Stop overTaxing Our People

Our Magic Piggy Bank 17 September, 2008

I heard it on the radio news. Taxpayers are bailing out AIG. It turned out the Fed(Federal Reserve Bank) was bailing out AIG. That is a big difference. The fact that even the news reporting can’t get this right concerns me. The truth is today, America may have become a temporary corporate state. We are seeing the economic power of America consolidate in the hands of a few planners who have government power to print as much money as they see fit.

In 1913 the United States established an Independent central bank system called the Federal Reserve System headed by the Federal Reserve Bank and its politically appointed board of governors with banker appointed members of the open market committee. It was established to put professionals in charge of monetary policy. The Treasury Department had shall we say varying degrees of success.

The Federal Reserve by law is charged with keeping inflation under control, keeping us from deflationary depression, and keeping us as close to full employment. They have enormous power over the banking industry, the money supply, interest rates and now that depression era laws have been activated, investment banks. The maestros of the privately owned central bank have become the most important people in world. If I can find an hour this week, I will write about the implications of the bankers expanding their control to the insurance, investment banks and commodities. No promises though.

Many people think the Fed is a federal agency. Like Freddie Mac and Fannie Mae it is not really a federal agency, but unlike them (which were publicly held) it is privately owned. It is an amazing innovation. Instead of having political hacks running the money supply and then have to be bailed out by the bankers every 20 years, the professionals run the money supply by controlling the federal bond market, bank margins, and printing the money.

The money that the Fed is using does not come from the federal budget. It is not tax money. This unique ability to print money gives the policy makers a major temptation; it is to treat the Fed like a magic piggy bank (as Greenspan warned us against). It can do amazing things to stabilize the economy, but it comes at a price. Too much money equals inflation which is a silent tax on wages and assets. Allow the Fed to expand its scope too much and it becomes distracted from its historic and vital role. The reason companies like AIG ran into problems is that they became to diversified for anyone to manage. Imagine trying to control the variables of the global economy. No one can do it. If the Fed becomes too preoccupied, it may well miss the next crisis signal. For our own sake, we need an economic policy which restores risk management to the market place, a sound energy policy, and sound fiscal policy, and tax reform.