CHAIRMAN BERNANKE, DEBATE ME
Let the Public Decide Who is Right
By Wayne Jett © April 24, 2012
Federal Reserve Board chairman Ben Bernanke, let’s debate the topics on which you lectured students of George Washington University. Your office may lead some to believe what you tell them is valid. If so, they are misled in important respects.
You describe “a central bank” as “a government agency” which “virtually all countries have….” Both phrases imply the U. S. owns the Fed as it owns the Departments of Agriculture and Defense. But the U. S. does not own the Fed.
The Fed as Private Bank
The Fed is a private bank whose corporate shares are owned by other banks. Its largest shareholders are international banks, some based in New York and others foreign-based. The Fed acts as agent for the U. S. in certain ways, but is not really “a government agency.”
This is not quibbling. Private ownership dramatically alters the agenda of the Fed. You praise the global network of central banks as seekers of economic and financial stability, and as lenders of last resort to avoid or alleviate financial panics. But the Federal Reserve is in no sense “of the people, by the people and for the people” of the U. S.
The global network of central banks you praise so highly was conceived and promoted, not long before the Fed’s creation in 1913, as an instrument for destroying the middle class and democracy. Central banks in this original conception would blaze the trail for one-world government of a two-class society – the ruling elite and their servants – by controlling economies, access to credit and national governments.
Waging Currency War
Chairman Bernanke, some describe the Fed under your leadership as engaged in “currency war” against other nations. You have devalued the dollar sharply, attempting to change terms of trade to the disadvantage of other nations.
The president of France, Nicolas Sarkozy, addressing a joint session of Congress November 7, 2007, pleaded for the U. S. to take responsibility for stabilizing the dollar’s value. This year, the president of Brazil, Dilma Rousseff, told President Obama of her country’s desire that the U. S. currency war should end.
But “currency war” presumes a nationalistic intent to benefit Americans at the expense of foreigners. The Fed’s devaluation of the dollar is every bit as destructive to the American middle class as to any foreigner. Currency war has been waged most vigorously under your chairmanship of the Federal Reserve.
Where Your Dollars Get Value
The trillions of new dollars you created since 2008 gained all of their value from dollars previously earned and saved by Americans and others. By your acts, the Fed has taken a great portion of the value of all savings – about 42% since March, 2008 – to much the same effect as a direct tax on savings.
Of course, there is one major difference between what you have done and a direct tax on savings. Such a tax would go to the Treasury for use under laws enacted by Congress and signed by the president. The trillions of dollars created by the Fed are spent and lent as the Fed sees fit, unfettered by restrictions imposed by democratic processes.
How a Gold Standard Works
You correctly state the gold standard fixes the value of a currency in terms of an amount of gold. But you are wrong in saying the gold standard sets the money supply and price levels. In a well-conceived gold standard, only the value of each currency unit remains unchanged.
The monetary base may expand with economic production, as markets determine all prices, including the price of gold. The central bank’s role would be to expand or reduce money supply – eliminating the need for private parties to exchange currency for gold – to maintain the market price of gold at the specified value for each dollar.
Deflation Imposed by Statute
You blame a global shortage of gold for U. S. deflation during the second half of the 19th Century. Americans suffered the longest economic contraction in history between 1873 and 1879 due to deflation. But that deflation was caused by ill-advised congressional law, not by the gold standard or by a shortage of gold.
In 1873, Congress narrowly adopted the ruling elite’s demand that the dollar return to the gold standard in 1879 at parity with its pre-Civil-War value, $20.67 per ounce. This allowed no leeway for significant wartime devaluation and assured monetary deflation (gain in unit value of the dollar) all the way to the effective date of pre-war parity – in 1879.
Blame for the Great Depression
You incorrectly assign blame for the Great Depression to the Federal Reserve and the gold standard. Falling prices after 1929 were caused by collapsing production, high unemployment and severely reduced purchasing power – not by Fed-induced deflation or by the gold standard.
Gold standard nations, including the U. S., suffered harsh deflation during most of the 1930s due to a shortage of gold in the monetary system. But the gold shortage was caused by deliberate executive actions of an important national leader. I’ll provide further details when we debate, and we can cover the current economic debacle, as well. ~