Fed Up
A new Federal Reserve Board chairman's ideas
Fed up 05152026
The independent Federal Reserve is a singular exception to Project 25’s wholesale destruction of elements of our federal government. The Fed functions are allocated to a Board of Governors, 12 regional banks and an open market committee.
Overseeing commerce between the states and the world is delegated to the federal government. Currency stability and the credit reputation of the U. S. are the foundations of this process. There is no international currency to facilitate international trade. The dollar comes closest to meeting that role. After the Second World War, the dollar was entrenched as the currency most used in international trade.
Since its establishment in 1913 the Federal Reserve has evolved to facilitate economic stability. It established a national currency, the Federal Reserve Note. It buys and sells U. S, debt obligations issued by the US Treasury; notes and bonds. It is the primary lender to our banking system. It raises and lowers the interest rate on federal notes. A bank’s cost of borrowed funds impacts what the bank charges borrowers. Adjusting the bank’s borrowing costs acts as a brake on inflation and a stimulus to the economy. The Fed does this to promote a policy of optimal employment, economic growth and manageable inflation.
In the 1980’s the Fed mediated a savings and loan collapse. In 2007-2009 it had to intervene to avoid global economic collapse precipitated by our irresponsible bundling and sale of junk debt. It bought tainted assets from banks to avoid a market collapse and prevent bank illiquidity. The covid pandemic produced yet another challenge. It reduced the interest rate to zero and poured money into the economy by buying $4 trillion in bonds and mortgages from banks to stimulate the economy.
Which brings us to the new Fed Chairman, Kevin Warsh. President Trump hopes to influence him to lower the interest rate to make it cheaper for business to borrow money. Warsh thinks that the Fed intervenes too much in the economy. He questions over-reliance on statistical benchmarks like the Consumer Price Index as guidance. He favors the 2% inflation growth rate as the chief standard. He hopes to sell some of the assets currently valued at over 30% of our Gross Domestic Product.
Fed governance is by committee. Bottom line: a new voice and maybe a slight change of course.