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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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Greider: Let me take a step further. This is an accusation I laid out in broad form in the book 20 years ago, but the subsequent 20 years have really confirmed my judgment. For the last 30 years, starting in 1980, the Federal Reserve chose sides. It chose sides in ways that benefited capital and punished labor, that favored stock market and financial investments over wage earners and industry.

The Federal Reserve underwent an unusually harsh ideological shift trying to tamp out inflation but then went on to favor deregulation of banks and very stern control of the real economy which would keep wages from rising.

McNally: During the period when Alan Greenspan was being venerated as the maestro, you were writing articles explaining that he was was taking sides. Can you describe a specific example of the way the Fed handled interest rates that favored finance and hurt working people?

Greider: I used a phrase which was a bit of a caricature, nevertheless I would argue it's accurate. I called Greenspan the one-eyed chairman. "One-eyed" because he saw price inflation in the real economy and the so-called danger of rising wages -- even when they didn't exist. So he would tap on the brake of higher interest rates and slow down the U.S. economy. Growing faster would lead to full employment, which is the right condition for generating rising wages. With full employment, workers have better bargaining power whether they're in unions or not.

Meanwhile, he was blind to the really ferocious inflation of prices in financial assets. The stock market, housing, bonds, and so other many things we've now gotten educated about, went through the roof. This didn't just start in the last few years, as the story's being told now. It really started back in the '80s, and, when Greenspan was in charge in the '90s, he made it far worse. These were his ideological convictions, but they did enormous damage to the U.S. economy and to people all over.

Here's the nut of my complaint: if this is a self-governing democracy, the American people are entitled to know these things. That doesn't mean they'll always understand them correctly or that they will even care or pay attention. But I believe it's a right of being an American, to be able to hear the contesting views and the political consequences for ourselves.

McNally: And the economic consequences.

Greider: When a government agency does this to people, it at least ought to tell the people what it's doing, but the Fed is exempt from that. The Fed isn't alone. A lot of other agencies of government get to keep secrets too. If you hear a little outrage in my voice, it's because I have considerable confidence that if Americans at large get a general picture of what government is doing, they can fight it out from there. They'll make some wrong choices, but on the whole that's better than leaving it to secret experts.

McNally: Let me read a couple of quotes from a site that calls for abolishing the Federal Reserve. There is a minority movement in this country that is more outraged than you are, and feels not merely that it should be transparent, but that it should be eliminated. I want to get your take on whether what they're saying is accurate:

"Who owns the Fed? The Rothschilds of London and Berlin, the Lazard brothers of Paris, Israel Moses of Italy, Cue and Loeb and Warburg of Germany and the Lehman Brothers, Goldman Sachs and the Rockefeller families of New York. Did you know that the Fed is the only for-profit corporation in America that is exempt from both federal and state taxes? The Fed takes in about one trillion dollars per year tax-free, the banking families listed above get all that money. Almost everybody thinks that the money they pay in taxes goes to the US treasury to pay for the expenses of the government. Do you want to know where your tax dollars really go? If you look at the back of any check made payable to the IRS, you will see that it is endorsed as pay any FRB branch or general depository for credit US treasury, this is in payment of US obligation. Yes, that's right. Every dime you pay in income tax is given to those private banking families commonly known as the Fed tax-free."

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