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The Federal Reserve: A History of the First 75 Year

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The Federal Reserve System, by Carl H. Moore

Moore uses coded language when saying "the market setting interest rates and prices" (p.3). The "market" is a code word for the power of Big Banks whose self-interest seldom corresponds to "the greatest good for the greatest number". The old problem of free-market banking is that there was "no lender of last resort" (p.4). This created the many money panics during the 19th and early 20th century in America. But the Federal Reserve System created, or did not prevent, the Great Depression (1929-1949) that was worse than anything in the 19th century! People disliked the idea of Big Banks having control of the money supply and the economy; their practical experience taught them this (p.6).

Page 7 summarizes the Federal Reserve Act. Federal Reserve Banks receive deposits of current funds, etc. (the money deducted from your paycheck). The Fed then loans this money to the Government. The Fed earns interest also from their paper currency which they lend to the Government! National Banks have to give 6% of their funds to their Federal Reserve Bank (p.11). When the European war occurred, it affected finance in this country: loans were called, stocks sold, currency became tight, commodity exchanges closed (p.23). Would the Fed restrain lending to stop inflation if it reduced their income (p.30)? Federal Reserve Notes were meant to provide a currency that could be expanded or contracted to meet business needs (pp.35-36). Money panics are described on pages 37-38. Inflation is impossible as long as bank notes are issued only against actual commodities ('real bills'). But WW I created new financing for the Allies (pp.43-45). One victim of the war was the gold standard; we got "managed currencies" (p.48).

The 1920s saw great speculation in stocks and bonds, low farm prices and heavy debt for agriculture; the Fed did nothing (pp.57-58). Increased production and dropping demand couldn't be resolved (p.67). The New Deal saw more changes than in any other period in our history (p.75). The problems of the 1930s would have been prevented with more prosperity (p.89)! But monetary actions cannot create economic stability (p.98). The increased volume of checks led to machine processing with preprinted numbers (p.124). More people were affected by the Fed in the 1960s. Silver coins were devalued in the 1960s (p.135). Next came the gold standard in 1971 (excessive amount of paper currency). This was followed by a tripled discount rate, skyrocketing gasoline prices, and a doubled federal debt. Inflation would not go away, there was high unemployment and a stagnant economy (p.140). Congress now required quarterly reports and Senate confirmation (p.142). If the Fed announced future plans it could create conditions that would negate these plans. The 1970s saw other changed (pp.150-151). Inflation galloped without control (p.152).

The appointment of Paul Volcker led to a halting of inflation. This was followed by bank failures from insider deals and fraud (p.156). The Financial Deregulation Act of 1980 forced all banks to pay the Fed for its services. The United States shifted from a creditor to a debtor nation (p.163)! The 'Look Back' summarizes the first 75 years of the Fed. It could NOT eliminate the business cycle (which could arise from variables in the weather, or human error). Will the United States create such a huge national debt as to cause its destruction, as with other nations (p.169)? This book would be better if oriented to the general reader. The last 100 pages of statistics are meaningless, but known to insiders like the author.