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April 15, 2014

The Constitutional Crisis at the Fed

“Throughout its history, the U.S. Federal Reserve has faced accusations, on the left and the right, that it is the mere institutional puppet of powerful bankers who control it from within. Marriner Eccles, the liberal Fed chairman during the 1930s and 40s, called it the “instrument by which private interests alone could be served.” Ron Paul, the former Republican Texas congressman, writes that through the Fed “our money and credit are constantly manipulated for the benefit of a privileged class.”

“Today, because President Obama and, to a lesser extent, Senate Republicans have mismanaged the appointments to the Fed’s governing board, these views have become harder to dismiss. Under the Obama administration, for the first time in its history, Federal Reserve Bank presidents—essentially private bankers—have held a majority of votes on the Federal Open Market Committee (FOMC), the arm of the Fed that sets interest rates. In other words, by legal structure, private bankers, and not public appointees, can dictate U.S. monetary policy from the inside.

“The debate over private control of public money is nearly as old as the republic itself, dating back to the days of Alexander Hamilton, who built America’s first attempt at a central bank, and Andrew Jackson, who dismantled the second. By 1913, at the founding of Federal Reserve System, two rival views had emerged of what a modern central banking system should be. Some Democrats wanted a system in public hands—that is, a government-controlled central bank that could not be a front for the “Money Trust” dominated by New York City bankers. But Republicans almost uniformly argued that a government-run system was tantamount to socialism. They preferred a private-run system, based in New York, over which the government would have essentially zero control. Woodrow Wilson’s election in 1912 led the way to a compromise that put most monetary policy decisions in the hands of 12 privately run Federal Reserve Banks—all but one located outside of New York City—but subject to mostly ill-defined supervision by a government-controlled Federal Reserve Board based in Washington, D.C.”

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Read full POLITICO Magazine article here.

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