February 5, 2008
Questions about the underlying structure of America’s monetary policy are becoming increasingly important on the national stage after what economists are calling “wild” rate cuts by the Fed.
Jim "Mad Money" Cramer, a financial guru with a television show on CNBC, called for an investigation of the Fed during an interview with Wall Street Confidential. He criticized the institution for allegedly causing every "boom and bust business-cycle," for the recent interest cuts, and more. He was also severely critical of the new chairman, Ben Bernanke.
"The Federal Reserve created the stock bubble with low margin rates and it created the housing bubble with low mortgage rates, yet I never hear about anyone talking about investigating the Fed," he said on his show. "It’s a creature of Congress, why don’t we do it?"
He featured Republican Presidential candidate, Rep. Ron Paul, who said the Federal Reserve is more secretive than the C.I.A., and that it should at least be audited by Congress, if not totally abolished.
Paul went on to discuss the problems associated with the idea of a central bank engaging in "central-planning."
"If you believe in free-enterprise and capitalism, you should have the market forces determining interest rates," he said. "It’s the distortion of interest rates by manipulating the money supply that causes these bubbles to form." The current chairman of the House Banking Committee is taking an interest in these matters and is better than past leadership, Paul also noted.
Congressman Paul’s comments echo a common argument made by economists critical of the Fed; manipulations in interest rates and the supply of money by the Fed cause bad investments. They argue that interest rates should be determined by the market.
In fact, the idea of a strong central bank with control over credit can be found among Marx’s 10 Planks, along with a progressive tax on income and a state-run education system. In a society based truly on free-enterprise, interest rates would be set by the market.
The Fed’s recent cuts, three-quarters of a percentage point, lowered interest rates to 3.5 percent. Critics say this is simply going to cause more inflation, which is already out of control, leading to an even further depreciation dollar. This is likely to be exacerbated by other Fed actions as well, such as the planned injection of $60 billion into the economy through an auction this month. According to the AFP news service, the Fed plans to "conduct biweekly auctions for as long as necessary to provide short-term liquidity to banks."
The recent rate cuts came after economic planners at the Fed, already supposedly scared of a recession in the U.S., realized there was trouble in Asian and European markets. It turns out one of the central causes of these market problems was a rogue trader at a large French bank who made some terrible, enormous investments. He is now being prosecuted for fraud, but the point is that the Fed claims they didn’t have knowledge of this when they became alarmed and reduced rates. The Fed, even if we assume it is acting in the best interests of the American economy, will never be able to replace market forces in determining appropriate rates.
Another question now entering the debate is the Constitutionality of the Fed. Article I, Section 8 is clear when it gives Congress the authority to coin money and regulate the value thereof. The Constitution also states that no State shall make anything but gold or silver legal tender.
Congress created the Fed in 1913, the same year America was saddled with the income tax. The legislation that created it was written during secret meetings between the elite of the banking world on Jekyll Island. The museum that stands there today, now a Georgia State Park, names the conspirators in attendance.
Now, this privately held, virtually unregulated institution has the power to create money out of nothing, backed by the IRS and your wages, and charge interest on top of it. A bill in Congress, H.R. 2755, would change this by abolishing the Federal Reserve. To urge your Representatives in Congress to support this measure and help bring back a sound currency, click here.