{"id":62671,"date":"2022-05-17T18:07:46","date_gmt":"2022-05-17T23:07:46","guid":{"rendered":"https:\/\/olduvai.ca\/?p=62671"},"modified":"2022-05-17T18:07:46","modified_gmt":"2022-05-17T23:07:46","slug":"the-failure-of-central-banking-politics","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=62671","title":{"rendered":"The Failure of Central Banking: Politics"},"content":{"rendered":"
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\"The<\/a><\/div>\n
The seal of the Federal Reserve on a U.S. banknote. (Mandel Ngan\/AFP\/Getty Images)<\/div>\n<\/div>\n
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The Failure of Central Banking: Politics<\/a><\/h3>\n<\/div>\n
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The view was generally held that centralization of banking would inevitably result in one of two alternatives: either complete government control, which meant\u00a0politics<\/a>\u00a0in banking, or control by \u2018Wall Street,\u2019 which meant banking in politics.<\/em><\/p>\n

\u2013 Paul Warburg, 1930<\/p>\n

The idea of the central bank was born in the Middle Ages, when failures of the largest merchant banks of that era, founded by the Bardi and Peruzzi families, shocked the Italian City-State of Florence in 1343 and 1346. These financial crises gave birth to the idea that the commercial banking sector would need a \u201cliquidity backstop,\u201d i.e., an entity that could lend to private financial institutions in trouble. This was the original aim of central banks: to act as piggy banks for solvent commercial banks with temporary liquidity problems.<\/p>\n

The first central bank that resembled the modern ones emerged in 1609, when the Dutch empire created an exchange bank,\u00a0Wisselbank<\/em>, to convert foreign coins into domestic currency. The central bank of Sweden, the Riksbanken, was created in 1668, and the Bank of England (BoE) in 1694. These were mostly servants of rulers and governments. But the really big twist came in 1914, when the\u00a0U.S. Federal Reserve Bank<\/a>\u00a0was created. Its creation was mired with worries that it might\u00a0socialize<\/em>\u00a0the economy.<\/p>\n

To calm these fears, the power of the Fed to issue legal tender (currency) was restricted by both the \u201creal bills doctrine\u201d and the gold standard. The real bills doctrine stated that the Fed could only extend credit and thus increase the supply of money against collateral that already had established value through a \u201ccommercial transaction.\u201d This meant that the value of the collateral could not be in the future effectively banning, e.g., the monetization of the federal debt…<\/p>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The seal of the Federal Reserve on a U.S. banknote. (Mandel Ngan\/AFP\/Getty Images) The Failure of Central Banking: Politics The view was generally held that centralization of banking would inevitably result in one of two alternatives: either complete government control, which meant\u00a0politics\u00a0in banking, or control by \u2018Wall Street,\u2019 which meant banking in politics. \u2013 Paul […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[123,8117,303,637,24423,3650],"class_list":["post-62671","post","type-post","status-publish","format-standard","hentry","category-economics","tag-central-banking","tag-epoch-times","tag-fed","tag-politics","tag-tuomas-malinen","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/62671","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=62671"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/62671\/revisions"}],"predecessor-version":[{"id":62672,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/62671\/revisions\/62672"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=62671"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=62671"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=62671"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}