According to numerous news reports, the Federal Reserve garnered “record profits” during 2009, the largest amount it has ever made in a single year in its entire history. Fascinating, when considered against the backdrop of what the American taxpayer is facing – record levels of unemployment, foreclosure, and bankruptcy, as well as a weakening dollar and a myriad of other economic struggles great and small. Thus, during a period in which it has failed miserably in the performance of the tasks that are supposedly its responsibility, the fortunate Fed profited more than it ever has before.
The Federal Reserve is, as stated in a Washington Post article published on January 12, 2010, “charged by law with managing the nation's money supply to keep employment high and prices stable.” According to the Federal Reserve website, the Federal Reserve is responsible for providing the nation with “a safe, flexible, and stable monetary and financial system.” Flexible, indeed. During this recent financial crisis, as the Washington Post article explained, “the central bank's policy has been to create money and use it to buy a wide variety of assets, which in turn pay interest.”
That money creation, the assets it purchased, and the interest those transactions garnered seem to have contributed to the record making profit heights the Fed reached in the past year. However, while the Fed was busy creating money and raking in profits, the American taxpayer has been busy managing the burden of the forced bail-out of Wall Street and the economic fall-out from the housing boom and bust, which has affected nearly all aspects of the American economy, pushing not just the United States, but also the entire world, into recession and to the very brink of economic depression. No, the American taxpayer wasn’t quite as fortunate as the Fed in 2009.
Instead of the high employment the Fed is “charged by law” to gear its national money managing policies towards, we see record levels of unemployment. The current stated national unemployment rate, according to a January 8, 2010, article in the Atlantic, is 10 percent. Many regions showed rates well above that during 2009. Furthermore, there is ample evidence that the purported rate of 10 percent is quite optimistic, having more to do with shifting methods of official counting than actual unemployment reality. For example, the underemployed – those that need full-time work but can only find part-time hours – are no longer included in the official numbers. Through the years, there have been numerous method manipulations, resulting in more favorable statistics to report. A recent NY Post article joins the surprising number of mainstream publications that place the “real” unemployment rate much higher than 10 percent, running closer to 20 percent.
“Episodes of financial instability and the sharp economic downturns that sometimes ensued were a driving force in the creation of the Federal Reserve,” said Federal Reserve Board Governor Kevin Warsh in an October 5, 2007 speech. Theoretically, the Fed was created in 1913 to protect the American economy from the boom and bust cycles instigated by big business and high finance. Obviously, by refusing to step up to the regulatory plate as is their responsibility to do, the Fed miserably failed in that task, and has done so frequently in recent years, with the housing boom and bust being a glaring example of that failure.
And, who is left to struggle in the wreckage of yet another boom and bust cycle? Why, the American taxpayer, as is traditional. In addition to being forced to bail-out too-big-to-fail banks, lenders, and Wall Street giants so that those well-connected entities don’t have to suffer the fiscal consequences of their own risky financial decisions, the American taxpayer must contend with – in addition to historically high unemployment – record levels of foreclosure.
“U.S. foreclosure actions,” according to a January 14, 2010, Reuters report, “ shattered all records in 2009 and will do so again this year, with unemployment and wage cuts overcoming programs to remedy failing home loans, RealtyTrac said on Thursday. A record 2.8 million properties with a mortgage got a foreclosure notice last year, jumping 21 percent from 2008 and 120 percent from 2007, the Irvine, California-based real estate data company found.”
Falling home values and income instability due to a severely troubled economy have left many unable to refinance their home loans and unable to stop foreclosure. Not surprisingly, on January 7, 2010, the Wall Street Journal reported that “the number of Americans filing for personal bankruptcy rose by nearly a third in 2009, a surge largely driven by foreclosures and job losses.” After all, they are unable to “create” money like the Fed does, so they don’t benefit from the interest income of created money like the Fed does.
In fact, it should be noted that every dollar the Fed creates devalues each dollar in the American taxpayers hand. That is because the fractional banking system that serves as the foundation of the Federal Reserve’s monetary philosophies, powers, and policies is inherently inflationary. Inflation reduces the purchasing power of currency, and while on January 6, 2010, Bloomberg.com did, in its report on the minutes of the December 16, 2009, Federal Reserve’s Open Market Committee meeting, indicate that the Fed was aware of the depreciating dollar and said that “any tendency for dollar depreciation to put significant upward pressure on inflation would bear close watching,” their close watching doesn’t inspire much confidence. That is because, as Ron Paul so eloquently pointed out in a January 11, 2010, article, the Federal Reserve has, since its start in 1913, “devalued our dollar by 95 percent and counting.” So much for the safe and stable monetary and financial system that is theoretically the responsibility of the Fed, eh?
Despite all the public posturing regarding the Federal Reserve and its crucial role in maintaining the health and well-being of the economy for the average American, it seems that the proof is in the pudding. Its monetary policies and failure to meet the regulatory obligations that are its stated reasons for existence do little more than serve and protect the interests of big business and high finance. The inflation that is inherent to its system serves as yet another way to transfer wealth – and thus power – from one segment of the population to another. That the Fed achieves record profits while the average American sees record breaking economic difficulty on numerous fronts, in addition to being forced to bail out Wall Street, is simply a reflection of the reality of how the Federal Reserve system was always truly meant to function.