Nowadays the Federal Reserve Bank is a regular punching bag in the blogs & social media. Misunderstandings of fundamental economic mechanics are commonplace. Misconceptions about financial history is the norm. Economic realities are skewed even further from the machinations of partisan politics; attempting to position themselves in tough economic times against an obscure system. This does not, however, make the general public right and salutary. It is quite the contrary. Governance of the Federal Reserve System in the United States deserves all the praise in the world. For 100 years it has acted in a way that has grown and stabilized the US & world economies. It has been a keystone of modern day economic strength. It has remained “Independent” through tough political times. It has navigated rough economic waters with the greatest of prowess & courage. In short; this post is me calling detractors of the Federal Reserve as full of shit.
For starters, my education gives me insight into this subject moreover than the average pundit & blogger. I have a Finance degree from New York University. I also have gotten my NASD (now FINRA) Series 7 & 66 in the past. This allows me to speak a bit more intelligibly about a subject that’s like walking into a hornets nest of nasty naysayers. The Left speaks of the Fed as a tool of the Oligarchical Power Elite; the “Banksters” so to speak. The Right claims the Fed is out to destroy America in cahoots with Tyrants of Globalization. The consensus is that the Fed is bad and on the verge of evil. None can be farther from the truth. The reality is far more mundane.
|Enlightened Thinking or Tyrannical Enterprise?|
Getting to the crux of the matter are two sticking points with the average political pundit: an “Independent” Federal Reserve System & the utilization of Fiat Money. Both are deemed arbitrarily as wrong; linking events of recent recessions to Monetary Policy. Fiscal Policy, Free Market Mechanics, & Regulatory environments are all to often totally neglected from the big picture. The secretive nature of a well-running Federal Reserve System, compounded with poor public relations, has left society with a modern day bogeyman.
The fundamental economic lesson taught in Business School Economics is that healthy Monetary Policy is contingent on an “Independent” Federal Reserve System. This means that in a strong, healthy society decision making is left to scientific inquiry; not political positioning. Government Politicians & Bureaucrats are not to impede Monetary Policy with their machinations. In the United States there is a fundamental system of “Checks & Balances” in the process of Governance. This has left a Constitutional framework that allows Economic Policymakers to act in the best self interests of the economy. This is a loose and almost haphazard reflection on what really occurs. Generally speaking, the purpose is to ensure society grows economically. Philosophically the can of worms is opened via this mandate. Inequality & success rates are so relative in the public political debate that the real workings of the Fed is lost. Moreover lessons learned over time of political mismanagement of Central Banks leaves future generations vulnerable to misunderstanding.
The greater misconception of Modern Finance & Economics is Fiat Money. The Gold Standard is looked at as the holy grail of stability. It is fantasized about as the golden age of the Dollar; blatantly disregarding economic history of the US and the World. Fiat money is seen as creating a declining dollar; implying that this is negative. Decline automatically equates to bad, bad, bad to the economic simpleton. This totally neglects the fact that commodity standard money is completely unstable and easily manipulated via arbitrage opportunities. It nearly bankrupted the US and Great Britain. Pax Britannica was put on their knees not simply via two World Wars, but by the fundamental economic collapse that followed from monetary instability. Furthermore, inflation is seen as the devil in all forms. This completely negates and ignores the reality of optimal inflationary pressures on a healthy economy. Deflation, high inflation, & stagflation are the real devils of a Country’s economic state.
All too often political pundits, talking heads, us the Fed as a punching bag to hide that they have promoted destructive Fiscal Policies. Poor Regulations & unfortunate fiscal decisions have left the Federal Reserve picking up the pieces of economic situations left for shit. My main point in all of this is that I wholeheartedly believe that we have a strong and vibrant Federal Reserve System. It is not perfect; it is not infallible. It is also not evil. If you want to know what truly has been evil is economic political policy post-WWII. The Federal Reserve has been around for 100 years now. It has been left to sweep up the mess politicians have left in the crusade against Soviet Communism in wake of the Hegemonic Cold War. This culminated in the worship of Ronald Reagan and the incarnation of Supply-Side Economics of the Right Wing. Reaganomic policies of “Trickle-Down Economics” have left the United States in far weaker terms than anything the Federal Reserve has done. During his “reign” Reagan saw huge interest rate increases. This was terrible for the Average American. The Fed got the Blame. Unfortunately Volker was mending a bloody wound left by rampant inflation of the late 1970’s and early 1980’s. Further interest rate manipulation to spur correct amounts of inflation, to grow GDP, has left pundits to claim that the US is in decline. Inflation is a reality. Monetary Policy is but a tool in a greater machine. It would be far more honorable to question Eisenhour’s assertion that we should beware the Military-Industrial Complex. Events surrounding this concept are far more enlightening to the true strength or decline of the United States of America. If the talking heads had their way, we would not be a scientifically sophisticated nation of economic Central Bankers. Instead we’d look more like Robert Mugabe’s Zimbabwe. If this is too cryptic to understand; it would be wise to study up on Geo-political economic realities & history.