Why Is the Fed Managing the Economy?

Words: 621
Topic: Business & Economics

The Fed has gained a positive image in the eyes of the public, but this is a misrepresentation of the actual picture with reference to the Fed’s actual performance. The Fed is “a private organization consisting of private banks and it is charged with the responsibility of managing the flow of money in the economy” (Goldman par. 1). It is precisely because of this definition that the Fed has failed terrible in managing the economy. Hence, the aim of this paper is to discuss reasons why the Fed should be eliminated due to its poor performance.

The failure of the Fed did not begin yesterday rather it dates back to the legendary Great Depression, when the US economy was utterly ruined. The very same mistakes that took place during the Great Depression have found their way into the 21st century. The decentralized structure of the Fed jeopardizes its coherence and effectiveness as a lender in reference to the last resort policy. The decentralized structure is associated with a lack of strong leadership; hence varied opinions lead to in-fighting that leads to poor performance (Tallman 100). Each state’s Fed aimed at remedying the Great Depression based on baseless opinions. There is no indication of consensus going on among the Fed’s officials to seek a unanimous way forward. Rather, misinterpretation of the prevailing interest rates and borrowing trend result in poor decisions that do not benefit the Country’s economy.

Secondly, devotion to the gold standard prevented the Fed from seeking other opportunities to expand the monetary policy. After the country plunged into the Great Depression of 1929, the British pulled out from the gold standard and this further aggravated the situation, making it more arduous for the Fed to save the situation in 1930-1933. Instead, it acted in a manner that made the whole depression state worse. This factor is coupled with the third reason for failure of the Fed, which is lack of reform within the Federal Reserve System, and which led to the continued adoption of a flawed policy framework (Tallman 101). Failure to embrace change in a rapidly evolving environment is dangerous because it leads to application of policies in an environment that cannot sustain them. This was the reason why obsolete policies led to the 1929-1933 deflationary monetary policy and restricted counteractive efforts to banking panics. Even now, poor policies within the Fed has led to allocating of resources in the wrong places; hence, the more reason why the Fed should be controlled.

Last, but not least, the private banks that form the backbone of the Fed are the one’s benefiting at the expense of the local people, who it is meant to be serving. Seemingly, money generated from loans does not benefit the economy in any way because it goes into people’ personal pockets; hence, escalating the division between the poor and rich. This gap is associated with various adverse effects such as crime. Instead of preserving the economic sovereignty of the nation, the Fed is delving into the little national heritage left, and with this trend, the economic prosperity of the nation is not assured.

The Fed has proved that it does not value the interests of the American people, but instead, it is in favor of the banks and their owners. Therefore, the powers of the Fed should be limited to pave way for public ownership so that money can go back to the treasury and benefit the people at large and not some few individuals. The government, elected courtesy of the people to serve the people should take over the responsibility of the Fed. There are more important things that need the attention of the Fed, and which can aid in ensuring an economic boom.

Works Cited

Goldman, Mark A. “Why is the Fed Managing the Economy?” OpEdNews. 2011. Web.

Tallman, Ellis. “Comments on the promise and performance of the Federal Reserve as a lender of last resort: 1914-1933.” The origins, history and future of the Federal Reserve: A return to Jekyll. Michael D. Bordo and William Roberds. Eds. New York: Cambridge University Press, 2013. 99-112.