Occupy Wall Street marches on reserve banks led by opponents of federal stimulus
While much of the discussion around the role of the Fed in improving the economy has centered on the actions of Federal Reserve Chairman Ben Bernanke, the Occupy Wall Street movement will try a different tack today by marching on the country’s regional Federal Reserve banks — pivotal but often overlooked institutions in the national banking system.
As TAI has reported, bankers and business executives chosen by the member banks dominate the board of directors of the Federal Reserve banks. These boards choose the bank presidents, some of which vote in the Federal Open Market Committee (FOMC), the Fed’s policy committee responsible for voting on coordinated Federal Reserve action.
That institutional relationship has given private bankers a lever by which to influence debates about inflation and interest rates. Three of the five bank presidents on the Committee have joined together in an unprecedented move and dissented from the Fed’s modest efforts to reduce unemployment. Many have put the onus on them to take more dramatic action to turn around the economy and reduce private debt levels.
Occupy movements are expected to camp out in front of Regional Fed Banks in Dallas, San Francisco, Boston, Chicago, Kansas City, and Philadelphia.
Some economists believe that the Federal Reserve can do even more to boost spending and ease debt burdens. These critics argue that the Federal Reserve should announce that it will continue to inject money into the economy until unemployment is low again, even if that means higher inflation.
Conservatives, including the four highest-ranked Republicans in Congress, have called on the Federal Reserve to abandon its unemployment mandate and focus on keeping prices low. They say using the Federal Reserve to reduce unemployment will cause harmful inflation.
But economists at the Cleveland Federal Reserve say inflation is currently expected to average at only 1.37 percent per year for the next decade, an historic low. Inflation is also not always a bad thing, in particular for people with a lot of debt because it causes the value of the debt to decline over time. But because banks are the lenders to whom the money is owed, they dislike inflation for precisely that reason.
This is why today’s march to the Dallas Fed will have particular significance for the “We are the 99 percent” movement to end banker influence over the economy. In a recent speech, Richard Fisher, president of the Dallas Fed and current FOMC member, said: “I believe the foremost duty of any central banker is to ensure price stability.” That’s a rejection of the Federal Reserve’s legal requirement to pay attention to the unemployed as well as inflation.
The Federal Reserve has the power to increase total spending in the economy. Normally it does this by targeting lower interest rates. This is when the Fed buys Treasury bonds from banks and keeps buying them there’s enough money in the system for the banks to lend at the targeted rate.
Since the crisis began, the Fed has also tried “quantitative easing”, buying bonds which last longer in order to push down interest rates for bigger investments. This is particularly helpful for some struggling homeowners, who are desperate to refinance their mortgages so that they can avoid default. But easing has slowed down, and the most recent Fed action, “Operation Twist”, merely rearranges some of the Fed’s balance sheet without aggressively committing to new stimulus.
The “99 percenters” can hope that their “occupation” will change the central bankers’ minds.