Is the Federal Reserve nothing but a tool for big banks? According to an op-ed by Sen Bernie Sanders (I-VT), it sure looks that way. The presidential candidate and hero to millions of progressives made the case for an audit, tighter controls, and other measures to rein in the nation’s central banking system.
There are clearly problems with the Fed and it’s very mixed charters to tame inflation, encourage full employment, maintain the value of the US Dollar, and regulate banks. The more presence and power the Fed gains the more this is an important issue. But today’s “progressives” aren’t in a mood for just reform – many are in a mood to “End the Fed!”
While that position is understandable it’s horribly misguided. But it’s a great highlight for the tension inherent in not-that-subtle difference between a “liberal” and a “progressive”. And it’s ultimately a rather irresponsible position that Sanders is taking.
The op-ed had three major criticisms of the Federal Reserve as we know it:
- We must end the cozy relationship with the banks they are supposed to regulate,
- Banks should not be paid interest on the $2.4T in idle money on deposit at the Fed,
- Now is not the time to raise the Fed Funds Rate,
- The Fed should be audited, and
- A new Glass-Steagall separation needs to be passed.
That’s quite a list, and it adds up to a Fed in need of wholesale reform. But the Senator is off base to the point of demagoguery on many of these points.
Certainly, the cozy relationship between the Fed and the banks they regulate is a serious problem – serious enough that it warrants looking into whether or not this enforcement should be returned to an agency within the Treasury Department, leaving the Fed with the roles of a traditional central bank. That point should not be in dispute among anyone serious about reform.
The other points, however, are much less black and white. Paying interest on deposits may not be palatable, but Congress passed a law requiring it in 2006. It would be good to repeal this law and send the idle money forth into the economy, yes.
As for raising the Fed Funds Rate, it’s a good idea for many reasons – starting with the repatriation of money that left our shores when rates came down. It’s also a good idea to raise rates to get us out of the “liquidity trap”, which is a situation where money is so cheap that investors are nervous about taking a risk with it because the reward is so thin. It does indeed directly relate to the money on deposit at the Fed as “idle money”.
The other points, auditing the Fed and reinstating Glass-Steagall, have been covered here before. In the absence of wholesale reform they both seem like empty things to worry about, given much bigger problems.
This criticism is one thing, but the way the message is being received by young progressives is a different problem altogether. Progressivism, as a movement, has always been populist by nature – and highly skeptical of big government. Those two elements, closely related, are what separates it from Liberalism – generally expressed as a belief that strong government is a necessary counter-balance to big business.
The battle over the Fed stands out in this tension between factions and generations of the left for two good reasons – history and power.
Today’s progressives are even more skeptical of government than the movement was a century ago as the movement began to assume real power. It is often better to refer to them as “left libertarian”, a phrase that doesn’t roll of of anyone’ tongue. In essence, they are more anarchist in nature.
They also tend to be believe in conspiracy theories, seeing the march of history as an epic power struggle with nothing left to chance. It’s a degenerate form of the old “Great Man” view of history as the march of great leaders doing great things. In the conspiratorial version, intents are much darker and power always corrupts.
Today’s Fed is a lightening rod for this group because it does wield an awful lot of power and influence. Sanders feeds into this by starting with the far-too-cozy relationship with big banks before going into the litany of other issues as if they are related. In other words, raising interest rates is part of a great conspiracy.
If that sounds crazy to you, here is an article that goes off in that exact direction. Nevermind that the person who wrote it is nearly quoting from “The Creature from Jekyll Island”, a book by John Bircher and general crankshaft G. Edward Griffin. Today’s conspiracy theorists often blend far left and far right.
Which leads us to the “End the Fed!” movement of Ron Paul, prominent not-so-left libertarian and former Congressman. When so-called “progressives” start entertaining ideas like this we have a very serious problem on our hands. The creation of the Federal was an early victory of the Progressive Movement, championed by Carter Glass (of Glass-Steagall, no less) for the purpose of breaking the monopolies enjoyed by private New York banks. Loose credit, as championed by WJ Bryan (among others) was the main goal.
That’s the real problem with this piece by Sanders, in the end. It feeds into a dangerous serious of beliefs that are utterly wrong historically, financially, politically, and rhetorically. While it may be great red meat for his base, this laundry list and the ideologies it fuels are not exactly progressive in many key ways.
This is the problem with a call for “revolution” – you never know who or what might end up under the guillotine. Reform the Fed? Sure – especially since it is gaining power and influence in other ways. End it? Well, if you’re not more suspicious of what would fill the vacuum you can propose what you want. But prudent minds are much more careful what they wish for.