Wednesday, 1 April 2015

Central Banking Refuted In One Blog—–Thanks Ben!

By David Stockman

Blogger Ben’s work is already done. In his very first substantive post as a civilian he gave away all the secrets of the monetary temple. The Bernank actually refuted the case for modern central banking in one blog.
In fact, he did it in one paragraph. This one.
A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates “artificially low.” Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by “the markets.” The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere.
Not true, Ben.  Why not ask the author of the 1913 Federal Reserve Act and legendary financial statesman of the first third of the 20th century—–Carter Glass.
The then Chairman of the House Banking and Currency Committee did not refer to the new reserve system as a “banker’s bank” because he was old-fashioned or unschooled in finance. The term evoked the  essence of the Fed’s original mission. Namely, to passively rediscount good commercial collateral (receivables and inventory loans) brought to its window by member banks—priced at a penalty spread floating above the market rate of interest.

Continue reading the article here.