In defense of the Fed and its mission to ensure financial stability | Cumberland Comment by David R. Kotok
The Fed's patriotic history
The founders of the Fed were not motivated by inflation or the unemployment rate. They didn’t use “dot plots.” They paid no attention to things like GDP. They didn’t have the benefit of the system known as the National Income and Product Accounts.
These bankers were motivated by the issue of financial stability. They had had enough of various banking failures. They saw the hodgepodge of various state efforts in the banking arena. And they watched failure after failure. In my opinion, the state governments which asserted state rights over federalism have a wretched history of bank failures and financial misbehavior.
The Fed came into being because of the desire for a federal banking system and for financial stability. That remains crucial today.
Note also that the Federal Reserve has a strong patriotic history. In the World War I era, Benjamin Strong (one of the First Name Club members) used his Fed leadership position to sell war bonds. During the WWII era, the Fed maintained a very low interest rate for the entire war period even as the inflation rate exceeded 10% and even as the debt/GDP ratio climbed to 110%. If we look at history with a lens unencumbered by the constant throwing of political barbs, we see the Fed as an instrument of the United States that has continued to put the national interest above and beyond the partisan political nature of our system.
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