The Fed Claims to Be Independent. That’s Mostly a Myth.

I'm pretty certain most folks don't understand how the federal government finances itself. I'd prefer we had a public central bank as part of our federal bureaucracy, working with the Treasury and Congress. It need not borrow from the private money markets, and therefore need not produce anywhere near the amount of debt the current arrangement requires. Yet it could, again working with Congress and the Treasury, directly inject additional spending into productive activities in the private sphere without issuing debt. The Reconstruction Finance Corporation (1932-56) was a national public bank which financed the New Deal and WWII. It was the largest public banking organization in the world, and the largest corporation in the United States. So, it's not like we've never done this before.

"Independent" of what or of whom? A Central Bank is not detached or independent from the economic course of the country that it is supposed to serve. Most of the Chairs of FRB enjoyed good name and respect of the pr4ess and people. Let it continue to be so.

The Fed as scapegoat. Thanks. I hadn't thought of that before.

Jeb Hensarling...warned Ms. Yellen that the Fed should cease and desist from buying assets that venture into fiscal policy: “If we are not careful, we may wake up one day to find our central bankers have instead become our central planners.” that would be difficult by targeting a single interest rate. there is only so much money, credit and interest rates can do, especially in an economy with +300 million people. as for fiscal policy, that usually implies _spending_ money and credit, not making them less expensive and more available for the private sector. but good job with the sound bite for the median voter and a photo in the NYT.

Congress has abandoned its fiscal responsibility and put the onus of managing economy onto the fed.Fed did well to pull the economy out of deep recession of 2008.Economy could do better if congress also does its job- stop obsession with tax cuts for the rich,reform healthcare to reduce the cost in line with OECD countries and shrink defense budget.Perpetual wars are making America grate.

Honestly, do we NEED a committee assembled from private bankers to do a job the Treasury Department could easily perform? If the Fed was audited and billions show up missing, should that spark a replacement or simple return of duties to the department of gov't already set up centuries ago? Should we then also cashier forever the sort-of-private, sort-of-public Fannie Mae and other agencies that seemed to primarily serve as an employment agencies for politically connected pre-retirees when they so expensively CRASHED in 2007? Yes, I know our political elite insiders LOVE having poorly understood and secretive elite wanna-bes making all the Important Decisions, but haven't we moved past this arcane garbage now that we are in the electronic information age?

If the Federal Reserve is so "independent," why are Federal Reserve "profits" returned to the US Treasury every year? When one follows the money, Fed independence appears to me more of a college football cheer than a reality. Perhaps if Americans understood the destructive nature of the Fed's policies on their purchasing power, we would take more of an interest in the Fed's policies and power, rather than wasting time discussing its independence. In the face of the destructive nature of expanding a money supply via debt created from thin air, the discussion of Fed independence seems almost comical. According to the Minneapolis Fed's web app, 'What is a Dollar Worth,' goods and services purchased by $1.00 in 1913 (authorization of the Fed) now requires $24.73. In 1913, gold was valued at $20 per ounce and now trades for around $1,200 per ounce according to Kitco. The destruction of the average person's purchasing power over time is blatantly evident for anyone that bothers to look, and this is a direct result Fed monetary policy and the long-term erosion of currency that is fractional reserve banking. The FDIC's Deposit Insurance Fund went negative in 2009 and 2010, which was one of the reasons for a bailout. But, then, the FDIC only has the capacity to actually cover about 1% of the total deposits in the US which, even on its face, should disturb anyone capable of doing math.

Every functioning national economy has a central bank because monetary policy and money supply need relatively independent oversight. That the public doesn't understand how central banks work is irrelevant. Many don't know how government works either. Central banks set targets for interest, inflation, employment and a variety of money supplies, with or without consultation from politicians...who rarely add anything of value anyway, just partisan nonsense. Central banks do so to create stability and predictability while dealing with economic dynamics. It's not magic and it is essential. And central banks have their own central bank, the Bank of International Settlements in Switzerland. Eclectic Pragmatism — http://eclectic-pragmatist.tumblr.com/ Eclectic Pragmatist — https://medium.com/eclectic-pragmatism

I respectfully disagree. Dodd-Frank Wall Street Reform and Consumer Protection Act is a paper tiger that largely fails to correct the problems that created the 2008 Recession. The Fed has never been required to give an accounting to Congress. The misconduct and financial shenanigans associated with the purchase of toxic assets to bail out banks under the guise of quantitative easing has never been investigated by Congress. The Fed is there to represent the interests of its member banks and not the public and Congress has little inclination to interfere with this.

Here is a simpler way to look at the government and the Fed. It is two private organisations (the RNC and the DNC) who (every four years for presidential/ six years for congressional seats) select who the American public can vote for so that one of the two can ask the third private organisation (the Federal Reserve Bank) to 'borrow' money using the US future generations as collateral for the benefit of the current generation (a.k.a. economic slavery of future generations being sold out by the current generation). Like most private corporations, they do not have to disclose their financials so their dealings are out of the purview of its citizens who are obligated to the Federal Reserve Bank through agreement with the party in power. Like most negotiation tables, it is held in close door sessions between the two parties with the third party 'We the People" affected by their closed door decisions but not given a say or transparency of what is going on or how it will impact us. This is the definition of 'taxation without adequate representation', what our founding forefathers actually objected to and set about freeing us from British Rule, but almost 250 years later we have fared no better, no better represented and the three private corporations are not held accountable either, but we the people are held liable. That liability now is $900,000 per taxpayer. (It was $870,000 at the beginning of the year).

Why is there so much animosity toward the wealthy in just about any newspaper's comment section for business and financial articles? This, by the way is not restricted to the more liberal New York Times and Washington Post - it is also pervasive in the comments to the online edition of The Wall Street Journal.

The absolute autonomy of the legislature, executive and judicial branches is also a myth. But relative autonomy is usually good enough to prevent public policy from blowing in the wind. Trump and his Trumpies change everything.

During the past 8 years, the self-serving Fed has transferred trillions of tax dollars and lost interest on savings from the middle classes and seniors to Wall Street, suppressing spending, labor participation, and wages for all but the wealthy, while simultaneously increasing income inequality. The Fed works for the 1%.

Whenever I see the name Jeb Hensarling in a story I think of the big banks and his slavish devotion to their wants and needs.

oh come on. ever since I was in macro 101 in 1980 the fed's mission has been the same; keep employment low but not zero and keep inflation <2%/yr. thats it. when paul volker put the inflated economy into coma in the 3rd worst recession, behind the 1930's depression and the w depression of 2008, inflation pretty much died and hasnt been seen since. and other assumptions also changed; deficits dont matter (even evil dick knows that), the fed can "print money" til the ink runs dry and it still wont come back, currency manipulation like china isnt necessary, trade balance isnt a biggie either and tax cuts for the undeserved filthy rich hurt real job creation, depress wages and assasinate retail demand (woops, they still admit the last part - yet). so no, things really havent changed. the nerds at fed still tolerate the nit wit prima donnas in congress to act like they really are NOT as dumb as a box of rocks like they seem but still show some gumption. the last 2 fed chairs have been tolerable. their hugest mistake is they should have bailed out main street, not the crooks of wall st, and mandated when they loaned out those gazillions that the caveat is they should have required 75% of it be loaned out when instead they let the misers sit on it til things came back and they economy stalled. and it still hasnt come back. god help us all if orange fog appoints someone as utterly incompetent as 3x bankrupt disaster currently defacing the leader of the free world position

If FED is truly independence from the government, then we should ask the questions: (1) who owns the FED, (2) who gets benefits from FED's actions? and (3) why did FED help foreign banks during financial crisis?

To help Nixon get re elected Fed Chairman Arthur Burns greatly increased the money supply. So much for the myth of a Fed independent of politics.

The Fed understands quite well, as does congress, what the wealthy and their corporations want - and they always get what they want. When it comes to Main Street, we only get what we need when it benefits the wealthy, as well.

The Fed directs monetary policy, and Congress directs fiscal policy, which gives each ample room either to praise each other, or to criticize each other.

One thing is correct in this article: The Federal Reserve’s inner workings are a mystery to most Americans. A vast majority who complain about it have no clue of its legislative mandate. As to Yellen, she will not be reappointed simply on the grounds that Trump fires almost everyone associated with Obama regardless of skill or qualifications.

The real question is whether the Fed is independent of the global banks it is supposed to regulate, or is it another captured "agency."

The biggest problem is that the economy keeps changing as society keeps changing, and policies that would have worked in the past no longer have the desired effect. Many economists are still living in the past, and don't understand how social and technological change has made the textbook policies ineffective. For example, the real reason that inflation is quiet is that with modern technology, we can make far more goods than we need at an ever-decreasing cost.

Fed "independence" is as much a myth as the idea of "strict constructionist" judges who interpret laws without injecting any personal bias.

It seems to me there's a common denominator in the political demands made on the Fed. It's that the Fed fight a non-existent inflation "problem" by slowing down the economy, growing at a sluggish rate as it is, to throw more people out of work.

"an inevitable economic slowdown — or a more serious financial panic — will surely restart the cycle of crisis, blame and reform." Any future crisis will again lay bare, as the Great Recession showed, who has the power to determine who gets rescued who is left behind.

It is time for us to reform how the Fed distributes increases in the money supply. Right now increases in the money supply are lent to global banks, whose interests are not aligned with the people of the United States. They are allowed to do whatever they want with the money. Much is invested overseas, or bet on global finance markets. The Fed should decide how much it wants to grow the money supply by and divide that equally between each citizen, distributed through the IRS or Social Security. Most of this money would be spent quickly in the US. It would give the Fed far more direct control of the money supply, since they would not be dependent on influencing internet rates or relying on global banks to do the right thing. This money does not belong to the global banks. It belongs to the American People, and the internet makes it possible for each of us top get our fair share, with better policy results.

No branch of government in a politically pluralistic society (even the fourth estate) is completely independent. They all have to take note of the views of other centers of power and public opinion in the wider sense as events unfold. When it comes to the Fed it's one of the more independent arms and much of this freedom comes from the vested interest that both parties have in ensuring the economy continues to function well or they will shortly be shown the door. Exhibit A here is the great crash of 2007-9. Then you had the US government (including the Fed) which was led at the time by a bunch of alleged free marketeers and de-regulationists effectively nationalizing insurance companies and mortgage lenders; and providing billions in guarantees that would enable banks, mortgage lenders, shadow banks, brokerages houses and others to be rescued. There is as Adam Smith said a lot of ruin in a nation but no one really wants to kill the golden goose. The whole premise of this piece is naïve in the extreme.

This piece is clearly correct and lays out the political dynamics affecting the Fed. It has to be so with any institution created by Congress, which of course can abolish it. The Fed has historically observed the political bounds of the possible.