federal Reserve Act was specifically constructed to do.

agrotera's picture

  The independence of the Fed is independence to keep all legislating in their is just so evil.

Rick64's picture

Audit the FED!! No audit defies common sense.

Rick64's picture

This is the man they called the wizard. I'd rather have a normal joe running things than an economic wizard. I haven't been too impressed with these types. Now the derivitive markets are so complicated its almost impossible to regulate. He was adamantly against the regulation in 1998 when it was only a 25 trillion market. Didn't see any danger there even after LTMC. (which was a hedge fund) that was leveraged 1.25 trillion to 4 billion in capitol. Is this guy lying or is he really that stupid.

Rick64's picture

Well its easy to critisize, and in the FEDs case really easy. Greenspan gave testimony before the House oversight committee where he admitted that his economic philosophy was wrong. This is after how many years in the Fed and in financial markets and at whose expense did he learn. He believed that banks and financial institutions would protect the investor and shareholder. Are you fucking kidding me? He didnt believe fraud needed to be regulated and the market would take care of itself. Really? where did he get these crazy ideas? Maybe partly from his wife.

Anonymous's picture

The mission of any Central Bank is to facilitate commerce and trade through a common means of exchange, or "credit" (vide Adam Smith). Any other purposes are contrary to the needs of the People who avail themselves of such services. The argument that the CB must "conduct monetary policy" is thus clearly fallacious, because it is derived from a false assumption that a "balance" must exist between money and goods. Credit is not money. Credit is a contract based on trust, not a promisory note to pay back, and much less with interest. Indeed, the People can extend an infinite credit to themselves, if they so wish. It is the mutual trust that they have a difficulty with. The "independence" of the CB can thus be asserted under only one premise - that of the holder of trust. If the CB wishes to collect a fee for its services, the so called "interest", then its amount should be determined by the People, and only by the People, in sofar as the CB, by its exclusive charter, is a monopoly exempt from open market competition. Clearly, allowing lower fees to money institutions a.k.a banks, whether "investment" or "commercial", or otherwise, and higher fees to the People, is illegal. Everybody, without exception, must be treated in the same manner. Otherwise, the role of the CB in the society at large is null and void.

digalert's picture

Taking dollar strength, economy, bank regulation and employment alone warrants an F for fail. What was bubble Ben doing in 2007, getting his head polished?

Then the TARP blunder for this Too Free To Continue (TFTC) institution should be enough to pull the rug on the FED. While congress was voting on TARP for one thing, shifty Paulson and bubble Ben already had other plans.

At the very least, "these powers were given way back when" BBBernanke needs a short leash with a choke chain.

Anonymous's picture

when is Tiger foreclosing ?

Anonymous's picture

If they claim independence is so necessary and and audit to be counter to this need, why do they also claim to be fully audited already?

Anonymous's picture

Let us see how many fools think Fed independence has anything at all whatsoever to do with money!

It doesn't.

The reason that the Fed is to not be touched is because it is absolutely without a doubt politically fallible. An organization that seeks ONLY to preserve the rich and acting on their behalf.

Even Ray Charles can see that it is, and has been and seeks to be.

The Red Herring is that the Fed seeks anything at all whatsoever in the best interest of Main Street (with gimmicks and chicanery such as "employment.")

They are a puppet of the rich and have acted on none other than their behalf - nothing less.

Anonymous's picture

The hottest place in hell is reserved for those who remain neutral in times of great moral conflict.

call/ Email your congressman/woman show them your outrage.

What is the FED? Its job is to preserve its wealth against all comers ,including the American voter.

DaveyJones's picture

"In response, the Fed says that an audit would interfere with its "independence'."

two letters short of the truth

Careless Whisper's picture

These guys at the Fed have the biggest fcukin' balls in the world. How dare they think that they shouldn't be subject to an audit.

drbill's picture

Tsk tsk. How dare you question our superoirs!!

ghostfaceinvestah's picture

The Fed should be independent of the Administration, not Congress who abdicated their Constitutional rights to it.

As it is the Fed is independent of Congress, but very much in bed with the Administration (e.g. the Fed bailout of the GSEs by buying their product, allowing the Administration to kick the fate of the GSEs down the road).

This is the exact opposite of how it should be.

Gubbmint Cheese's picture

Ghost.. loved your comments about the mbs purchases via CR today.. was wondering if you follow the Cdn version of Fannie and Freddie (the CMHC) - I get the feeling we are running our own version up in these parts.

Do you run a blog at all?



Rainman's picture

Well, I guess since the Prez does the Chair appointment, the Fed is a creature beholden to the Executive Branch. Congress is the rubber stamper. Maybe it needs to be turned around. That Fed/Treasury linkage reporting to the same boss is a mighty strong combo for reinforcing power plays.

When 2 branches of government are riddled with corruption and/or incompetence , it ain't easy to suggest a reporting structure that would be entirely untainted by politics.