 Let us examine the 3 listed conflicts of interest that Mr. Sutton claims the Fed has, remembering that it is a private bank whose primary objective is to increase shareholder value.
" 1) The federal reserve makes money vis a vis interest payments on the USGovt debt it holds, yet it has been allowed to have a huge influence over interest rates at both the short and long ends of the yield curve. So it can, in effect, determine how much money it will be paid in interest by the American taxpayer. This conflict of interest grows categorically larger as the central bank accumulates more and more bonds through its quantitative easing (monetization) scam. And yes, it is a scam."
While the criticism is valid, it must be admitted that the Fed is doing a very poor job for their shareholders. With America being $17 T in debt and only continuing to dig the hole deeper, they would be turned down at the local pawn shop as not being credit worthy and the crooks who run those places charge in the vicinity of 30% per month. If it were not for the Fed providing funds at insanely cheap levels, my guillotine rental business would by now be listed on the Dow. Let us face it, the Fed could be doing much better by their shareholders if they refused to start buying Treasuries unless they got a rate of interest commensurate with the risk they are taking lending to a deadbeat who shows no signs of reforming their evil ways. So while the conflict is real, the Fed has not exploited it whatsoever.
"2) The federal reserve, through its oligopoly control of interest rates in the US, can induce individuals and businesses to borrow from its member banks with 'cheap' rates, thereby using its influence to enrich its shareholders."
This is simply not true. The Fed can only control the rate on the money they lend to banks through its discount window. What the banks turn around and charge to their customers is completely within their own purview. Moreover, the spread between what they borrow for and what they charge to borrow from them has been at historical highs of roughly 350 basis points. And to get a loan from them, you have to put up 120% collateral. In other words, if you need the money, you can't get it, but if you can get it, you don't need it.
"3) As a corollary to #2, the federal reserve, through its absolutely pathetic performance (largely intentional) with relation to its stewardship of the dollar's value has caused more and more people to have to resort to debt. Obviously, those people borrow from member banks."
This is also less than accurate. Yes, the Fed has been a poor steward of the dollar, but that has not been why an ever increasing number of Americans are in debt. As i see it, there are 2 reasons for this. On one hand you have the fact that for all but the very top few percentiles of earners, wages have failed to keep up with inflation for the better part of a generation. And on the other you have to acknowledge that the decision to not live within ones' means is made by each debtor individually. The Fed can no more force you to borrow money than it can dictate what wages a factory owner must pay.
Lastly, though not brought up by the author, it should be pointed out that at quarterly intervals throughout each business year, the Fed credits the Treasury with a hefty portion of their profit. In 2012, the latest year for which figures are available, the Fed made a profit of $91 B and returned $88.9 B of that to the Treasury. In effect, the government gets to borrow without cost. Perhaps Mr. Sutton was unaware of this arrangement. But it certainly makes the supposed conflict of interest cited in his first example seem a good deal less to be concerned about.
 Commented 3907 days ago |
