Dismantling the Temple

Economic populist William Greider, writing in The Nation, makes the case against the Fed

Six reasons why granting the Fed even more power is a really bad idea:

1.†ˆIt would reward failure. Like the largest banks that have been bailed out, the Fed was a co-author of the destruction …The Fed instead allowed, even encouraged, the explosion of debt and inflation of financial assets that have now collapsed….

2.†ˆCumulatively, Fed policy was a central force in destabilizing the US economy. Its extreme swings in monetary policy, combined with utter disregard for timely regulatory enforcement, steadily shifted economic rewards away from the real economy of production, work and wages and toward the financial realm, where profits and incomes were wildly inflated by false valuations…

3.†ˆThe Fed cannot possibly examine "systemic risk" objectively because it helped to create the very structural flaws that led to breakdown….

4.†ˆThe Fed can't be trusted to defend the public in its private deal-making with bank executives…

5.†ˆInstead of disowning the notorious policy of "too big to fail," the Fed will be bound to embrace the doctrine more explicitly as "systemic risk" regulator. A new superclass of forty or fifty financial giants will emerge ….The Fed, having restored and consolidated the battered Wall Street club, will doubtless also shield a few of the largest industrial-financial corporations, like General Electric (whose CEO also sits on the New York Fed board). Whatever officials may claim, financial-market investors will understand that these mammoth institutions are insured against failure…

6.†ˆThis road leads to the corporate state–a fusion of private and public power, a privileged club that dominates everything else from the top down….

It's a pretty good list especially the points that too big to fail will be embraced even more under the idea of a "systemic risk regulator" and that this road leads to the corporate state.  Just consider the implications of Gary Gorton's proposal for the government to guarantee "senior tranches of securitizations of approved asset classes."

The natural conclusion of Greider's damning list would seem to be a monetary system truly independent of politics such as a commodity standard or free banking. Sadly, but not surprisingly, Greider's own proposal for a Congressional Monetary Office, something like the Congressional Budget Office, solves none of the fundamental problems. 


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