Reprinted from Yes! Magazine (November 18, 2011)
There’s lots of anger against the Federal Reserve from the left and the right. David Korten argues that what it needs is some major restructuring.
By David Korten
Wednesday, November 9, was Occupy Wall Street Federal Reserve Awareness Day. The day’s events included an interview with David Korten for occupywallst.org and occupiedwallstjournal.com by Harrison Schultz, an occupy organizer. This blog provides a context for the interview.
I don’t normally agree with Congressman Ron Paul, but his claim on MSNBC in December 2009 that Federal Reserve Chairman Ben Bernanke is more powerful than President Obama has substantial merit. As Paul went on to explain “He [Bernanke] can create a trillion dollars in secret without any monitoring of the Congress.”
We now know that Paul understated Bernanke’s power by $15 trillion.
The Dodd-Frank financial reform bill signed into law by President Obama on July 21, 2010 included a mandate for a one-time Government Accountability Office audit of the emergency lending facility the U.S. Federal Reserve established in response to the 2008 Wall Street financial crash. The audit revealed that the Fed had secretly made $16 trillion in financial commitments to a long list of the world’s largest financial institutions and corporations, many based in other countries. It was all done entirely in secret, at the Fed’s own discretion, and based on nothing more than computer key strokes.
No Congressional authorization was required. Nor was the Fed required even to inform Congress, the administration, or the public.
Now that is real power, beyond the wildest dreams of any U.S. president—and totally contrary to the basic principles of democracy or a market economy.
To put $16 trillion in perspective, we can compare it to the U.S. GDP ($14 trillion), the total U.S. debt accumulated over our 200+ year history ($14.5 trillion), the federal budget ($3.5 trillion), or the amount the Congressional Supercommittee is charged with eliminating from the federal deficit ($1.5 trillion).
The U.S. Federal Reserve System [the Fed’s primary functions are carried out by a system of 12 regional Federal Reserve Banks] is a study in obfuscation. It appears in the organization chart of the U.S. governmentand presents itself to the world as an independent government body, but its highly complex governance structure assures its operations are in fact controlled by the big banks whose interests it faithfully serves. It piously reports that its accounts are subject to extensive internal and external audit, but only the special one-time audit ordered by the U.S. Congress in the Dodd-Frank financial reform bill signed into law by President Obama on July 21, 2010 under vigorous Fed protest revealed the amount and the beneficiaries of its $16 trillion post-crash handouts.
There are angry calls from both left and right to shut down the Fed. The anger is justified. The call to shut it down, however, ignores the reality that a national money/banking system requires oversight and management by a central bank or its institutional equivalent. The choices center on that institution’s degree of transparency, to whom it will be accountable, and what its priorities will be.
The Federal Reserve System under Allan Greenspan and Ben Bernanke has used its power to maximize Wall Street profits by suppressing wages, inflating financial bubbles, facilitating predatory financial games that should be illegal, and bailing out the losers—all behind a veil of strict secrecy. It can and should be restructured to be transparent and publicly accountable for using its power to support full employment and maintain stable asset valuations.
The Fed needs to be entirely restructured as one element of a needed restructuring of our entire system of money/banking/finance to create a system of community rooted and accountable financial institutions that function as well-regulated public utilities to fund productive investment and home ownership.
David Korten is board chair of YES! Magazine and the author of Agenda for a New Economy, TheGreat Turning: From Empire to Earth Community, and the international bestseller When Corporations Rule the World. He is co-chair of the New Economy Working Group, and a founding board member of the Business Alliance for Local Living Economies.
- Click here for YES! Magazine’s ongoing coverage of Occupy Wall Street.
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