12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

Home Search Skiptocontent

Sections

Economy|AmericasEndlessWarOverMoney

Email
Share
Tweet
More
Search

SUSCRI NOW
Subscribe
SubscribeNow

LogIn 0 Settings

Closesearch
searchsponsoredby

SearchNYTimes.com
Clearthistextinput Go
http://nyti.ms/1a0EtA4
1.

1. WalmartsImportsFromChinaDisplaced400,000Jobs,aStudySays
2. Philanthropy

WhyItsTooSoontoSourontheZuckerbergCharityPlan
3. EconomicView

DontAssumeaFedActionWillMovetheMarket
4. JobsReport

TheEconomyIsGrowing,butNotFixedYet
5. MonetaryPolicy

WhyNegativeInterestRatesAreBecomingtheNewNormal
6. EconomicScene

ForImmigrants,AmericaIsStillMoreWelcomingThanEurope
7. HiringIncreasedinOctober,ReportSays
8. BorrowingRisesforAutoandStudentLoansasOverallGrowthSlows
9. Feature

WhiteDebt
10. FairGame

FedMightNotHavetheLuxuryofSlowandSteadyRateIncreases
11. RobustJobsReportAllbutGuaranteesFedWillRaiseRates
12. ServicesSectorSlips,butGrowthRemainsStable
13. ConakryJournal

PoorinGuinea,butMakingaLivingFromCrispNewBanknotes
14. WorkLifeBalance

HowMarkZuckerbergsExampleHelpsFightStigmaofFamilyLeave
http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

1/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

15. E.C.B.ExpectedtoExpandEurozoneStimulus,asQuestionsofEffectsRemain
16. EconomicScene

ImaginingaWorldWithoutGrowth
17. BUSINESS

DraghiExplainsE.C.B.Actions
18. BUSINESS

YellenonLikelihoodofRateIncrease
19. BUSINESS

YellenSpeakstoLegislators
20. Opinion

WhatScentedCandlesSaytoanEconomist
21. BUSINESS

DraghiExplainsE.C.B.Actions
22. BUSINESS

YellenonLikelihoodofRateIncrease
23. BUSINESS

YellenSpeakstoLegislators
2. Loading...
Seenextarticles
Seepreviousarticles
HomePage
HomePage
World
U.S.
Politics
N.Y.
Business
Business
Opinion
Opinion
Tech
Science
Health
Sports
Sports
Arts
Arts
Fashion&Style
Fashion&Style
Food
Food
Travel
Magazine
TMagazine
RealEstate
Obituaries
Video
TheUpshot
Conferences
Crossword
TimesInsider

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

2/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

Multimedia
Photography
NYTStore
NYTWineClub
nytEducation
TimesJourneys
Subscribe
ManageAccount
Today'sPaper
Blogs
TimesTopics
Tools&Services
Jobs
Classifieds
Corrections
More
Advertisement

Economy
Share

America ndle
War Over Mone
ByKEVINGRANVILLEandBINYAMINAPPELBAUMAPRIL7,2015
The Audit the Fed deate i the latet manifetation of a conflict a old a the nation, etween thoe who
argue that a trong central ank improve economic tailit, and thoe who ee an overearing government
engaged in harmful meddling.

Photo

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

3/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

TheFederalReserveBuildinginWashington.CreditJ.DavidAke/AssociatedPress

Some ackground: Strong v.

Weak Currenc
Battlesovercentralbankinghavehistoricallypittedfinancialeliteswhowanted
tolimittheavailabilityofmoney,thuspreservingitsvalue,againstfarmers,
businessmenandotherborrowerswhowantedmoneytobeplentifuland
cheap.Eachsidehassometimesregardedthecentralbankasitsgreatallyin
thatfight,andsometimesasitsbitterenemy.
SincetheGreatRecessiontheFedhasmostlysidedwiththeborrowers,creating
vastamountsofnewmoneyandholdingshortterminterestratesnearzero.
Inevitably,thathasangeredcreditors,andsparkedeffortstoswingthe
pendulumintheotherdirection.

Photo

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

4/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

AcartoonsatirizingAndrewJackson,shownraisingacanelabeledveto,andhisbattleagainsttheBankoftheUnitedStatesanditssupportersamongstate
banks.

1. A Philadelphia Stor: The ank

of the United State
Thenation'sfirsttwocentralbanks,bothcalledtheBankoftheUnitedStates,
wereprivate,forprofitorganizationscharteredbyCongress.Thefirst(1791
1811)wascreatedtohelpthegovernmentpayitsRevolutionaryWardebt,
stabilizethecountryscurrencyandraisemoneyforthenewgovernment.Itwas
thedreamofAlexanderHamilton,secretaryoftheTreasury,whoovercame
resistancefromThomasJefferson(whowroteIbelievethatbanking
institutionsaremoredangeroustoourlibertiesthanstandingarmies)and
otherSouthernlawmakers.Whenits20yearcharterexpired,Congresschose
nottorenewit.
TheSecondBankoftheUnitedStateswascharteredafewyearslater,inthe
aftermathoftheWarof1812,afterCongressdecidedithadamistake.Butit
lastedjust17years.PresidentAndrewJacksonsaidthebankconcentratedtoo
mucheconomicpowerwithacorruptmoneyedeliteandvetoedabilltoextend
itscharterin1832.SupportersofthethebankralliedaroundHenryClay,
Jacksonsopponentforreelectionthatyear,buttheBankWarendedwhen
Jacksonwoneasily.UnitedStatesTreasuryfundswerewithdrawnand
depositedinstatebanksthenationwouldbewithoutacentralbankformore
http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

5/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

than70years.
Theheadquartersofbothbanksstillstandaboutablockapartindowntown
Philadelphia.

The ank i tring to kill me, ut I will kill it!

Andrew Jackon

Photo

CrowdsgatheracrossthestreetfromafailedNewYorkbankin1908.CreditGeorgeGranthamBainCollection/LibraryofCongress

2. Perpetual Panic: Life Without a

Central ank
Aseverefinancialcrisisdrovetheeconomyintoadeeprecessionin1837,just
oneyearafterthedemiseoftheSecondBank.Suchcrisesbecamearecurring
eventinAmericanlifeand,astheeconomygrew,sodidtheirsizeandthe
frequency.BankscreatedtheNewYorkClearingHouseasaprivatesector
backstop,butitprovedinadequateforthetask.Thegovernmentalsowas
hamstrung.Intheabsenceofacentralbank,theUnitedStatesregulatedthe
valueofitscurrencybyguaranteeingthatdollarscouldbeexchangedforgold,
andsometimessilver.Thismeantthegovernmentcouldnotrespondto
financialcrises,andtheresultingeconomicdownturns,byincreasingthesupply
http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

6/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

ofmoney.
In1907,yetanothercrisiswasbroughtaboutbyafailedattempttocornerthe
stockoftheUnitedCopperCompany.Governmentofficialsandfinancial
executivesjerryriggedaresponse:anemergencylendingpoolorchestratedby
J.PierpontMorgan.Butthecrisisprovedtobeatippingpointinthepolitical
debateabouttheneedforacentralbank.Therewasagrowingpolitical
consensusthatWallStreetneededapermanentfiredepartment.

Unle we have a central ank with adequate control of

credit reource, thi countr i going to undergo the mot
evere and far reaching mone panic in it hitor.

Jaco Schiff, a prominent New York anker, in 1907

Photo

PresidentWoodrowWilsonsigningtheFederalReserveActof1913,inapaintingbyWilburG.KurtzSr.Heissurroundedbymembersofhiscabinetand
Congressionalleaders.CreditWoodrowWilsonPresidentialLibrary,Staunton,Va.

3. Third Time the Charm: The

Federal Reerve Act of 1913

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

7/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

InNovember1910,SenatorNelsonAldrichmetwithagroupofbankersata
resortonGeorgiasJekyllIslandandhammeredoutaplanforanewcentral
bank.Theideatouchedonmanyofthegreatpoliticalbattlesoftheage:The
statesagainstWashingtonWallStreetfinanciersagainstsmallerbanks,
particularlyintheSouthandWestpopulistsagainsttheGildedAgeelite.The
billthatemergedfromseveralyearsofdebate,signedbyPresidentWoodrow
Wilson,wasanawkwardcompromise:Therewouldbe12privatelyowned
reservebanksinmajorcitiesacrossthecountry,preservingthepowerof
financialelites.Butthebankswouldbeoverseenbyaboardofpresidential
appointees,includingtheTreasurysecretary,grantingthepublicanewmeasure
ofcontroloverthefinancialsystem.
BeforetheFedwasfullyestablished,however,theoldsystemtookafinalbow.
Afinancialcrisisstruckin1914,androughlytwiceasmanybanksfailedasin
1907.

We hall deal with our economic tem a it i and a it

ma e modified, not a it might e if we had a clean heet
of paper to write upon; and tep tep we hall make it
what it hould e.

Woodrow Wilon, from hi firt inaugural addre

Photo

In1933,aftersomebankslimitedwithdrawalsto5percentorless,customerswaitedtoentertheNationalCityBankinCleveland.CreditAssociatedPress
http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

8/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

4. Receion and Repone

Insteadofpreventingcrises,theFederalReservehelpedtocausetheGreat
Depression.TheFedwassupposedtomanagethegoldstandardtomakesure
theeconomywasnotchokedbyalackofmoneyandaresultingspikeininterest
rates.Instead,theFedwasparalyzedbydisagreementsbetweenregionalbanks
andthecentralboard.Itletthemoneysupplyshrinkbyonethird.Theresult
wastheworsteconomiccrisisinthenationshistory.
CongressrespondedtotheFedsfailurebygreatlyincreasingitspowerand
responsibilities.In1934itauthorizedthepresidenttodevaluethedollar,
beginningthelongprocessofreplacingthegoldstandardwithacurrency
whosevalueismanagedbytheFed.In1935itgavetheFedresponsibilityfor
thegeneralcreditsituationofthecountry.TheactalsoremovedtheTreasury
secretaryfromtheFedsboardandcreatedanewpolicymakingcommittee
whereboardmemberswouldoutnumberreservebankpresidents.

I would like to a to Milton and Anna: Regarding the

Great Depreion. You're right, we did it. We're ver orr.
ut thank to ou, we won't do it again.

en ernanke, then a Fed governor, in a 2002 peech addreing Milton Friedman

and Anna Schwartz, whoe reearch documented the Fed role in cauing the Great
Depreion

Photo

TheFederalOpenMarketCommitteein1966,ledbytheFedchairman,WilliamMcChesneyMartin,seatedcenter.CreditFabianBachrach

5. The Long Road to Independence

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

9/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

Thecentralbanknowhadthefreedomtoencouragegrowthbyprintingmoney,
andtheresponsibilitynottoprinttoomuch.Politicianswhowerefocusedon
shorttermproblemswerequicktodemandmoneyand,forthenextseveral
decades,theFedhesitatedtosayno.
In1942,attherequestoftheTreasuryDepartment,theFedagreedtohold
downinterestratesongovernmentbondstohelpfinancemilitaryspendingfor
WorldWarII.Itkeptrateslowforalmostadecade,throughthebeginningof
theKoreanWar,untilrisinginflationfinallyinducedtheTreasurytosigna1951
accordaffirmingtheFedsautonomytoraiserates.
Inthe1960s,WrightPatman,apopulistDemocratcongressmanfromTexas
andchairmanoftheHousebankingcommittee,repeatedlyintroduced
legislationtorollbacktheFederalReserveActof1913,maintainingthat,inthe
Fed,abodyofmenexistwhocontroloneofthemostpowerfulleversmoving
theeconomyandwhoareresponsibletonoone.
Andin1965,PresidentLyndonB.Johnson,whowantedcheapcredittofinance
theVietnamWarandhisGreatSociety,summonedFedchairmanWilliam
McChesneyMartintohisTexasranch.There,afteraskingotherofficialsto
leavetheroom,JohnsonreportedlyshovedMartinagainstthewallashe
demandingthattheFedonceagainholddowninterestrates.Martincaved,the
Fedprintedmoney,andinflationkeptclimbinguntiltheearly1980s.

I hope ou have examined our concience and oure

convinced oure on the right track.

Lad ird Johnon, poken to William McChene Martin, on hi arrival at the LJ

ranch

Photo

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

10/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

PaulA.Volcker,shownin2009.HewasappointedFedchairmanin1979withthetaskofcontrollinggallopinginflation.CreditBrianSnyder/Reuters

6. The Volcker Rule: An

Independent Central ank
Congressfinallyformalizeditsdemandsin1978.Arecessioninthemid1970s
hadpushedtheunemploymentrateashighas9percent,andDemocrats,
frustratedbywhattheysawastheFedsinadequateresponse,wonpassageof
legislationestablishingthesocalleddualmandate.TheFedwasinstructedto
pursuemaximumemploymentandpricestability.
ItturnedouttobeahighwatermarkforCongressionalinterference.Inflation
roseby11percentthefollowingyear,andPresidentJimmyCarteragreedto
appointanewFedchairman,theindependentmindedPaulA.Volcker.Over
thenextseveralyears,Mr.Volckerwouldraiseinterestratessharply,driving
theeconomyintoadeeprecessionbutultimatelybringinginflationunder
control.PresidentRonaldReagan,meanwhile,madeapointofrespectingthe
Fedsindependence.VolckerwasstillsubjectedtosharpCongressional
pressure,butitwasmostlypoliticaltheater.TheFedhaddeclaredits
independence.

ver time he had a pre conference omeod wa

urging him to take a lap at the Federal Reerve, ut he
never did.

Paul Volcker, referring to Preident Reagan

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

11/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

Photo

BenBernanke,theFedchairman,takesquestionsfromreportersatanApril2011newsconference.CreditJimWatson/AgenceFrancePresseGettyImages

7. Smokecreen and Sunhine:

The Fed Open Up
Betweenthegreatinflationoftheearly1980sandtheGreatRecessionthat
beganin2008,theFedandtheeconomyenjoyedmorethantwodecadesof
relativepeaceandquiet,aperiodthatFedofficialssometimescalltheGreat
Moderation.Inflationtrendeddownwardand,exceptforafewshortrecessions,
unemploymentstayeddowntoo.AndFedofficialscametoseethesetrendsasa
validationoftheirnewfoundindependence.
TheFedalsobegantochangeitssecretiveculture.Thetrendbeganreluctantly,
underpressurefromcriticswhoarguedthatindependencerequired
transparency.In1983,forexample,theFedpromisedCongressthatitwould
begintoreleaseitsBeigeBook,asummaryofeconomicreportsfromits
regionalreservebanks,asawayofdistractingattentionfrommoreimportant
reportsthatitwasdeterminedtokeepsecret.ButtheFedgraduallyconcluded
thattransparencycouldincreasethepowerofmonetarypolicy.In1994,it
begantoannouncechangesinpolicyattheendofeachpolicymakingsession.
In2004,itbegantopublisheditedaccountsofitsdiscussionsthreeweeksafter
eachsession.Andin2011,itschairman,BenS.Bernanke,begantohold
quarterlynewsconferences.

Since Ive ecome a central anker, Ive learned to

mumle with great coherence. If I eem undul clear to ou,
ou mut have miundertood what I aid.

Alan Greenpan, Fed chairman, in 1987, efore the central ank' communication
revolution

The Federal Reerve i the mot tranparent central ank

to m knowledge in the world. We have made clear how
we interpret our mandate and our ojective and provide
extenive commentar and guidance on how we go aout
making monetar polic deciion.

Janet L. Yellen, Fed chairwoman, in 2014, after the communication revolution

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

12/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

Photo

ProtestersinApril2009,outsideaneventwhereBenBernanke,theFedchairman,wasspeaking.CreditJasonMiczek/Reuters

8. The Great Receion, and Audit

the Fed
TheFedslongrunasapoliticaldarlingcametoacrashingendin2008.Itslax
oversightofthefinancialsystemwasonereasonfortheseverityofthecrisis,
andthesmartestguysinWashingtonhadfailedtoseeitcoming.TheFeds
responsewasalsocontroversial:Itprovidedexpansivesupportforthefinancial
system,preservingsomeofAmericasleastpopularcompanies,nottomention
foreignbanks.Andthenitembarkedonanexpansivestimuluscampaignto
revivetheeconomy.
Intheaftermathofthecrisis,CongressmovedquicklytostrengthentheFeds
regulatoryresponsibilities.ItalsoimposedsomelimitsontheFedsabilityto
repeatitsrescueofthefinancialsystem.Butitisthestimuluscampaignthat
haspromptedthemostcontroversy.
Inaninversionofthehistoricalpattern,congressionalRepublicanshave
criticizedtheFedforprintingtoomuchmoney,arguinghigherinflationwillbe
theinevitableconsequence.Andtheyhaveputforwardproposalstoconstrain
thecentralbank.Onebill,knownasAudittheFed,wouldauthorizethe
GeneralAccountabilityOfficetoreviewtheFedsmonetarypolicydecisions.
Anotherapproach,backedbytheHouseFinancialServicesCommittee,would
requiretheFedtopubliclyarticulateasetofrulesitintendstofollowinmaking
monetarypolicy,andthenexplainanydeviations.
http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

13/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes
The Federal Reerve Stem mut e challenged.
Ultimatel, it mut e eliminated. The government cannot
and hould not e truted with a monopol on mone. No
ingle intitution in ociet hould have power thi
immene.

From nd the Fed (2009) Ron Paul

MoreonNYTimes.com

DonaldTrumpDeflectsWitheringFireonMuslimPlan
Dec.9,2015

AmericansAttractedtoISISFindanEchoChamberonSocialMedia
Dec.9,2015

PlantoBarForeignMuslimsbyDonaldTrumpMightSurviveaLawsuit
Dec.9,2015

WorldReactiontoDonaldTrumpsProposalBanningMuslims:Befuddlement
Dec.9,2015

EnriqueMarquez,BuyerofGunsUsedinSanBernardinoAttack,IsStudied
Dec.9,2015
http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

14/15

12/9/2015

AmericasEndlessWarOverMoneyTheNewYorkTimes

2015TheNewYorkTimesCompany
Home
Search
Accessibilityconcerns?Emailusataccessibility@nytimes.com.Wewouldlovetohearfromyou.
ContactUs
WorkWithUs
Advertise
YourAdChoices
Privacy
TermsofService
TermsofSale
SiteMap
Help
SiteFeedback
Subscriptions
Gotothenextstory

http://www.nytimes.com/interactive/2015/04/02/business/economy/auditthefedtimeline.html?_r=0

15/15