It’s not often that a self-avowed “Democratic Socialist” makes much sense when speaking about economic matters. This may be an exception.
In an opinion piece published by the New York Times, Democratic presidential candidate Bernie Sanders derides the Federal Reserve bank, arguing that it is subject to the whim of corporate America, an entity it is meant to regulate.
Usually, we expect to hear this kind of rhetoric from a libertarian-leaning candidate like Rand Paul—not a Democrat.
Sanders’s criticisms were prompted by the Fed decision earlier this month to raise interest rates. Sanders asserts that this move is indicative of the corruption inherent to the current central banking system.
He criticizes Congress for their insistence that “runaway inflation [is] just around the corner,” deeming the claims as little more than crying wolf.
So what are the consequences of this interest rate increase? According to Sanders, the decision will have an adverse effect on a small business sector wherein owners depend on “loans to hire more workers and Americans who need more jobs and higher wages.”
The ideal policy, in Sanders’s view, would be to suspend any manipulation of the interest rate until unemployment rates have fallen below four percent. Essentially, rate increases should be used as a last ditch effort to correct a failing economic system, “not to fight phantom inflation.”
As we all know, however, It’s not just an amendment to the interest rate increase that Sanders seeks; Sanders proposes a entire reconstruction of the Federal Reserve. Sanders’s agenda regarding the Fed is in stark contrast to the positions of his fellow party members, specifically Hillary Clinton, who has not been shy about cozying up to Wall Street.
If president, he would nominate new board members and have the Senate approve them, instead of essentially allowing big banking executives to choose board members themselves. In doing so, he will attempt to provide the board with diversity that its current assembly lacks.
“Board positions should instead include representatives from all walks of life — including labor, consumers, homeowners, urban residents, farmers and small businesses,” Sanders argues.
“It’s time to make banking work for the productive economy and for all Americans, not just a handful of wealthy speculators. And it begins by making the Federal Reserve a more democratic institution, one that is responsive to the needs of ordinary Americans rather than the billionaires on Wall Street,” writes Sanders.
He calls upon the commercial banks to facilitate the growth of the small businesses as well. He asserts that banks should provide affordable loans to owners and consumers “that create good jobs” and end the “gambling with the bank deposits of the American people.”
He adds that the Fed need not provide “incentives for banks to keep money out of the economy” and encourages the large-scale banking institutions to boost lending to “creditworthy small businesses and consumers,” while mitigating “credit card interest rates and fees,” and administering aid to struggling homeowners.
All of these proposals illustrate Sanders’s distaste for the elitism of the Federal Reserve.
As if meeting a quota on feather-ruffling measures, Sanders proposes the reinstatement of the Glass-Steagall Act, a law created in reaction to the stock market crash of 1929. Repealed in 1999, the Glass-Steagall Act, technically the Banking Act of 1933, forced banks to choose either Main Street (e.g. home mortgages and loans for small businesses) or Wall Street (e.g. buying and selling stocks and bonds and facilitating corporate mergers).
The Federal Open Market Committee (FOMC) would also be made more transparent, with “full and unredacted” transcripts from their meetings being released within six months of the FOMC meetings instead of five years later.
To be sure, there are problems with some of Sanders’s proposals that deserve scrutiny. Nevertheless, it’s refreshing to see a voice on the left offer legitimate criticisms of the Fed.
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