Federal Central Banks And Decadent Capitalism
Federal Central Banks (Forum Press, 2018) is a unique study that critically examines the role and impact of central banks in federal and confederal political systems.
https://www.socialeurope.eu/federal-central-banks-and-decadent-capitalism
It conducts a detailed examination of the history, design and operation of central banking in the United States and in the European Union. The historical record from the US is that although the Federal Reserve (Fed) was established in 1913, it took until 1935 before it had been re-designed and removed from the destructive influence of the New York banks. Only at that point did it fulfil the requirements of what today is understood as an effective central bank. In the period starting in the 1980s the Fed fell under the influence of the New York banks again, accommodating every financial innovation and expansion of credit that was required by the private sector. In this latter period the influence of the US Treasury over the Fed was weakened under the doctrine of so-called ‘independence’.
There is a permanent contradiction between the centralizing features of banking and monetary policy and the political and economic expectations of pluralist federal democracy. This has come to the fore following the response of central banks to the global financial crisis. Credit easing transferred billions of dollars to large corporations and banks, and quantitative easing – for which there is no historical precedent in terms of scale – destroyed the nexus between saving and reward and between productive investment and return. The banks were saved at the cost of the economic welfare and savings of the majority of citizens.
This, unfortunately, is not a new situation. The Federal Reserve came into existence in 1913 because of agricultural depression, where farmers were placed in debt servitude by private banks. This recurred in 1933, but this time Franklin D. Roosevelt broke the stranglehold of the banks on the economy and reversed the recurring debt deflation problem. In this, he was ably helped by the Utah businessman
Marriner Eccles who argued before Senate committees that depression could only be turned around by creating new lines of credit and via the stimulus of government expenditure. He r pointed out that ‘we can borrow from ourselves’ to get the economy working again and this was the rational solution. Eccles went on to reform the Fed as chairman in 1935.
Federal Central Banks assesses the establishment of the European Central Bank (ECB) and introduction of the Euro in the light of the Fed’s checkered history – one of evolution and regression. Design ideas are always context-dependent and reflect the prevailing economic doctrine and economic interests. Neoliberalism decreed in the 1990s that states should withdraw from monetary policy, leaving decisions to the money and financial markets with central banks simply offering guidance and nudges on interest rates. Or rather, that is what monetary policy became in the ‘noughties’. In fact, initially there was adherence to the inoperable
Friedmanite doctrine of controlling the supply of money. This was totally reversed under the authority of
Basel rules that allowed banks to issue unsustainable amounts of credit, which central banks were obliged, lacking previous tools or the will to use them, to accommodate. In a City forum a couple of years back I asked the governor of Iceland’s central bank why his nation’s banks were allowed to go on such a reckless credit binge. His answer was that it was not disallowed by Basel rules. The moral is pretty clear: Nations and their central banks, which have a responsibility to ensure the soundness of their national currency, a public good, should not offload responsibility to offshore agencies.
Future Shock
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