OK, Gold’s Not Money. How About This One Ben: Is the Fed a Bank?

Recently by Arthur M.M. Krolman: Accidentally Conceived in 1971, Gold Money Baby Now Due

Dear Ben,

As you prepare for your special double-feature meeting in a few days, I thought you might want a helping hand in reducing uneasy feelings of puzzlement that you and others are experiencing these days. Last week, when you said you were puzzled by weak consumer spending, I’ll bet you felt the same way I did. Neither of us could care less about what or how much other individuals decide to spend their hard-earned money on, but the being puzzled part is really yucky. What an anxiety-fueling feeling of uneasiness!

I’ll bet a lot of people in the world are puzzled too about what a central bank like the Fed really is and why it’s called a “bank”. And I’m sure neither of us want someone else being puzzled any more than we like it. OK, I guess you did want people to be puzzled about where all those secret Fed loans went, but I’ve got to believe that deep down, you’re a decent man and you’d never make folks puzzled on purpose again. So let’s work together here.

As a wise man said, every human action is initiated in an attempt to reduce a felt uneasiness. I thought I’d take action myself in this note to see if you and I could reduce just a little piece of the uneasiness puzzlement when people ask: is a central bank really a bank?

When I was young and foolish, I thought that a bank with nice big Greek columns was a solid institution that would keep my money safe in their vault. Ha, ha. Later I thought that the Federal Reserve Bank was a bank’s bank like in those awesome 1920s posters. I guessed that meant that my bank would take my money out of their vault and put it into the Fed’s vault to keep it REALLY safe! Ha, ha, ha! It’s funny, don’t you think Ben, to look back on a time when you were so puzzled! Folks have some funny times to look forward to.

As you and I know, a central bank isn’t a bank at all. It’s actually a government-sponsored counterfeiting enterprise. Right, kind of a super charged GSE… a GSCE! Shocking news for a lot of folks, I know Ben. But let’s remember about all that felt uneasiness we’re dispelling here! It’s really not a puzzle: the central bank creates money out of thin air just a like a counterfeiter at his printing press. If folks have trouble really believing that a GSCE is not a bank, they should think about James Stewart in that wonderful bank run scene in It’s a Wonderful Life. They just need to imagine people making a run on a counterfeiting enterprise like the Federal Reserve asking for their money. Priceless. No money, no problem, right Ben? I sure doubled over and slapped my knee when you made that “printing machine” joke in 2002. You son of a gun.

Let’s raise our glasses to at least one less puzzle. And have a great meeting.

Cheers, Art