Summary of Episode 3 - The Fed Independence Lie

What happens when the Fed is unsupervised...

March 5, 2025. The third installment in The War for Bankocracy series will post at 7 pm ET this evening, in theory HERE.

More than anything else, the private owners of the Fed covet the legal status enjoyed by the European Central Bank--independence from national governments generally and elected representatives in particular. Because that prize is prohibited by the U.S. Constitution, however, the Fed long ago devised a propaganda campaign intended to get from legislators the very status that the law itself prohibits.

The Fed's campaign is little more than a sales pitch--a jingle, essentially, no matter how much scholastic finery the Fed's financial industry minions dress it up in--and goes by the name of "Federal Reserve independence." As the pitch has it, great economic outcomes await the nation if only Congress would allow the monetary experts at the Fed to do as they please, free from oversight and unconstrained by any congressional checks and balances mandated by the Constitution.

The Biden White House memo from last year is merely the latest version of this same old pitch. Incredibly, as the memo has it, allowing the Fed to make large asset purchases from whomever it wants and in whatever amounts, without constraint, is the best way to control inflation.

Aside from the lack of any evidence for that position, what makes it so incredible is its timing, coming, as it does, immediately after (1) inflation hit a 40-year high and (2) the Fed's balance sheet hit an all-time high as the Fed—at last free from congressional restraint, exactly the sort of independence that its own pitch urges as the only way to control prices—went on its biggest asset-purchasing spree ever, which added $4.5 trillion (about 1/3) to U.S. bank depsoits (red line in linked graph) starting in March 2020. From that graph alone, the Fed-caused inflation is manifest.

Three official sources expose the Fed's "independence" claim as a bald-faced lie, starting with economists cited by the White House itself. Far from supporting the White House, these economists hold that independent central banks "prompted rapid increases in the price levels in many countries" during the pandemic but not, notably, during the global financial crisis (GFC).

Second, and likewise, the former Governor of the Bank of England, Mervyn King, publicly stated in May 2022 that the U.S. "money supply held by businesses and households was growing at 25% per year" during the pandemic due to the Fed's asset purchases, and that that's what caused the current era of inflation.

Finally, the current Chairman of the Federal Reserve testified in June 2022 that the best way to counter the then-recent spike in inflation was to "shrink our balance sheet." (Click link, go to p. 22 or search on "shrink" or both)

That admission is fatal, as the Fed had expanded its balance sheet while Congress looked the other way--exactly what the Fed's "independence" campaign preached as the best way for controlling inflation. Turns out Fed "independence" caused an inflationary disaster.

Indeed the most withering indictment of the Federal Reserve independence campaign--as well as the strongest endorsement of the U.S. Constitution--lies in contrasting the way congress manhandled the Fed during the GFC with its manner of abject servility towards the Fed during the pandemic. The results are night-and-day different: there was no inflation whatsoever in the wake of the GFC.

During the GFC, congress--spurred on an angry populace--pressured the Fed relentlessly, complaining about the increasing size of the Fed's balance sheet and demanding to know the names of the institutions that were selling assets to the Fed. That sort of political interference with the Fed is the very course of action that Fed "independence" lobbyists warn against as a recipe for inflation.

Whoops.

The truth is just the opposite: when Congress discharged its constitutional duty to rein the Fed in during the GFC--when it "interfered" with the Fed's pursuit of crony bailouts, er, monetary policy--no inflation followed.

During the pandemic, by contrast, Congress--cowering in fear from the 24/7 virus theater--abandoned its constitutional duty and gave the Fed exactly what its "independence" campaign asked for--unfettered freedom to undertake "operational activities" and buy assets. Consequently, the Fed went on a $5 trillion asset purchasing spree that showed up directly in bank deposit accounts and caused the worst inflation since the 1970s.