IS IT TIME FOR A REAL CENTRAL BANK?

THE CENTURION CHRONICLE
Vol. III – Issue # 29 – Oct 2008

IS IT TIME FOR A REAL CENTRAL BANK?
(to replace a Federal Reserve confederacy of committees)

We’ve always had a love-hate relationship with banks. At best, much like taxation, they’ve been viewed as a necessary evil. At worst, they’ve been considered as greedy spawns of the devil. The current financial crisis, and the resulting economic impacts from it, simply reinforce both such views about them.

From the very beginnings of this great republic that clash of viewpoints has been with us. A key factor driving it has been the nature of our federal structure itself. A structure where governmental authority and power was deliberately divided between the individual states and the national government. In turn, that divided made it difficult to establish a strong central banking system, with the result that we have evolved a chaotic blend of extreme laissez-faire and obstructive regulation to govern our financial system. A system that has given us a perpetual cycle of boom and bust, boom and bust, with only a few eras of prosperity and stability inbetween.

The situation is aggravated by the fact that we have a hodge podge of financial institutions…thrifts, savings and loan, commercial and investment banks, brokerage firms, and so on. None of which operate by a common set of requirements for capitalization, operating standards, or lending to liquidity limits. Many states have their own rules. Some are more restrictive than others. Some are much more lax than others. As for Federal rules, these are mainly applied to banks operating on an interstate basis, and with a large array of branches.

And to this must also be added the swarm of agencies involved with keeping an eye on all these financial entities. Agencies such as the Federal Reserve, the Treasury, and the SEC, among others. None of which have the same oversight mandates, the same procedures and methods, or the same agendas to be followed. Thus, they are rarely coordinated in what they do, unless, circumstances such as now, force them to do so.

Is it any wonder then that we’re in the mess we’re in today?

Ironically, our very first Treasury Secretary, Alexander Hamilton, clearly saw the need for a strong central bank, and outlined a very good plan for one, base upon the very successful model of the Bank of England. Unfortunately, the violent residual antipathies against anything British (the Revolutionary War being a much too recent event to have forgiven them) prevented its application at the time. Further, the diametrically opposed philosophies of the Federalists (of which Hamilton was a leading light) and the Jeffersonians (who rabidly opposed any semblance of a strong central government) killed the idea. And the dichotomy of those conflicting philosophies has remained with us to this day.

So here we are…facing a complete meltdown of our financial institutions and money markets. And now, two hundred years since it was first proposed, perhaps it’s the right time to reconsider the matter, taking advantage of this meltdown and collapse, to clear the field, to then rebuild our financial system along the lines proposed by Hamilton so long ago. The Bank of England is still going strong after several centuries of operation (even with the current situation). There surely must be some way of adapting its model to our own society’s needs. One which will better provide a common set of banking and financial standards for the nation as a whole, rather than the helter-skelter system that we have today.

To those who might object to such an idea, they should be asked the following:
1) Is the present Federal Reserve system still relevant and
sufficient to our needs,given all that’s happening with it today?
2) Do we want to continue living with the same boom and bust cycles
from our past,into the future?
3) Can we afford NOT to consider such an idea?

Well, if none of that is possible, perhaps we should just try to round up as many Leprechauns as we can find, and make whatever deal we can to make sure their pots of gold are available to bail us out whenever we hit a rough patch in our financial world. Of course, since Leprechauns are notoriously irascible, perverse, and unreliable, that might not result in anything much better than what we have today.

CENTURION