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Exposing the Secrets of the Temple: How the Federal Reserve Makes Money Out of Thin Air

Author Bill Greider argues that a more democratic money creation system could have saved the country from the brink of financial collapse.

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This is more than psychology; this is a power relationship built into our society. And it means that the governing elites with technocratic expertise and the powerful interests have a kind of top-tier democracy where they debate among themselves. Some of it's public, a lot of it happens at nice dinners, but the rest of us are down below and we are quite purposely kept in the dark.

McNally:The argument is repeated over and over again: it would imperil our economy if people knew which banks are talking to the Fed about infusions, etc. They still hold to the notion that we will all be better off if the mysterious wizards take care of us while we mind our own business.

Greider: That conceit goes much more broadly than the Federal Reserve. It is built into what I call technocratic governance present in a lot of levels of government, not just Washington.

I offer the gleaming or most tarnished example, which is Central Intelligence. It's very similar, isn't it? They know things we don't, and we have to trust their judgment because they can't make this information available to us, it's classified, you wouldn't want to share it with the enemy. The CIA literally has the ability to stampede this nation into war. And it's done so, hasn't it, in recent memory?

McNally: How is the U.S. system similar or different from other central banks?

Greider: It's similar to the central banks in other leading countries. The functioning reality of the European Union or the European monetary system isn't all that different from the U.S., but it's a very different history. They have a very hard conservative view of currency values and how they must be maintained. That grows out of a lot of bloody history -- most dramatically Germany's devastating inflation after they lost World War I, which essentially led to the collapse of civil government and the rise of Hitler. Those societies have a very different understanding of social equity than we do, and spend public capital on a lot of enterprises which this country does not yet accept as necessary. So I think it's an unfair comparison to say they're not that different; they're profoundly different.

McNally: What is the role of our 12 regional privately owned federal reserve banks?

Greider: The Fed was set up in an era before telephones were trans-Atlantic or trans-continental. They had the telegraph, but gold moved by ship and train. As the country expanded, reserves of banks were mal-distributed across the country, and they believed the banks would fail because you couldn't get the reserves there fast enough. So they set up 12 regional banks holding reserves all over the geographic country. That is utterly irrelevant today.

Nevertheless, these institutions have some prestige and, above all, they are part of the Fed's political base. You put the movers and shakers on the local board, you put the leading bankers on the local boards, and all of them become a claque of the Federal Reserve and its privileges. Leave the politics aside, I think it was a dubious hybrid at the beginning, but now it is an absolutely corrupt hybrid. The regional banks are not as powerful as many presume. Thanks to New Deal reforms, decision-making is now centralized in Washington. Basically the chairman and the seven-member board of governors control policy.

McNally:Let me read from your article in August 2009: "Bankers are the shareholders who ostensibly own the 12 regional Federal Reserve banks; bankers sit on the boards of directors proposing interest rate changes for Fed governors; and bankers also have a special advisory council that meets privately with governors to critique monetary policy and the management of the economy, so the bankers have all this power."

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