Phil Gramm warns Federal Reserve losing control of interest rates

Ostensibly, the Federal Reserve is losing its control on how it sets interest rates, says former Senate Banking Committee Chairman Phil Gramm.

Writing in a Wall Street Journal op-ed, and co-authored by co-authored with Thomas S. Saving, a former director of the Private Enterprise Research Center at Texas A&M University, Gramm contends that the central bank is losing less control over monetary policy than at any time in its history.

“Extraordinarily, this debate is occurring at the very moment the Fed — shackled by its bloated asset holdings and the resulting excess reserves of the banking system — has less ability to control interest rates than it has had in its entire 105-year history,” Gramm wrote.

“[T]he danger posed by the Fed’s bloated asset holdings and the resulting massive level of excess bank reserves is that with a full blown recovery now under way, the demand for credit will accelerate and force the Fed to move quickly to raise interest rates on reserves or sell securities to sop up excess reserves. A small error by the Fed in following market interest rates could cause a large change in the money supply.”

He also took a jab at former President Barack Obama for the “monetary excesses.”

A couple of things, the Fed has never been independent since it has partnered with the White House since the Second World War.

Economic Collapse News wrote:

But the Fed has been a political institution for decades. Whether it’s President Nixon, President Bush or President Obama, the Fed acts in the interests of the White House or Congress.

During the 1960s, for example, President John F. Kennedy demanded greater money creation. What did Fed Chair William Martin do? He expanded the money supply by nearly three percent. Kennedy’s successor, Lyndon Johnson, wanted even faster money creation to pay for the Vietnam War. Martin agreed and grew the money supply by five percent.

This trend continued during the Nixon administration when Fed Chair Arthur Burns raised the money supply by 10 percent. When President Gerald Ford wanted money growth to slow down, Burns complied and lowered it to 4.7 percent.

In the 1990s, Fed Chair Alan Greenspan kept the money supply open to help President Bill Clinton avoid impeachment. We can’t neglect to mention Ben Bernanke’s involvement in the Bush and Obama administrations! We all personally witnessed that story.

Author Thomas DiLorenzo also wrote:

“The Fed operates for the benefit of its executive branch controllers, the banking industry, and Fed employees themselves, at the expense of the rest of society which suffers from the economic instability it creates. Worse yet, many Americans have been conned into believing that the Fed Chairman operates like the Wizard of Oz, hiding behind dark curtains, pulling levers and pushing buttons to make the economy operate smoothly. So-called “scientific socialism” may have been the most absurd and destructive idea of the twentieth century, but it is nevertheless the guiding ideology of central banking.”

Plus, the Eccles Building shouldn’t be the one to artificially raise or cut interest rates. The market should be the only to determine the correct rate of interest.

Since when did the world start thinking the Fed was this benign and benevolent instituion that operated separately from the U.S. government?

Sad!