Central banks are not privately owned but the property of the government. Ending central banking would be giving the keys to the global economy to the financial institutions they are meant to be regulating.

Illustration Rachael Bolton

We often see comments on this website from people who want to ‘end the Fed’ because they think it would address the rampant corruption and collusion of governments, central banks and the private sector.

In reality, ending the Fed – or any one of the central banks outside of the European Union – would simply give more power to the banks and wealthy elites whose relationships with governments and central banks are already inappropriate.

Abolishing central banks would simply formalise this arrangement, undermining democracy and removing the ability of governments to respond to changes in the domestic and global economy.

The claim that banks are privately owned is factually incorrect. With the exception of the EU which began life as an industrial cartel, created and controlled by Europe’s major heavy industries (coal, steel, car manufacturers and farmers), central banks are created by and belong to federal governments. Even the European Central Bank is owned by the central banks of EU member countries, which in turn are owned by their governments, even if most do not have the right to issue their own currencies.

The US Federal Reserve was created by Congress, and its chairman is appointed by the President; the Treasury receives nearly all its profits. The same applies to the Bank of England, the Reserve Bank of Australia, Bank of Canada etc which were created by their respective Parliaments.

What do advocates of ‘ending the Fed’ think will happen if the US got rid of central banking altogether? What currency would it use exactly?

The only possibility would be to replace the Fed with another, private ‘Fed’ in which case central banks would go from being co-opted by the private sector, to being formally controlled by it.

Ending the Fed would make central banks the property of the private sector, which, ironically, some people believe is already the case. So it’s a little bizarre that they think demolishing central banks would somehow address corruption and malfeasance.

One need only look at what happened to Greece to understand what happens when a government gives up its central bank, and the right to issue its own currency.

Ending central banking is the nail in the coffin of democracy. It is giving capitalism exactly what it wants: the complete takeover of the state by the market.

 

 

 

Claire Connelly

Claire Connelly

Claire Connelly is the lead writer of Renegade Inc. An award-winning freelance journalist, speaker, and founder of subscription journalism experiment, Hello Humans.

Specialising in economics, technology and policy, Connelly is working on her first book due out in 2018.

With more than a decade of experience under her belt, Claire has written for leading publications including The Australian Financial Review, The Saturday Paper, ABC, SBS, Crikey, New Matilda, VICE & others. She is the co-host of The Week In Start-Ups Australia, and features regularly as a commentator on TV and radio shows including Radio National's Download This Show, ABC's The Drum, Ten's The Project, and more.
Claire Connelly

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9 thoughts on “End the Fed. Are you nuts?

  1. I think what people are getting at is why don’t we issue our own money as a sovereign state and not borrow with interest the argument that inflation would be inevitable is misleading as quantitative easing of hundreds of billions has not led to inflation and the benefits of no interest would be immense

  2. >Even the European Central Bank is owned by the central banks of EU member countries, which in turn are owned by their governments,

    This is not correct at least for the Bank of Italy, which is owned in large majority by the very banks it controls. See the Wikipedia article for a list: https://en.wikipedia.org/wiki/Bank_of_Italy.

    Some government institutions do have shares in the BoI for, together, some 17%, but the remaining 83% is in private hands, sometimes even foreign ones.

    I did some quick googling and I believe the French, German, Spanish and Dutch central banks are owned by the state.

  3. You’ve got it backwards. Capitalism = freedom = no special interests controlling government and no special monopolies preventing competition. But in reality, we don’t need to end the Fed, just eliminate the monopoly protections: end capital gains taxes on private currencies and end the legal tender laws. Alternatives will arise by the free operations of individuals in regards to their savings and financing needs: may the best currency win – just as the best product on a competitive market wins. The exchange rates between private currencies and dollars will dictate the better vs. worse currencies.

    The “Fed” system remains in power by providing funding for government deficits and banks. It does so by non-transfer credit creation (i.e. the Fed creates new money rather than transferring savings from lender to borrower, which socializes the cost and privatizes the gains). Government bonds and money are created simultaneously (new money provides the purchasing power for the bonds which is indefinitely financing – until a currency crisis occurs), while the Fed operates to adjust the ratio between bonds and money to systematically inflate credit for the profits of banks. It then protects them against “runs” by being the only entity to create money (technically: reserves) for financial assets.

    Any attempt to reverse the control of the Fed threatens a collapse because of the Feds ability to create any amount of money to satisfy a run on banks, and without that backstop, the credit system would implode. But if the collateral is poor, then bailouts still happen. 29 trillion in bailout money should be enough to convince anyone of the operation: http://www.levyinstitute.org/pubs/op_23.pdf

    The best reversal is to allow private money alternatives, as private money can then minimize and balance the competing costs of employment, sound money, strong collateral, etc. while removing the monopoly profits and power the elite hold.

    1. Claire,
      Are you delusional? The reality is the Fed and it’s owners, the Wall Street Banks and European Banks, control Congress and with their vast wealth are able to bribe, extort, and blackmail whatever policy outcome they want from the Government. Policy outcomes like trillion dollar bail-outs, interest free loans, manipulated “markets”, forward guidance on Fed policy, so the big banks can front-run it and make loads of money on insider information, and last but not least, very little to no real regulatory oversight, as the revolving door between big banks and regulatory agencies spins around and around. What an idiot!

      1. Actually she’s right. Regulatory capture does not mean the banks “own” the fed, it means they’ve taken it over through bribery via the corporate uni-party. You first have to take back the fed and force congress to do it’s job. Technically the fed is NOT OWNED by the Wall Street banks it is owned by the citizens of the US since the fed was established by an act of congress.

        Thinking you can just end the fed and the next day everything will be peachy is magical thinking.

    2. Capitalism always ends up in monopoly. Capitalism does not care how you make your money and it never has. When you have a system that cannot discern between immoral/destructive behavior and moral/constructive behavior you end up with the crappy incentives that reach far beyond the finance industry.
      Capitalism is doomed anyway due to the fact we face a surplus of labor that is only going to get worse, not better. With automation, AI, and the flooding of the labor market by developing nations chuck full of sweat shops working will soon no longer be equitable for anyone.
      The entire idea of constantly trying to revive an antiquated 300 year old compromise that came out of the feudal system is insane.
      Capitalism requires constant growth which cannot be sustained on a planet with finite resources and the technological advances listed above that should by all rights be taking the toil out of EVERYONE’S life, not just the lives of the elite’s who never sacrifice or actually produce anything other than corruption and war.

    3. Terry, the United States Federal Reserve is part of the United States Government. Voluntary institutional arrangements and rhetoric that make it look “independent” don’t change the essential nature of the Federal Reserve: that it is part of the United States Government, along with the Treasury Department. The central bank and the Treasury Department collaborate closely to run the payments system and carry out monetary and fiscal policy operations. That is why MMT economists refer to the central bank and the Treasury Department combined as a “consolidated government” entity that constitutes the government sector within the three-sector macroeconomic framework. The three sectors are the government sector (the currency-issuing government), the domestic private sector (domestic currency users i.e. households, firms, and any subnational governments that merely use rather than issue the nation’s currency), and the external sector (the rest of the world combined – this includes foreign households, foreign firms, foreign banks, foreign governments).

      It is true that the US Government currently uses its immense powers in ways that favour a small elite. However, that is a compelling argument for mass social movements and political party campaigning to change the policies of the US Government so that its powers are used to maximise societal wellbeing and the interests of the most marginalised and disadvantaged people. Elite capture of the government is not a reason to dissolve the government.

  4. The US fed is privately owned, no? It was my understanding that this was common knowledge about the meeting on Jekyll Island with the titans of industry at the time checking in under pseudonyms etc.
    The US government borrowing money from the fed at interest is plastered across the internet.
    In fact I believe there was a section relating to this in “The Four Horsemen”
    JC

    1. Running the fed committee and regulating congress is not technically owning the fed. You may want to look at how it’s supposed to be ran as opposed to how it has been captured by the elite oligarchs who have always ran America behind the facade of representative democracy.

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