'Dismantle the Fed!' hits the Mainstream

Single-payer health care would cover every American, encourage preventive care, slash adminstrative costs, and restore fairness and decency to medical practice. But we can't do it because it would incur a trillion dollar deficit over the next 10 years. A trillion dollars! That's called a dealbreaker.

Last fall the Federal Reserve gave away several trillion dollars to the Wall St bankers whose profligacy threw their firms into bankruptcy and created a credit shortage the world over. That's called being decisive and responsible in a crisis.

Before 1913, the United States Government printed and controlled its own currency, under full control of the Congress of the United States, as mandated in the Constitution. Then Congress created the Federal Reserve. Ever since, our economy is controlled by bankers and a few Presidential appointees with 10-year terms. They create and allocate money at their own discretion. They hold meetings behind closed doors and operate in secret. They lend money at below market rates to bankers (who, not incidentally, control their Board), which bankers turn around and lend money at above market rates to the public.

Until recently 'Abolish the Fed!' has been the rallying cry of a fringe of libertarians from Texas and Montana. But there are now 200 Congressmen who are shocked, Shocked! to discover that the Fed has been creating money and giving it away to Wall St without the deliberation, the oversight, or the accountability that assures our Congress is so well-disciplined and responsible.

And this week, William Greider, writing in The Nation, calls for abolition of The Fed. This is as close to mainstream as we've ever come. It may be that the spectacular greed of the bankers has finally opened our eyes.

Until the 1980s, our banking system was controlled and regulated. We understood that The Fed imposed a universal toll on the economy, but we were willing to give up a percentage of Everything for the wise management and the stability that luminaries like Alan Greenspan were able to provide. But since then, the toll has been exploding in cost, while the illusion of stability has been shattered.

Meanwhile, banking and finance went from a value of 12% of the S&P 500 to 30% at its peak before the crash. That's 30% of our wealth tied up not in productivity, but in the 'wisdom industry.'

The wisdom was supposed to take the form of wise allocation of capital. The bankers were supposed to be experts in distinguishing good credit risks from bad, assuring that the worthy were anointed with capital with which to build their dreams, while the unworthy were granted only a Darwin Award.

Who can pretend any longer that there was anything but arrogance and corruption in the Bankers' choice of whom to reward with loans? So exactly what did we get in exchange for their 30% cut?

The Agent of Change whom we elected to the Presidency last November is riding this train in the wrong direction. Obama has proposed augmenting the status of the Fed with new powers and privilieges.

Greider spells out the case for reigning in The Fed and imposing democratic governance over the guardian of the world's largest economy. He counsels caution and incrementalism, but the evidence he cites cries out for radical reform.

The obstacles to democratizing the Fed are obviously formidable. Tampering with the temple is politically taboo. But this crisis has demonstrated that the present arrangement no longer works for the public interest. The society of 1913 no longer exists, nor does the New Deal economic order that carried us to twentieth-century prosperity. The country thus has a rare opportunity to reconstitute the Federal Reserve as a normal government agency, shorn of the bankers' preferential trappings and the fallacious claim to "independent" status as well as the claustrophobic demand for secrecy.

Imagine if our national response to the current financial crisis had not been to pour trillions into the pockets of Wall St tycoons, but to dedicate this money instead to housing, employment, transportation, energy efficiency, infrastructure and medical care. Suppose we used it directly to employ people rather than indirectly to rescue insolvent banks. Suppose we had a new New Deal. I can dream, and so can Greider.

Many in Congress will be afraid to take on the temple and reluctant to violate the taboo surrounding the Fed. It will probably require popular rebellion to make this happen, and that requires citizens who see through the temple's secrets. But the present crisis has not only exposed the Fed's worst failures and structural flaws; it has also introduced citizens to the vast potential of monetary policy to serve the common good. If Ben Bernanke can create trillions of dollars at will and spread them around the financial system, could government do the same thing to finance important public projects the people want and need? Daring as it sounds, the answer is, Yes, we can.