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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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What's true and what's not true in that?

Greider: It would take me an hour and a half to sort through the juxtapositions and leaps of conspiratorial faith that you've just read. I will make it crude and simple: Basically that is a fantasy of people who have genuine fears about the power of the central bank. Some of what they are citing goes back centuries, and has some figure of anti-Semitism floating over it. I will say this issue has been litigated. The Federal Reserve system -- notwithstanding all that you've read about who owns the 12 regional banks -- is a part of the federal government.

People of good intentions don't want to believe that, partly because they can't believe that their elected government did this to them. I cut to the chase and say get over it. The Federal Reserve system was created by an act of Congress, and it chartered private organizations. Because the bankers wanted it that way, the 12 banks are chartered as stock-holding companies. Its life and death depends upon the Congress.

If people want this cleared up, go to the Constitution. Article One is about the Congress, and Section Eight gives the power to create money and regulate its value to the Congress -- not to the White House or the Treasury. It doesn't even mention a central bank.

I want to return to first principles and say, the Congress needs to reclaim its authority in the Constitution to supervise the creation and regulation of money. Now it could delegate that of course -- members of congress are not going to count the actual bills on the floor of the House. But that would necessarily restore democratic principles to the central bank function.

My point is, every advanced industrial nation that has a currency -- and most do -- will have a central bank. So I'm not against having a functioning central bank; what I'm against is setting it outside our democratic accountability and the usual principles of whom government must answer to. It's supposed to answer to the people.

McNally: In your article, "How the Fed Prints Money Out of Thin Air,"you make a point that Congress is talking about giving the Fed more power, for instance, if they lodge the new regulatory agency within the Fed.

You said: "I ran into a retired Fed official. I said to him, we think this would be a good time to dismantle the temple. I playfully told my old friend, democratize the Fed or tear it down, create something new in its place that's accountable to the public. He did not react well to my teasing, he got a stricken look."

You then state several reasons why granting the Fed even more power is a really bad idea. How do you think it should be restructured?

Greider: People know the Fed screwed up regulating the banks by letting the big boys go crazy, but I think they do not fully appreciate that their monetary policy was also skewed drastically in one direction, to the great detriment of most of us and to the country as a whole. Why would we trust them with even more supervisory power?

The Fed is in a profound conflict of interest as to what its role is. Is it supposed to defend the public interest against the bankers? Or is it supposed to help the bankers be profitable and therefore stable?

McNally: You say that the Fed serves two masters and is kind of schizophrenic. But would it be safe to say that, when push comes to shove, stability for the banks and for finance and for Wall Street seems to always win?

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