Re: Feedback (was Re: financial times article)

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Harry Veeder wrote:

> If the Fed is owned by the America People, then the Fed as lender of last
> resort is lending The People's money rather than Greenspan & Company's
> money.

Populists thought that the Fed was owned by the American people, but technically
the Fed is owned by the American banks in the Federal Reserve system.  The
populist elements in the movement to establish the Federal Reserve were
outsmarted and betrayed.  See my posts on the history of the Fed.  The Fed's
power is enormous and this power has been politically endowed by Congress.  It
is the power to create money on behalf of  the US government.  Now this power is
supposed to be used for the benefit of the nation, by the poeple , for the
people and of the people.  But the traditional role of credit being
imtermediated through banks has usurped the Fed's power for the benefit of banks
rather than the people.  Why should banks be able to borrow at Fed discount
rates and Fed fund rates while the rest of the economy must borrow at prime
rates or higher?  If Greenspan is apologizing for de facto deregulation, let's
have an arrangement where you and I can borrow from the Fed at discount rate and
FF rates as well.  More importantly, the Fed's unseen hand in the allocation of
credit has historically been anti-populist and anti-debtor. The legitimacy of
government's power to create money/credit is contingent on that power's being
used to promote financial and economic democracy.  The Fed is the only
institution that still enjoys the right of taxation without respresentation.

> Therefore  a signifcant fraction (if not all) of the interest payments
> ought to be distributed among the America People.

The interest spread ganed by the Fed goes to the Tresaury, so it does in a way
goes to the people.

> The market place is
> not getting the vital FEEDBACK it needs due to the inappropriate channeling
> of interest payments into the Fed (or wherever they currently go.)
>

This is technical.  Payment account specialists would argue that the Fed's
interest income reduces the Treasury's deficit account.  And as we all know debt
reduction does not have a neutral or fair redistributive impact on the system.

> This depends on a model of a Monetary Economy as two fundamental interacting
> entities -- The People and The Market Place. The Government ensures
> effective monetary communication between the two.
>
> In fact I believe this applies to the entire globe, so that
> all the interest money going into every CB ought to be pooled
> and shared among the World's People.
>
> What do you think of this as an idea for global financial reform?
>

Central bankss' power to allocate credit should definitely be subject to
political suppervision.
In finance, the allocation (and availability of credit is key, which is also
expressed by interest rates set by CBs.)  Milkin went to jail for doing exactly
what the Fed does every day.  The Fed could not even stop banks in its system
from redlining minority populated urban districts. If we have a graduated income
tax rate, why not a graduated interest rate - higher rates for the higher income
or biggest assets.  But the reverse is fact.  Higher rates face the financially
weak.  No reform of national or global financial architecture can come from
CBs.  It is like asking the foxes to design a safer chicken coop.  The result
would be safer for the foxes but not the chickens.

Henry C.K. Liu