Exposing the Secrets of the Temple: How the Federal Reserve Makes Money Out of Thin Air
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Greider: The events of the financial crisis tore away the mask, destroying the mystique of intimidating, superior expertise that protected the Central Bank from real scrutiny and political discussion. People in the governing elites would blame that on a lazy public that doesn't pay attention, but the truth is that general ignorance was in the design when Congress approved the creation of a central bank in 1913.
They wanted to do that because at the time the country was in very serious political conflict surrounding issues of money, the currency, the banks, the power of the banking system, who had access to credit, and who was denied access.
When the banking system, led by JP Morgan and other famous players, decided that for their own sake they had to create a central bank Washington had to help. It was too big for even JP Morgan. So they design this beast, patterned after the Bank of England, as a semi-secret institution that can decide these large questions in privacy. They were quite deliberately cutting out the public. And it worked. The "money question" gradually disappeared from American politics.
So 60 years later, even though I'm intensely interested in government, I don't know much of anything about this institution. And I wasn't alone, was I? When the Fed started bailing out big banks in such a miserable way, pumping out trillions of dollars, average Americans finally said, "What's that? Why was I not told about this?" And to me, that was quite exciting; exhilarating even.
McNally:Where did that money come from? Who's in charge here?
Greider: I would say the Fed created it, that's what central banks do. What do I mean, "created it"? They type keyboard numbers, the money comes into existence, and ends up at a bank.
I literally think this is the watershed where Ben Bernanke reminds me of the Wizard of Oz, when little Toto pulls back the curtain, and you see Frank Morgan in the control booth frantically turning dials and pulling levers. His voice comes ringing out from the screen, "Silence, the great Oz has spoken," and Dorothy says, "Nonsense, you're only a man pretending to be a wizard." That's what happened at the Fed. To my delight, it offers a moment where we have a chance -- only a chance -- to reopen the question of democracy.
I know quite a lot about the Federal Reserve, I've followed it over 30 years, and I make this provocative argument: democracy could have saved us from this collapse -- which naturally all so-called responsible people deny.
I'm convinced if the Federal Reserve was subjected to the normal give-and-take of politics, with people taking different positions and arguing over the Fed's policy-making -- we wouldn't have had this Wall Street catastrophe. The Fed -- instead of being worshiped -- would have been embattled, and a normal kind of politics would flow from that.
McNally: But more "democratic" or more "transparent" institutions such as Congress haven't done such a good job themselves. Why do you say that the shift from complete mystery to debate and conversation might have saved us?
Greider: I wrote 20 years ago in Secrets of the Temple and I'm writing again now, that the effect of introducing the Central Bank in the terms that our country chose, not only reduced average citizens to ignorant children, but also reduced members of Congress to a similar role -- cranky, powerless children. The Federal Reserve was the father figure, wise, remote and stern. It would make decisions behind closed doors, and wouldn't bother to explain them to the public, because it knew the public wouldn't understand them.