Here is a relevant Politifact article.
I see that Chichikov already basically covered this, but Paul fundamentally doesn't understand money. His concern about the "creation" of money is stupid, and misses the mark entirely. He is right to be disturbed at the Fed's actions, but he is disturbed for the wrong reasons. The article I posted by econ professor Randall Wray isn't concerned about possible inflation from the Fed's action or the creation of money. It is centrally concerned with how the Fed is operating in the interests of an economic elite instead of the broader public.
In a capitalist society with private banks, there is a public interest in having the Fed be the lender of last resort to banks (meaning providing necessary loans to banks but doing so at a penalty). But that isn't the role it was performing. It was fundamentally bestowing
power on select institutions (and the discrete people who benefit from them) by offering immense, effectively long-term, cheap loans. Imagine how much money you could make if the Fed lent
you a lot of money at 0.35%, even for a short period of time. But you don't get that privilege. This guy's bank did:
“I was buying short term securities that yielded about 12%. My choices of funding were CDs at 0.5% and the Fed at 0.35%, so I funded at the Fed. I funded my bank’s $80 million of AAA 9 month CMBS securities at the Fed."
As Wray wrote in the link provided by Chichikov: "It is not sufficient to claim that hundreds or thousands of borrowers got sweet deals from the Fed—as the memo released by Bernanke does. Where did the majority of the Fed’s lending go? Who benefitted most?"
It didn't go to the American people, broadly conceived. It went to institutions from which only a tiny, discrete number of people truly benefit immensely. Or, as a Bernie Sanders press release put it: "The GAO detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms, and, in at least one instance, themselves. 'Clearly it is unacceptable for so few people to wield so much unchecked power,' Sanders said."
This isn't a tired Libertarian complaint about the Fed's existence; it is about how the Fed is operating and whose interests it is serving. The Fed should have democratic oversight, not independence. This is a democracy, and in a democracy the people must be able to oversee all government spending. And not because we must keep spending in check (also a tired Libertarian complaint), but because when we do spend, we must spend
equitably. I would much rather spend money paying off people's mortgages than buying up toxic assets, for example, or even lending to banks when it is just a pretext for recapitalizing them. The loans allowed the banks to recapitalize themselves by using the cheap interest rates to gamble on the market and make a greater return (thereby refueling the bank), but that gambling effectively occurred with our money. Shit, let
me gamble with it before the people who just gambled so recklessly they destroyed the economy.
KHarvey said:
The report cited in the Politifact article details the information that author claims is being obfuscated or hidden.
The Politifact article doesn't relay the same information. Wray's claims are based on an academic study of the Fed's commitments. Politifact's article is based on the GAO study. Wray even mentioned the GAO report, saying it "excluded some of the Fed’s special facilities, most notably its emergency loans to foreign central banks—including loans to prop-up Colonel Gaddafi’s central bank, as discussed below." The GAO came up with a figure of $16 trillion. Wray's study, looking at the "true total cumulative amount lent and spent on asset purchases" came up with $29 trillion. As well, Wray is complaining specifically about
the Fed's obfuscation, not the GAO's.
