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Federal Reserve Criticisms

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A large number of criticisms have been leveled against the United States federal reserve system. Conduct a web search on the criticisms about the system. Do you agree with these views? Why or why not? What changes would you recommend to the system?
Criticisms of the Federal Reserve have existed since its evolution and official inception with democrats wanting the Central Bank to be out of the hands of Wall Street control. Some of the more interesting characters who have criticized aspects of the Federal Reserve are profiled below along with my input.

CHARLES AUGUST LINDBERGH
Lindbergh stated that "The problem of private banks working against the best interests of the citizens: The financial system has been turned over to the Federal Reserve Board. That Board administers the finance system by authority of a purely profiteering group. The system is Private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money." [Lindbergh]. When the President signs this act [Federal Reserve Act of 1913], the invisible government by the money power -- proven to exist by the Monetary Trust Investigation -- will be legalized. The new law will create inflation whenever the trusts want inflation. From now on, depressions will be scientifically created. [Lindbergh2]

I believe Lindbergh, a Democrat, had foresight into the possible dangers that were realized later with the Great Depression. He was justified in his belief that the Federal Reserve could not maintain stability with the financial market.

MILTON FRIEDMAN
The late economist did not support the Federal Reserve system and wanted it abolished. During a 1996 National Public Radio interview, he said "The Federal Reserve definitely caused the Great Depression by contracting the amount of money in circulation by one-third from 1929 to 1933."

Ben Bernanke made a speech in 2002 paying homage to Friedman on his birthday with the following comment "I would like to say to Milton [Friedman] and Anna [J. Schwartz]: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."[Bernanke].

Milton Friedman was a brilliant visionary ahead of his time. His theories on keeping the government small and letting the free market flourish and fluctuate won him a Nobel prize in 1976 for his achievements in the fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy. I have to agree with all of his views. The man was absolutely a blessing to the human race for his forward-thinking ideas of how we could all flourish in a free society. If he were alive today, I'd go along with whatever he thought was best.

RON PAUL, U.S. CONGRESSMAN
Ron Paul, Congressman and U.S. Presidential candidate argues that "Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy." [Paul].
While what Ron Paul says is true, it has been disregarded by the fact that case law prior to 1913 allowed the federal government to execute its powers and define how money could be made and managed. The case of McCulloch v. Maryland confirms that the federal government can issue notes without interference from individual states [McCulloch] and "the specific case that the government must back paper money with "precious metal" was dismissed as frivolous in Milam v. United States. [Milam]. I believe Congressman Paul's ideas are good about exposing the true nature of the U.S. "welfare/warfare" state and make transparent the amount of money really spend by the federal government on their abundant programs and wars, at the same time I find it hard to believe that his proposal of a new system exists in the complexities that would be required to throw out the old system and replace it at this time.

THE HETERDOX AUSTRIAN SCHOOL AND ALAN GREENSPAN
Ron Paul is a supporter of the Heterdox and has written six books on the subject of this economic philosophy. At the beginning of his career Alan Greenspan, former chairman of the Federal Reserve, was a strong advocate of the Gold Standard as a protector of economic liberty.

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."[Greenspan] According to this theory "interest rates should be naturally low during times of excessive consumer saving and high when high net volumes of consumer credit are extended."[Rothbard]
I like the laissez faire approach the Heterdox School advocates but I believe that deep down their philosophies lack more precise academic precision which may come about in time with more computerized data and proofs to back up their theories to see how they will play out in the long haul.

LOUIS T. McFADDEN, U.S. CONGRESSMAN (ASSASSINATED)
In 1932 Louis T. McFadden gave a speech mentioning his belief that the Fed caused the Great Depression. He was also an anti-Semite and sympathized with Adolf Hitler.[Michael]. "McFadden blamed Jews for president Roosevelt's decision to abandon the gold standard, and claimed that "in the United States today, the Gentiles have the slips of paper while the Jews have the lawful money." [Arad] McFadden was also a supporter of Hitler and the Nazis' anti-Jewish policies before the WW2. "McFadden encouraged Hitler's attempts to destroy the Jewish control of the German economy, media, education, and professions in the early 30's before the start of the WW2."[Michael] When McFadden ran for the presidency in 1936, one of his slogans was “Christianity instead of Judaism.”[Michael]

I believe McFadden was a bit of an extremist and suffered from paranoid delusions. We must take care to analyze the whole person when evaluating their fiscal recommendations to get a sense of whether or not their grip on reality is sound before implementing their recommendations today.

WHAT CHANGES WOULD YOU RECOMMEND TO THE SYSTEM?
I recommend running endless scenarios with computer financial models. I'm sure the Fed's R&D department is already doing this to predict future economic problems but the models are only as good as we program them. Our top economists can suggest possible variables but it's always the items that are not thought of that seem to cause the crashes over time. They are able to incrementally improve the model over time learning from mistakes and adding new factors but what about the factors not yet thought of?

Our society is generally reactive as seen with our recent mortgage crisis debacle. Even if the humans in charge saw problems coming, the financial system is so interconnected, they may not know how to best fix the problem. The complexities of the current system are immense. Any replacement or improvement would have to have less risk than our current system and proving that would be a colossal undertaking.

It is far easier to stand back and criticize the system then to implement a detailed, improved monetary safeguard system with all its complexities.
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SOURCES

Lindbergh: http://www.seedoftruth.com/quotes.html

Lindbergh2: http://quotes.liberty-tree.ca/quotes_by/charles+a.+lindbergh,+sr.

Bernanke: FRB Speech, Bernanke—On Milton Friedman's ninetieth birthday—November 8, 2002

Paul: Before the US House of Representatives, February 4, 2009, introducing The Federal Reserve Board Abolition Act, H.R. 833.

McCulloch: Case Brief for McCulloch v. Maryland at Lawnix.com: http://www.lawnix.com/cases/mcculloch-maryland.html

Milam v. United States, 524 F.2d 629 (9th Cir. 1974).

Greenspan, Alan (1966). "Gold and Economic Freedom". The Objectivist. http://www.321gold.com/fed/greenspan/1966.html. Retrieved on 2008-09-20.

Rothbard, Murray (1926-95). "The Mystery of Banking" (PDF). The Ludwig von Mises Institute.

http://mises.org/Books/mysteryofbanking.pdf.

Michael, Robert (2005). A Concise History Of American Antisemitism. Lantham: Rowman & Littlefield. p. 180. ISBN 0742543137.

Arad, Gulie Ne'eman (2000). America, Its Jews, and the Rise of Nazism. Indianapolis: Indiana University Press. p. 174. ISBN 0253338093.…...

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