The Myth The Money Multiplier Analysis

R. David Ranson addresses the failure of the Federal Reserve Bank. He states, “The ultimate test of its role as overseer and regulator of the commercial banking system met with a very poor result.” (Ranson 407). Ranson is a critic of the Federal Reserve and its policies. Milton Friedman, in concurrence with Ranson, claims “If Congress had been in control of monetary policy, you would not have had the Great Depression.” (Friedman 635). Dean Baker, co-director for Centre for Economic and Policy Research, predicted the recession of 2008-09 as a result of the federal reserve’s monetary policy. In opposition to these claims, Ben Bernanke (former chairman of Federal Reserve) implores that the Fed has saved the economy. He cites that the federal reserve …show more content…
and its economy. Steve Keen explains in “The Myth of the Money Multiplier” fractional reserve banking. It is the concept that if an individual was to receive $100 in cash. The person deposits the $100 in a bank. The bank keeps 10% of that deposit and lends the $90 out to someone wanting to borrow money(loan) and then the borrower deposits that $90 in another bank and the process repeats endlessly. Eventually $1000 is created, $100 of it is the original cash $900 in credit which is matched by $900 in debt. This process is what has led to hyperinflation. “Inflation is a sustain increase in the aggregate price level. Hyperinflation is very high inflation. The term is usually reserved for when a monthly inflation rate is greater than 50%.” (Salemi). The inherent problem of fractional reserve banking is that the money that is deposited in the bank is not backed by gold. Essentially, a dollar bill is just a piece of paper that is promised by U.S. Treasury to be valid tender in place of gold. The U.S. Treasury and the Federal Reserve claim that there is enough gold to back the money in the Economy. But, Economists argue that the “gold standard”, the term coined to refer to when money was backed by gold, was eliminated in the 1920s to print money to support the war effort. As a result of this the U.S. economy was never the same. Time has proven this. When people are borrowing lots of money and …show more content…
Federal Reserve, is detrimental to the U.S. and its economy. There are seven members on the Board of Governors. Each may serve one fourteen-year term and are appointed by the President and approved by the Senate. The Chairman and Vice-Chairman are chosen every four years by the President and Senate. (“The Structure of The Federal Reserve System”). These individuals formulate monetary policy for the United States. The reasons that this is bad for the U.S. is because neither Congress or the President can force a chairman out of office. The Federal Reserve is essentially accountable to no one. Even Congress cannot control the Federal Reserve. There has not been an audit of the Federal Reserve since its creation in 1913. In 2011, there was “a partial audit of the Federal Reserve which revealed that the banking system loaned 16 trillion dollars to financial institutions---including more than three trillion to foreign banks—from 2007-2010.” (Nelson). This information was not made known to Congress when the loans were being given out. This is a concern of many Americans. The public likes to know who the U.S. is giving money to. It provides another valid reason for why the structure of the Federal Reserve is failing the