The Federal Reserve Should Be Abolished

Just as an FYI, all my sources will be posted in the comments section. Constitutionality Just because something was created by Congress for a specific purpose does not make it constitutional. “Congress has the right to coin money and regulate its value, the FED was created by Congress to serve just that purpose for Congress.” It has been made very clear by the Supreme Court that the Fed is too private of an entity to be considered a federal agency. Lewis v. United States (1982) ruled that the Federal Reserve and its subdivisions are "independent, privately owned and locally controlled corporations", and there is not enough "federal government control over 'detailed physical performance' and 'day to day operation'" of the Federal Reserve Bank for it to be considered a federal agency. This lays to rest my opponent’s contention that the Fed serves any kind of purpose for Congress. If Congress had a significant role in regulating the Fed, then there would be no constitutional question to its existence. But if the Fed is so independent that it cannot be considered a federal agency, then it is indeed possessing a power constitutionally granted to Congress, thus making the Fed unconstitutional. Claims of the Fed’s evilness “Imagine the bank closures of the great Depression happening once every ten years and that was what it was like prior to the Fed's creation.” This is false. The highest amount of bank failures in a pre-Fed economic panic was 598, during the panic of 1893. And this was an extreme, 5 times the amount of the panic with the second most bank failures pre-Fed era. The Great Depression, by contrast, saw nearly 5,000 banks fail, all while the Fed did indeed exist. [1] Therefore, the contention that we would have a Great Depression every ten years without the Fed is unjustified. Also, to briefly address a point I will get to later, it is interesting that after the creation of an institution which was supposed to stabilize the economy, America ended up with its worst ever financial crisis in 1929, and is currently undergoing a prolonged recession in which the US received its first ever credit rating downgrade. And what is the oh-so-benevolent Fed’s role in all this? As can be proven, they exacerbated the Great Depression and are not helping the US economy towards recovery today. “The Fed was created so that its actions would be independent of Congressional intervention so that in times of crisis (like in 2008) the fed could do what it felt was necessary…” Is it necessary to print endless money and give out $16 trillion in “financial assistance” to US and foreign banks? And why should these private banks have control of our nation’s money without Congressional oversight? When you consider that many of the Fed’s governors, along with the Fed itself, have intimate ties to these big banks, this idea that it was necessary to put out this much money becomes a falsehood. Consider this: The CEO of JP Morgan Chase served on the New York Fed's board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds. During the Fed outsourced most of its emergency lending programs to private contractors, many of which also were recipients of extremely low-interest and then-secret loans. In all of these cases, the Fed provided conflict of interest waivers to make their actions legal. To me, this is not necessary action, but instead dishonest and selfish action that clearly was meant to support the big bankers who have significant governance in the system. This is definitely a financial system that has not acted in our best interest, as it magically created $16 trillion out of thin air for the banks all while numerous businesses shut down and people went unemployed. This created money also contributed to a growing national debt and further inflated the money supply. To me, this corrupt system keeping bankers well afloat is something we can do without. [2] “The Fed must work within the framework of the economic and financial policy authorized to Congress.” The Fed is what creates the monetary policy, i.e. interest rates and amount of money in circulation. [3]This isn’t Congress’s job at all. “The Fed does not create a boom-bust cycle of economics, it was in fact authorized to prevent just that…” It was never placed to “prevent” the boom-bust cycle, as that is a natural part of a free-market. With the Fed in place, they manipulate the boom-bust cycle instead of letting it play out by itself. Consider the first graph on this site: . As can be seen, every time the Fed has increased interest rates, an economic depression has ensued. They originally set low interest rate, encouraging start-up businesses to take out loans to get capital. When they hike up the interest rates, this damages the vulnerable start-up businesses, who don’t have the necessary money to pay back the now high interest rate. Thus, they shut down and lay off their workers. Meanwhile, big corporations are relatively unaffected by the hike. Indeed, the Fed’s control of the interest rates has irrefutably been a major factor in causing an artificial boom-bust cycle. [4] “The Fed did not cause the great depression, that was caused because mass production produced an over-abundunce of goods…” My opponent has accepted the simplified version taught in history class, something that Milton Friedman and Anna Schwartz have disproven. Their research has shown that if the Fed had not existed during 1929 and made poor policy decisions, the Great Depression wouldn’t be the landmark economic depression that we know it as. When people rapidly pulled out their money from banks (due to the stock market crash from the factors you mentioned), rapidly decreasing the money supply, the Fed did nothing to counteract this, such as buying government bonds. Before the Fed’s creation this role of “private clearinghouse” was with commercial banks. Now this role was gone from them, and as Friedman/Schwartz noted, the Fed failed to perform this duty; thus, the Fed was the primary cause of how bad the 1929 crash ended up. [5] “Income tax is authorized by Congress, which they are authorized to do, and then they allocate that money to programs they wish to fund…” Not true. A 1984 report from the Congressional Research Service found that 100% of income tax revenue is absorbed by the Federal Reserve due to the interest on its worthless paper currency. Thus, no money is ever allocated by Congress to the programs like defense and education that taxpayers believe. So essentially, people are paying around 30% of their income in order to facilitate an institution which has proven to be unhelpful in promoting stability . I’m not against paying taxes, but this high percentage is completely ridiculous and unnecessary when you consider what it goes towards. [6] My opponent contends that scrapping the Federal Reserve would leave some programs unfunded. Perhaps this would be a good thing: if Congress can’t borrow money created from nothing, they would reduce wasteful spending on programs we don’t need. The Fed has no value in economic stability, and has devalued the dollar by 96% since its creation. A return to the gold standard, with the Fed's gold reserves liquidated and revalued, would provide stability to the money supply, since there would be no reckless inflation from worthless Fed paper notes. Indeed, a gold standard is the only constitutional system according to Article I Section 10. It also has many advantages over the unconstitutional printing of worthless money. There would be very few drastic fluctuations in the currency's value, and without an official lender of last resort, banks would have to be more responsible for their actions, or else liquidate and pay off their depositors. [7]