The Buck Starts Here
The Federal Reserve’s Amazing Power to Print and Destroy Money
Back in 1986, newsweek called the Federal Reserve chairman the second most powerful man in America. In the financial crisis of 2007 to 2009, you could delete the word second as the Fed, under its chairman Ben Bernanke, cut interest rates, propped up banks, lent to cash-strapped companies, and bought hundreds of billions of dollars of mortgages to keep the economy from collapsing.
The Fed occupies a unique position in the United States. It is a partly public, partly private institution whose political independence rivals the Supreme Court’s. It is populated by technocratic central bankers who, regardless of party affiliation, see themselves as united in their mission of low inflation and steady growth. They speak their own nerdy dialect, “Fedspeak,” saying things like monetary accommodation instead of low interest rates. They revel in goofy inside jokes. A sign in the Fed’s barbershop reads, “Your growth rate affects my money supply.”
The United States struggled for years over whether to have a central bank. Alexander Hamilton, the first secretary of the Treasury, convinced Congress to create the First Bank of the United States in 1791 to handle the infant republic’s monetary affairs, over the objections of then-Secretary of State Thomas Jefferson, who feared the concentration of so much economic power in one place. Hostility to the bank persisted and in 1811 Congress let ...