Index

From ELECTRONZ – 440 Weekly international Ezine focusing on the New Economics, 26 October 2004:

Government and the finance industry have agreed that the term "independent" to describe their status is a good one, because the word "private" would be likely to evoke awkward questions, particularly when its governor is making recommendations that seem contrary to the country's economic interests. And so the convention happily continues. However, despite that word providing a sort of cover-up, there have been occasions when highly placed political groups have made very frank comments about its activities and suggested fundamental changes. This of course spurs various lobby groups into appropriate action to entrench the status quo, and protect the "Fed" against any changes. One such occasion was when the U.S. Congress Subcommittee on Domestic Finance, chaired by Wright Patman, published a virtual textbook on finance, aimed at assisting Congress and the public to better understand the American financial system. Its preface went so far as to say that it was an attempt to help "students, and all others interested in the study and improvement of our monetary system." -- then offered a range of fundamental improvements for serious consideration, which immediately kicked lobby groups, Wall Street correspondents, and supportive big businesses into top gear to minimize the "damage" that such reforms could cause.

So efficacious were their combined efforts that with the publication this year celebrating its 40th birthday, it appears that really nothing has changed, so it seems appropriate to have a further look at how the Patman Committee saw the situation then, and their recommendations for change, so we lift straight out of the Supplement to that Report, titled "Money Facts, 169 Questions and answers", for further consideration:

"Q.163: Is the Federal Reserve independence inefficient?

(A:) Absolutely. We now have two centres of economic policy making. One is the President and Congress. The other is the Federal Reserve Board. Both these policy-making centres control powerful economic tools. Each can turn the economy in any direction it wishes; yet neither has full control. As things stand now, policy-making is run like a dual control car, driven by two drivers, one of whom insists on his independent right to use his own brake, and accelerates as he and he alone thinks fit. It is pure luck that the motor is not constantly stalling. This is no way to run economic policy making. Both the speed and direction signals controlling the economy should come from one, and only one, source - which must be the President and Congress in our democracy.

Q.164: Is their "trustee" notion of monetary policy-making alien to American democracy?

(A:) Of course. The claim that people do not know what is good for them, and therefore a small group of men should be given the power to make the decisions, and then to take action, without being held accountable to the people, is 100% undemocratic. The essence of democracy is that people decide for themselves, through their elected officials, what is good or bad for them".

Further, to give monetary control to a group like the Federal Reserve is to hand over enormous power, unfettered by responsibility to anyone... The Federal Reserve's ideas that they should be considered trustees rather than stewards’ runs counter to anything that Americans have believed about power and responsibility since the founding of the Republic.

"Q.165: Who favors Federal Reserve independence?

A: The private banks who control the System, together with some allies: notably Wall Street newspapers, and other members of the financial community.

Q.166: Has the Federal Reserve demonstrated superiority in the management of monetary matters?

(A:) On the contrary. The Federal Reserve's persistent fear of a bogey-man ", inflation", has led it to slow our economy's growth and cause periodic recessions, and moreover, to maintain "tight money" even during periods of recession and economic slowdown".

Our Comment: The Committee then listed numerous changes it wanted, including; reorganising the "Board"; abolition of the Free Market Committee; introducing "accountability" with audits; reducing the influence of "private " banks on the System; and terminating the selling of (U.S.) Government Securities through a small group of preferred dealers, adding the blunt assertion, "There is no reason to guarantee Government Bond dealers vast profits." To which we would add; especially when they can acquire that Stock by merely honouring their own checks, with the traditional banking privilege.