Manipulating interest rates is only the tip of the Federal Reserve’s
agenda
No wonder the policies of the Federal Reserve are so widely
misunderstood: in many ways the Fed is like an iceberg, with its public
pronouncements being only the visible 10 percent above water. The real mass of
the Fed’s actions lies beneath the surface, invisible to us mere citizens.
Consider the
Fed’s public mandate, which is to “promote stable prices, maximum sustainable
output and employment.” This is solid public relations, selflessly focused on
the good of the nation, but it’s also deeply disingenuous, as the Fed’s less
PR-pretty agenda is rather obviously to preserve the banking sector’s profits
and power.
We can find clues
to the Fed’s real goals in its actions behind closed doors—the 90 percent of
the iceberg that’s out of public view.
On the surface,
the Fed has increased its balance sheet by about $2 trillion since the 2008
global financial crisis. This electronically created money purchased about $1.1
trillion in mortgage-backed securities (MBS) to support the housing market and
$1 trillion in Treasury bonds to keep interest rates low. These two
goals—super-low interest rates (also known as “zero interest rate policy,” or
ZIRP) and supporting assets such as housing and stocks—are the core strategies
the Fed publicly deploys to boost growth and employment.
Supporting the
banks is not mentioned, for obvious PR reasons. Yet a Government Accountability
Office audit found that the Fed provided $16.1 trillion in “emergency program”
loans to global banks from 2007 to 2010. A Levy Institute study uncovered a
total of $29 trillion in Fed support—roughly ten times larger than the Fed’s
public programs. For context, the annual U.S. gross domestic product is about
$15 trillion.
This suggests we
should take the Fed’s assurances that its policies are all for the public good
with a grain of salt roughly the size of the Fed’s D.C. headquarters at 20th
and Constitution Avenue.
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