The Fed is a private bank owned by other banks. In the hands of the wrong people, it could be used at the peril of the entire nation. Any private central bank is driven by a small financial elite in secret boardroom meetings that are beyond congressional control. The power to create money is a double-edged sword even for a government, but at least a government must answer to the people in the public forum of a democracy.
The Treasury's Troubled Asset Relief Program (or TARP) moved "toxic" assets off the books of the culpable Wall Street derivative banks and onto the backs of the taxpayers. (here)
The key problem here is that government officials and Federal Reserve officials alike believe that the only way the nation can have a functioning credit system is to maintain business as usual on Wall Street. But this is not true. A public banking system headed by a truly federal central bank could provide all the credit we need.
To prevent corruption and abuse, the current system of money and credit would need to be made subject to the sort of public monitoring and control provided by the checks and balances built into the Constitution. Stephen Zarlenga, president of the American Monetary Institute, suggests that the U.S. money system should be organized as a fourth branch of government alongside the executive, judicial and congressional branches. The Fed is acting like a fourth branch now, but without the public oversight of a true government agency. Congressman Ron Paul has brought a bill (HR1027) to audit the Federal Reserve, and Congressman Dennis Kucinich told Congress earlier this month that he would soon be bringing a bill to nationalize the Fed.
Note, however, that if the Fed is nationalized and it continues to issue credit for the benefit of consumers, small businesses, and the government itself, it will actually be in the banking business; and that is indeed how it should be.
Our money system today is nothing more than a series of legal agreements between parties. "Credit" is merely an agreement to repay over time. While private parties and private banks should be free to lend their own money or their investors' money, we also need the sort of "credit" that is created on a computer screen; and that sort of credit, as money reformer Richard Cook observes, is properly administered as a public utility. The dollar is backed by nothing but "the full faith and credit of the United States" and should be dispensed and monitored by the United States. As William Jennings Bryan declared in his winning presidential nomination speech at the Democratic Convention in 1896:
"[W]e believe that the right to coin money and issue money is a function of government. . . . Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson . . . and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business. . . . [W]hen we have restored the money of the Constitution, all other necessary reforms will be possible, and . . . until that is done there is no reform that can be accomplished."
The Fed's credit facility could have two advantages over that of private banks: (1.) it is not subject to the lending freeze, and (2.) its profits would be rebated to the government, which would ultimately serve the taxpayers' interest. Nationalizing the Federal Reserve is the ideal solution; but while we are waiting for that development, the government can do the next best thing and tap into the very cheap, readily available credit provided by its own central bank.
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