The Federal Reserve System

The Fed is constitutional, supported by republican government, moderates economic swings, and protects the banking system. Since, the opposition in this debate uses valuable space to only inquire on the Fed's constitutionality, this will be addressed first. The Supreme Court in 1819, McCulloch v. Maryland set legal precedent that the US Congress could establish a central bank https://www.law.cornell.edu... . One assumption made in America is that every bill past by congress and signed by the President is Constitutional. Every person in the process is sworn to protect the Constitution, it is their first loyalty. None are sworn to protect voters, special interest, or a political idea, only a sacred document. People that take an oath like that can only be trusted. The Constitution gives congress three clauses that apply to the Fed's constitutionality. Necessary and Proper Clause "The Congress shall have Power ... To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof." This clause, in its modern interpretation, basically, anything congress does is constitutional. As a former Speaker explains when questioned about an obviously unconstitutional bill was being debated in congress, http://youtu.be... . General Welfare Clause "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States." It is in the general welfare of the residence of the United States to be protected from economic swings, hold stable legal tender, and have a safe banking system. The Fed has provided all of these for a hundred years. Congress with the Fed has increased the general welfare of America. Commerce Clause "To regulate Commerce with foreign Nations, and among the several States, ..." This commerce regulation responsibility is centralized by a common legal tender. Without common legal tender merchants would not be able to accurately compare the value of products. Multiple types of legal tender is very confusing to most people, their phones can only have so many apps. People can not be encumbered with currency conversion. The Fed does not print or coin money. One constitutional objection to the Fed is that money must be of gold or silver, from this clause in the Constitution "No State shall...coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts." This clause limits States not the Federal government or private institutions. If this clause did limit the Federal government or private institutions, it still would not constrain the Fed, since it does not print or coin money, currency, or legal tender. The US Treasury has those responsibilities. The Fed purchases legal tender and bonds from the US Treasury with nothing but corespondent values on a balance sheet. Another clause, gives congress the responsibility to set value of money "To coin Money, regulate the Value thereof, and of foreign Coin..." This clause does not apply to the Fed since no money is involved, only legal tender. Lastly, with the number of court cases with the Fed involved that have reached the Supreme Court, it would have been ruled unconstitutional by now. The Supreme Court's honorable justices only responsibility is to protect the Constitution, they would have ruled against the Fed by now if it were unconstitutional. The court is the final authority for the law of the land, decisions like Dred Scott, Plessy v Ferguson, Citizen's United, and Obamacare show that the court is always right, regardless of morality. With the Fed's constitutionality firmly established, next point of supported by republican government will be addressed. The United States is a republic not a democracy. The American republican form of government overwhelmingly supports the Fed, even bipartisan efforts to limit some of its powers are quickly stopped. The customer watch dog Senator Elisabeth Warren could not even get a bill to limit the Fed's powers as lender of last resort to pass the Senate. Another champion for the people Congressman Alan Grayson can't get an Audit the Fed bill through congress. This show the depth of support in America's republican government for the Fed. Why does a republican government support the Fed? The answer lies in the properties of inflation. Simply inflation makes future money less valuable than today's money. The Fed policy to target inflation at 2% per year, measured by CPI. This means that each year that price levels should rise by 2%. This increase is price levels is transferred though the economy as a whole, which increases wages, which means more tax revenue. Also, funds borrowed in early years are easier to pay with the value steadily decreasing. This is good for government, inflation is a hidden tax that every person that holds a dollar bill must pay. The Fed's method of controlling interest rates also benefits government. The conduct of open market operations gives a continual market for US treasuries. Currently, the Fed holds over 2 trillion of US debt http://www.federalreserve.gov... without this debt in Fed hands, demand for US treasuries might not be as strong as desired. The Fed is supported by many Americans, in 2010 Bloomberg poll only 16% of American want to abolish the Fed http://www.bloomberg.com... . The Fed's moderation of economic swings will be covered in the next round. Lastly, the Fed's bank regulatory role. Banks have a long history of failure. In the 19th and early 20th centuries bank runs would happen when confident was long in a bank's ability to repay depositories. People would demand their currency or species payment returned while the bank still hand either on hand. Since, banks cannot be profitable operating like a mini-storage, banks must loan out funds of depositors to be profitable. The mini-storage that secures a person's property and does not rent the stuff out is a poor business model. A mini-storage business should be renting out that stuff to earn additional profit. Since, banks loan out idle property for the good of the economy, the Fed must regulate this action. As a non-government institution, the Fed's authority to regulate member banks has no legal authority and violations are referred to law enforcement for prosecution. This relationship is strengthened by member banks being the owners of the Fed. Thus, banks regulate themselves an effective way since 1913. This method keeps both partisan politicians and the ignorant public from interfering with America's banking system. The Federal Reserve is a legal, trusted, and require institution that greatly benefits America.