Sense on Cents

What would our founding fathers think about the omnipotence of the Federal Reserve?

Is there any doubt that the true greatness of our Constitution is found in the balance of power amongst the executive, legislative, and judicial branches. Where in that mix is the power centered in the financial branch? Who controls the financial branch? Welcome to the kingdom of the Federal Reserve.

To whom does the Fed answer? How transparent is the Fed? Can the Fed be too powerful? Is the Fed “too big to fail?” How skilled is the Fed? Is it infallible? Does the Fed get involved in our political process? So many questions. Such limited clarity.

As our Brave New World of the Uncle Sam Economy evolves, the Fed has never been more influential in our economic and political process. Is the Fed too powerful? Let’s navigate the landscape of the Fed and see what we learn.

Rather than my regurgitating answers to frequently asked questions of the Fed, please allow me to link to the Fed’s own site for these “frequently asked questions.”

Let’s dig deeper. I want to specifically address, two specific aspects which fall under, What are the Federal Reserve’s responsibilities?

-supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers

-maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

Looking back over the course of the last ten years, how could any self-respecting central banker, politician, financial executive, market analyst, or financial blogger give the Fed anything other than a failing grade in these realms. Does that failing grade deserve to be assigned more to former Fed chair Alan Greenspan than Ben Bernanke? Perhaps, but the Fed as a whole failed miserably on these critically important initiatives.

As we move forward on our economic landscape, how will our “political leaders” within the executive and legislative branches address the allocation of responsibilities within the financial system? (more…)