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Who are the central bankers working for?
By Jon Menaster | March 25, 2008
Big central banks such as the Federal Reserve Bank or the European Central Bank are supposed to be looking out for the interests of the people, working to stave of financial disaster. At least, that is what common wisdom holds. Unfortunately, recent monetary moves by the Fed seem to show otherwise. Unless you’ve been living in a cave for the past 6 months, you’ve noticed that the Federal Reserve has lowered interest rates every time it has met as of late. In total, there has been a 225 basis point drop (2.25%) in the fed funds rate, the rate at which banks loan money to other banks. This was supposed to help keep the markets from collapsing. Well, in my eyes it hasn’t worked very well. And I thought about why the central banks were doing this - especially after a friend of mine commented that as far as she knew the banks were trying to help us. A recent article in the excellent blog Jesse’s Cafe Americain stated,
The central banks are also cutting interest rates to try to boost banking profits, and this is making currencies such as the dollar increasingly unstable.
That is such a key point I cannot overstate it. The Federal Reserve, contrary to what you might think, is actually a consortium of mostly privately owned banks making decisions affecting the monetary policy of the United States. I recommend thoroughly reading through the Wikipedia article I linked to to gain a real understanding of how the system actually works, and how every single dollar printed by the reserve is actually loaned to the United States Government.
When the interest rate is cut it tends to both increase inflation and decrease the value of the dollar, and that is precisely what is happening. If one takes a look at the Consumer Price Index, it is clear that inflation has been steadily increasing. According to the Department of Labor’s statistics, the Consumer Price Index has risen by 4% over the past year. The Euro has risen from being worth around $1.33 a year ago to $1.56 today.
Things are bad, but they could be worse. The Fed needs to hurry up and slow down. Try keeping interest rates at least stable for a little while longer, which will hopefully reinvigorate the dollar and keep inflation low. This will allow the American consumer to retain some of its spending power. It’s going to be a rough 2008 but let’s ride the rapids, hang on tight, and hope for the best! Till next time!
Topics: Finance, Money News, Savings |