Bernie Sanders slammed the Federal Reserve for raising interest rates a little over a week ago.
After pointing out that a hike threatened to put a bump in the slow road to recovery, Sanders declared:
At a time when real unemployment is nearly 10 percent and youth unemployment is off the charts, we need to do everything possible to create millions of good-paying jobs and raise the wages of the American people. The Fed should act with the same sense of urgency to rebuild the disappearing middle class as it did to bail out Wall Street banks seven years ago.
Sanders subsequently called for broad reform, including charging fees on reserves, a wide array of new transparency measures, and a prohibition on banking executives serving on the Fed board. I'll blog about what he did not call for later.
Ralph Nader, on the other hand, had been nagging at Janet Yellen to raise interest rate--and raise them substantially. Why? Because, as Neil McDonald explained, (1) "ultra-low interest rates have hurt retirees and savers, not just in America, but in every Western nation that used cheap money to grease the financial system when it was about to seize up." (2) "Older people tend to have savings, and for much of their lives they planned, reasonably, on those savings to generate a modest return to help them get by in retirement." (3) "Older people, with their much shorter horizons, cannot afford to take the risks involved in playing stock markets. Instead, they put their money into government bonds, or annuities, or things like GICs, which are safer, but which now pay returns so paltry that they can return less money once inflation is taken into account."
And, I imagine, not only older people. Low-level interest from savings likely keeps many Americans afloat, and it's bitterly ironic that Americans are forced to listen to a lot of pontification about the virtues of savings and then subject to that savings reaping zero benefit. Hey, eliminate interest altogether if you want to and let's make a new economy. But the status quo is interest for rich people, not for poor and working people, not for the elderly.
So the truth is, Nader is right. But the truth is also that Sanders is right in arguing that raising interest rates will hurt small business growth and undermine liquidity where economic activity is needed.
So if the person calling for raising interest rates significantly is right, and the person criticizing the Fed for even a small hike in rates is right, that must mean there's a contradiction in the administration of the economy. In fact, there is.
1. The creation and evaluation of the price of money is in private hands, when it should be in public hands--or, at the very least, when a public option for both financial and consumer banking should exist.
2. Financial profitability (distinct from production profitability even) is valued above human needs.
One solution, as I've heard from various quarters--from comments about Bernie's NYT OpEd to articles by Ellen Brown, is to make the Fed a public utility. Brown explains that the original movement for a Federal Reserve was much more ambitious than what we got:
. . . the Federal Reserve Act that [the populists] got was not what the populists had fought for, or what their leader William Jennings Bryan thought he was approving when he voted for it in 1913. In the stirring speech that won him the Democratic presidential nomination in 1896, Bryan insisted: "[We] believe that the right to coin money and issue money is a function of government . . . " What Bryan and the populists sought was a national currency issued debt-free and interest-free by the government . . . It may be time for a new populist movement, one that demands that the power to issue money be returned to the government and the people it represents; and that the Federal Reserve be made a public utility, owned by the people and serving them. The firehose of cheap credit lavished on Wall Street needs to be re-directed to Main Street.
Do others besides me wish that this was the conversation Nader, Sanders, and other critics of the Fed could be having? I'll have more to say about Sanders' knowledge base and data points on banking in my next post.