In defense of the Fed and its mission to ensure financial stability | Cumberland Comment by David R. Kotok

 

 

Excerpt follows:

The Fed's patriotic history

The founders of the Fed were not motivated by inflation or the unemployment rate. They didn’t use “dot plots.” They paid no attention to things like GDP. They didn’t have the benefit of the system known as the National Income and Product Accounts.

These bankers were motivated by the issue of financial stability. They had had enough of various banking failures. They saw the hodgepodge of various state efforts in the banking arena. And they watched failure after failure. In my opinion, the state governments which asserted state rights over federalism have a wretched history of bank failures and financial misbehavior.

The Fed came into being because of the desire for a federal banking system and for financial stability. That remains crucial today.

Note also that the Federal Reserve has a strong patriotic history. In the World War I era, Benjamin Strong (one of the First Name Club members) used his Fed leadership position to sell war bonds. During the WWII era, the Fed maintained a very low interest rate for the entire war period even as the inflation rate exceeded 10% and even as the debt/GDP ratio climbed to 110%. If we look at history with a lens unencumbered by the constant throwing of political barbs, we see the Fed as an instrument of the United States that has continued to put the national interest above and beyond the partisan political nature of our system.

Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.