Central banks are a symptom, capitalism is the cause

Wishing for central banks to act in the interest of working people rather than the financial industry is about as fruitful as hoping a starving wolf won’t eat the chicken that was just placed next to it. Pigs will fly, the Amazon will freeze over and Wall Street will give all its money away before a central bank in the capitalist core goes against its raison d’être.

We need no fresh reminders of central bank behavior. Consider that just five central banks — the U.S. Federal Reserve, the European Central Bank, Bank of Japan, Bank of England and Bank of Canada — handed out about US$10 trillion (€8.8 trillion) to artificially prop up financial markets in the first two years of the Covid-19 pandemic on top of the US$9.36 trillion (or €8.3 trillion at the early 2020 exchange rate) that was spent on propping up financial markets in the years following the 2008 global economic collapse.

So about $20 trillion — that’s the equivalent of a year’s gross domestic product of Japan, Germany, India, the United Kingdom, France and Italy combined — to reward the most parasitic portion of the economy, an industry that confiscates money not only from all of you who work for a living but from industrial capital as well. What did you get? Little or, more likely, nothing. Actually, what you have been getting for the past year is worse than nothing. And that brings us to the topic of interest rates. Although we ordinary mortals are not supposed to comprehend the mystical alchemy of the practitioners of high finance as they conjure the forces of capitalism to magically guide the economy to a steady course, in reality there is no mystery. 

Given a choice among the Federal Reserve’s three congressionally mandated goals  — maximum employment, stable prices, and moderate long-term interest rates — employment is what is jettisoned every time. The European Central Bank is a little more honest by listing its single goal to be to “maintain price stability.” The Bank of Canada is somewhere between those two by stating that its mandate is “to promote the economic and financial welfare of Canada.”

^{Bank of Canada facade} 

Of course, with bankers defining “welfare of Canada,” we need not hold our breath in anticipation of how that “welfare” will be determined. Although there are reasons for the sudden appearance of price inflation from early 2022, this really isn’t a mystery, either. Ongoing supply-chain disruptions due to the Covid-19 pandemic, drastic rises in fuel prices due to Russia’s invasion of Ukraine and Western cutoff of Russian energy in response, and good old fashioned corporate greed account for the past year’s inflation, not wage increases. How to respond? The world’s central banks responded in unison — throw people out of work to dampen the economy.

Indeed, when the only tool you have is a hammer, every problem is a nail to be hit hard. Perhaps central bank officials do have other tools, but can’t seem to find anything other than the hammer. The hammer here is interest rates, and they have been using their one and only inflation-fighting tactic of rapidly raising interest rates to slow down the economy. By making it more expensive to borrow money, business and consumer spending will slacken and when that happens, layoffs follow.

When the hammer is the only tool and it is used on you

Inflation is not good, but central bank officials are not using their hammer because they are upset that you are paying more for groceries but rather because inflation reduces the value of speculators’ financial assets. Just as the then chair of the Federal Reserve, Paul Volcker, plunged the United States into what was then the steepest recession since the Great Depression by raising interest rates to unprecedented highs, and thereby causing unemployment to skyrocket to 10.8% — with the enthusiastic support of the Reagan administration even though Volcker was an appointee of Jimmy Carter — interest rates have risen sharply this year. Nowhere near to the extent of the early 1980s, yet, but enough to make a recession a real possibility in 2023.

Here are a few numbers to illustrate this:

• The Federal Reserve raised its benchmark interest rate to 4.375% in December 2022, up from 0.125% at the start of 2022, with more to come.
• The European Central Bank has raised its benchmark rate for lending to banks to 2.5%, up from years of 0%, with more raises expected.
• The Bank of Canada raised its policy interest rate seven times in 2022, to 4.25% from 0.25% in March.
• The Bank of England raised its interest rate eight times in 2022, reaching 3.5% in December 2022, with further raises expected.

The bottom line is that you’ll pay more to use your credit card and the price of mortgages (and rents) will rise even higher; housing costs are already obscenely high because housing is a commodity. Bank profits, however, will go up — and there is nothing more important than that for bankers, in or out of central bank offices.

^{The European Central Bank in Frankfurt (photo by DXR)}

So although there are always a few spare trillions dollars or euros or pounds or yen lying around to shovel into the bottomless pockets of financiers, it’s crumbs for you if you are lucky. Thus central banks are acting in the interest of speculators with these rapid-fire interest rate increases just as they did for years following the 2008 economic crash that financiers caused and then again in the wake of the sudden 2020 downturn triggered by the pandemic. Their standard solution to recessions is to throw more money at banks and inflate another stock-market bubble. Now that wages have temporarily ceased falling (and even slightly nudged upward) and unemployment has fallen sharply, it’s time to apply a different medicine, one that, in a remarkable coincidence, also punishes working people and rewards speculators.

So, are central banks simply evil people? Is it time to “end the Fed” as Federal Reserve critics frequently call for in the United States? Or to put an end to other central banks?

Ironically, the answer is no.

That answer certainly is counter-intuitive. Why shouldn’t we be rid of institutions that do so much to perpetuate, and widen, inequality, and which are run by bankers for the benefit of bankers despite being formally government institutions? Simply put, if you don’t like what the Federal Reserve, or the European Central Bank, or any other central bank does, what you actually don’t like is the capitalist system. The Federal Reserve, for example, is surely (as its critics accurately charge) a far too secretive, unaccountable branch of government that protects the interests of financiers at the expense of everybody else. Nothing unique there. The European Central Bank is perhaps the world’s most undemocratic central bank — it is the most powerful entity in the European Union and is completely unaccountable to anyone, openly operating on behalf of European finance capital.

Recall how Greece was treated by the European Central Bank during the country’s financial crisis of the mid-2010s. The ECB issued a series of diktats that cut off all funding for the Greek government, including from Greek banks, in order to bring the new Syriza government to its knees and force a full surrender to punishing austerity imposed by it, the European Union and International Monetary Fund. So harsh were these measures that the IMF reportedly said the ECB was too extreme in its austerity measures! The Greek economy was crushed to ensure banks that lent to Athens, in particular French and German banks, would be repaid in full no matter the cost to Greeks.

No sense reforming what can’t be reformed

Democratically accountable central banks that promulgated policies to increase employment and toward a socially responsible financial system would be welcome reforms. But such a reform is an impossibility, and not simply because central banks are outside any democratic accountability under the official rationale of lessening “political interference” in economic decision-making but in reality because finance capital is so powerful that it can demand, and has received, the right to act without constraints in its own interests. As much as powerful capitalists possess the ability to bend government politics toward their preferred outcomes, finance is the only industry that has government departments dedicated to it, that its executives manage independently of any other government entity.

If it can’t be reformed, why not get rid of it? Eliminating central banks while keeping the rest of capitalism in place is a pointless idea because they are a necessity in advanced capitalist countries, which is why each has one. And, perversely, eliminating the central bank would actually increase the dominance of financiers and would make the booms and busts of the capitalist business cycle sharper than they already are. 

Strange as it seems today, there was a populist component to the creation of the Federal Reserve. Populists of the late 19th century wanted a more elastic currency so that the government could extend emergency credit when the economy collapsed (as it then frequently did) rather than be handcuffed by the gold standard. In those days, when a crash happened, the U.S. government had to turn to the biggest robber barons of the day, such as J.P. Morgan, and ask them directly for a bailout.

Banks hoarded their reserves during crashes, making the downturns worse, and could issue their own banknotes, helping to fuel bubbles. But, since we are talking about the United States, it took a consensus on Wall Street and not popular demand for a central bank to be created in 1913. Financiers had come to believe that a central bank would temper the extremes of booms and busts, thereby stabilizing the economy. Industrialists joined financiers in that consensus.

^{The Federal Reserve Annex in Washington (photo by AgnosticPreachersKid)}

Needless to say, the capitalists and not the populists were the drivers of Fed policy from the beginning. But a central bank does, albeit in a highly inegalitarian manner, stabilize a national economy through regulating credit and alternately tightening and loosening monetary policy. Central banks in all advanced capitalist countries manage domestic money supplies and currencies, a crucial task in today’s world in which markets subject to wild swings set prices for everything.

Somewhat similarly, the Bank of England, created in 1694 by royal charter, “was founded to ‘promote the public Good and Benefit of our People,’ ” according to its website. Despite that lofty sentiment, the bank admits it was created primarily to fund a war against France. The Bank of England was nationalized in 1946 and although it remains wholly owned by the British government, it, like central banks generally, is “independent” — in other words, completely free of democratic accountability. That independence” was granted by Prime Minister Tony Blair in 1997. Not for nothing did Margaret Thatcher say her greatest accomplishment was “Tony Blair and New Labour.”

It won’t come as a surprise that financial institutions are skilled at finding ways around central bank policies. Not that central banks don’t act in those interests — the Fed under Alan Greenspan encouraged the 1990s stock market bubble and the real estate bubble of the 2000s, and following the 2008 crash, Ben Bernanke was focused on the then long non-existent phantom of inflation while ignoring the all too real problem of high unemployment. The European Central Bank is, if anything, even more guilty of that than the Federal Reserve.

If central banks went away, financiers wouldn’t

The entire capitalist system acts to benefit capitalists (industrialists and financiers) to the detriment of working people. Why should we expect an arm of a capitalist government to act any different? If central banks were eliminated, the exact same powerful capitalist interests would continue to bend government policy to their preferred outcome and would continue to exercise the same dominance over government, social institutions and the mass media. The only difference would be that the economy would become more unstable than it already is because there would be less ability on the part of governments to dampen excesses. Why would that be good?

Capitalism is an unstable system that will always have booms and busts, and as time goes on the busts tend to worsen. (That tendency was temporarily kept at bay after the Great Depression by significant reforms, but those reforms have been undone and the tendency has reasserted itself.) Capitalism is a system in which those who amass the capital thereby amass power, and power translates into the ability to bend the rules to preferred outcomes or to bypass the rules. Money concentrates into fewer hands and wages are squeezed to facilitate the upward flow of money. Those who succeed are the people endowed with outsized desires to acquire and the personality traits that enable those desires to be met.

Yes, those people so endowed can and do create policy for central banks. Eliminating those banks wouldn’t touch the ability of people so endowed to suffuse their viewpoints and favored policy outcomes throughout a capitalist society, nor would it touch their ability to leverage their outsized wealth and the power their wealth gives them to shape government policy and public opinion making to benefit themselves. Getting rid of government would actually intensify the dominance of industrialists and financiers in all spheres of life. The dominance of a globalized class that maintains power through a web of institutions and scrambles to manage ceaseless instability — not a small cabal of bankers who somehow control everything, an idea rooted in Right-wing conspiracy theories that easily shade off into anti-Semitism.

None of the foregoing is to suggest that we should simply accept the brutal, dehumanizing capitalist system. But rather than hankering for reforms that might actually make it worse, a better world with an economy designed for human needs is what we should be after. If we blame central banks instead of the system that it is a component of, then we are doing nothing more than blaming the messenger. Capitalist markets are nothing more than the composite expression of the interests of the largest industrialists and financiers, and allowing those markets even greater freedom is what we should be fighting, not tacitly helping.

There’s no money? Then how can there be $10 trillion for financiers in two years?

Noting that there is always money to be thrown at the finance industry but little for social needs is by now about as startling as noting the Sun rose in the east this morning. But what is eye-opening is the truly gargantuan amounts of money handed out to benefit the wealthy.

We’re not talking billions here. We are talking trillions.

For example, the amount of money created by the central banks of five of the world’s biggest economies for the purpose of artificially propping up financial markets since the beginning of the Covid-19 pandemic totals US$9.94 trillion (or, if you prefer, €8.76 trillion). And that total represents only one program of the many used by the U.S. Federal Reserve, the European Central Bank, Bank of Japan, Bank of England and Bank of Canada.

That is on top of the US$9.36 trillion (or €8.3 trillion at the early 2020 exchange rate) that was spent on propping up financial markets in the years following the 2008 global economic collapse.

So we’re talking approximately US$19.3 trillion (€17.1 trillion) in the span of 14 years for five central banks’ “quantitative easing” programs, the technical name for intervening in financial markets by creating vast sums of money specifically to be injected into them and thereby inflating stock-market bubbles. And that total doesn’t include various other programs that also come with price tags, nor the similar programs of other central banks, including those of Australia, Sweden and Switzerland. As just one example, the Paycheck Protection Program initiated by the U.S. Congress in 2020 sent most of its money into the grasping hands of business owners and shareholders rather than workers earning a paycheck.

Given these repeated massive subsidies, why are we supposed to believe that the capitalist economic system “works”? And why do working people always have to pay for financiers’ ever more imaginative speculations?

^{“Greed” (Nicholas Kwok)}

Imagine all the public good that could have been done with even a fraction of that money. Fixing infrastructure, proper funding of social programs, upgrading health coverage, adequately funding hospitals, canceling student debt, strengthening education systems and more — all of this could have been done.

For example, the consultancy firm Aecom estimates that Britain’s infrastructure needs are underfunded by a total less than what the Bank of England spent on its quantitative-easing scheme for the past two years. Parallel to that, the U.S. could wipe out all student debt, fix all schools, rebuild aging water and sewer systems, clean up contaminated industrial sites and repair dams for less than what the Federal Reserve spent on quantitative easing since the pandemic began. As for Canada, one estimate is that the country needs to spend an additional C$60 billion per year on technologies that would enable Canada to meet its carbon neutral targets by mid-century — a total that is a fraction of what the Bank of Canada has thrown at the financial industry.

Spending big to inflate a stock-market bubble

What is quantitative easing and why does it matter? Quantitative easing is the technical name for central banks buying their own government’s debt in massive amounts and, generally in lesser amounts, corporate bonds. In the case of the Federal Reserve, it also buys mortgage-backed securities as part of its QE programs.

The supposed purpose of quantitative-easing programs is to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interest rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because of the resulting distortion in demand for them, enabling bond sellers to offer lower interest rates and making them less appealing to speculators. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money also goes into real estate speculation, forcing up the price of housing. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments. And the strategy of governments to lower the value of their currencies — a widespread tactic in the years following the 2008 collapse — can’t succeed everywhere because if someone’s currency devalues, someone else’s concurrently rises in value.

In other words, these programs, along with most everything else central banks in capitalist countries do, are to benefit the wealthy, at the expense of everybody else. Although we wouldn’t reasonably expect capitalist government agencies to act differently, central banks are particularly one-sided in their policies, which they can do because they are “independent” of their governments. Thus they openly serve the wealthy without democratic control.

A trillion here, a trillion there but not for you

Figuring out what central banks are up to and how much money they are creating for financiers is difficult because they don’t provide totals; at best there are monthly targets for spending and, even then, targets are not listed for all programs. And some, such as the Bank of Canada, are particularly reluctant to share money figures. Most often, banks’ websites and press releases proudly list the many programs designed to benefit financiers but without putting price tags on them. Thus the figures below may not be precisely accurate, but they are in the ballpark. To the biggest financial corporations, what’s a hundred billion more or less?

Having provided the caveats, my best calculations of what some of the world’s most prominent central banks have spent on quantitative easing are as follows (figures in U.S. dollars):

• U.S. Federal Reserve $4.04 trillion
• European Central Bank $3.4 trillion
• Bank of Japan $1.6 trillion
• Bank of England $600 billion
• Bank of Canada $300 billion

That’s a total of US$9.94 trillion. Imagine the height of the stack of bills that such a sum would reach — maybe it would be so high that orbiting spacecraft would ram into it, scattering the money across wide areas. At least that way, more people might benefit.

^{The European Central Bank in Frankfurt (photo by DXR)}

The above of course are not the only central banks to join the party. The Reserve Bank of Australia has spent an estimated A$320 billion in the past two years, although, according to Reuters, it is “considering how and when to wind up its A$4 billion ($2.84 billion) in weekly bond buying given the economic pick up.” Sweden’s Riksbank and the Swiss National Bank also indulge in quantitative easing; Switzerland’s central bank has done so much of it that it owns assets valued at more than the country’s gross domestic product. Similar to Australia’s, central banks, the Bank of Japan excepted, also are indicating they’d like to wind down their latest QE programs, but doing so is a delicate operation given that speculators have become drunk on the spending and cutting off the money could lead to sudden downturns in stock prices, in turn triggering disruptions in the economy.

Nothing like free money to make the party fun. But, on a less humorous note, how is it that deficit scolds and ideologues of austerity, who never miss an opportunity to shoot down legislation intended to give working people assistance, are silent about these gargantuan piles of money thrown at financial markets? The later version of the Build Back Better plan pushed by President Joe Biden, originally estimated to cost about $3.5 trillion before being reduced to less than $2 trillion, would have cost less than half of what was spent on quantitative easing. And, however flawed, would have provided vastly better relief.

And remember, the nearly $10 trillion and counting in two years of QE programs are only a portion of the money rained on business and the wealthy who benefit from these policies.

One sure outcome of all this is that inequality will increase, as exemplified by the dramatic increases in the wealth of billionaires. A report published last month by Oxfam, appropriately titled “Inequality Kills,” found that the wealth of the world’s 10 richest people has doubled since the pandemic began while “99% of humanity are worse off because of COVID-19,” a situation Oxfam calls “economic violence.” The wealth of the world’s 2,755 billionaires has increased by $5 trillion in less than a year — from $8.6 trillion in March 2021 to $13.8 trillion in January 2022.

And although increasing inequality is nothing new, the pace is accelerating. The Oxfam report states:

“This is the biggest annual increase in billionaire wealth since records began. It is taking place on every continent. It is enabled by skyrocketing stock market prices, a boom in unregulated entities, a surge in monopoly power, and privatization, alongside the erosion of individual corporate tax rates and regulations, and workers’ rights and wages—all aided by the weaponization of racism.”

Unlimited money for U.S. financiers, a little money for workers

In addition to quantitative easing, the Federal Reserve has instituted nine lending programs; three of these are “unlimited” and the other six authorized for $2.9 trillion. (This is all in addition to the $4 trillion spent on QE.) Of this additional $2.9 trillion, just $500 billion is earmarked for revenue-strapped state and local governments; the remainder are for businesses, including those in the financial industry. About $450 billion per day for several weeks during spring 2020 was dedicated to dollar swaps with other central banks — an agreement between two central banks to exchange currencies, most often to enable central banks to provide foreign currencies to domestic commercial banks.

Is there anyone who actually knows how much money the Federal Reserve is spending to keep capitalism running?

And even when money is supposed to go to working people, it mostly doesn’t go to them. A prime example of this not terribly surprising phenomenon is the U.S. Paycheck Protection Program (PPP). Multiple studies over the past year have shown that most PPP money flowed upward, regardless of what the intentions of Congress members who designed the program may have been.

^{The New York Stock Exchange (photo by Elisa Rolle)}

The most recent and likely most comprehensive of these studies, a National Bureau of Economic Research “working paper” issued in January 2022 by 10 authors led by David Autor of the Massachusetts Institute of Technology, found the PPP to be “highly regressive.” About three-quarters of PPP money wound up in the hands of the top 20 percent of households. The paper estimates that 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs. The majority of the funds flowed to business owners and shareholders. The study focused on 2020 results; the paper’s authors believe that 2021 loans did not boost employment, a result that implies the share of PPP money going to workers would actually reduce the 23 to 34 percent estimate.

The paper calculates that for every $1 in wages saved by the PPP, $3.13 went somewhere else. To put it another way, the cost of saving a job for a year was $170,000 to $257,000, three to five times the average compensation for affected jobs. “This program was highly, highly regressive,” Dr. Autor told The New York Times.

Three papers published earlier came to similar conclusions. A study by Michael Dalton, a research economist for the Bureau of Labor Statistics, that was issued in November 2021, found that “a range of $20,000 to $34,000 of PPP spent per employee-month retained, with about 24% of the PPP money going towards wage retention in the baseline model.” To put it another way, $4.13 were spent for each $1 of wages saved. Finding still worse results, a separate National Bureau of Economic Research working paper, with Raj Chetty as lead author, found that so little of PPP spending flowed to businesses most affected by the pandemic that employment at small businesses increased by only 2%, “implying a cost of $377,000 per job saved.” Finally, a paper published by Amanda Fischer, then the Policy Director at the Washington Center for Equitable Growth, concluded that PPP funding did not have a statistically significant impact on preventing avoidable layoffs among employees and that PPP money was not geographically directed at the worst-hit areas, further reducing effectiveness.

Class warfare in action, pandemic style. A little bit for working people, lots for those who already have more. The PPP did provide benefits, including saving jobs, and surely played a role in the unprecedented reversal of the high unemployment rate of 2020, but at a price far higher than necessary — no help for working people without more going to the wealthy.

Class warfare in Europe

In addition to its quantitative easing, the European Central Bank is increasing borrowing limits and easing borrowing rules for banks; it is also reducing required capital holdings for banks. The ECB has upped its QE spending to €40 billion per month and will reduce that to €20 billion by October 2022. A December 2021 announcement implied it intends to eventually end the program altogether, “shortly before it starts raising the key ECB interest rates.”

Remember all the finger-pointing and scapegoating of Greeks when the ECB and the European Commission imposed punishing austerity on Greece? There was no money and people had to be punished. Yet there are virtually unlimited funds to benefit financial speculators. These disparate responses aren’t completely inconsistent — Greeks had to be punished because the ECB and European Commission, leading institutions of the European Union, were determined that big banks, particularly French and German banks, had to be repaid in full, no matter the cost to working people or the Greek economy — the ECB even cut off Greek banks from routine financial flows in 2015 to enforce their diktats.

Britons recently received a fresh lesson in who the Bank of England serves when the bank’s governor, Andrew Bailey, declared that employees should not be given raises. It was sufficiently embarrassing that this open class-warfare statement, the sort of policy that is supposed to be kept behind closed doors, was said in public that the British government actually issued a rebuke. Noting that British household disposable incomes are expected to fall by 2 percent this year and that inflation-adjusted pay remains below the pre-2008 financial crisis peak, The Guardian reported:

“The governor of the Bank of England has come under fire from unions and earned a rebuke from 10 Downing Street for suggesting workers should not ask for big pay rises to help control inflation. Andrew Bailey said he wanted to see ‘quite clear restraint’ in the annual wage-bargaining process between staff and their employers to help prevent an upward spiral taking hold. However, his comments drew a furious response from union leaders, as households face the worst hit to their living standards in three decades as soaring energy prices cause inflation to outstrip wage growth. … Bailey was paid £575,538, including pension, in his first year as the Bank’s governor from March 2020, more than 18 times the UK average for a full-time employee.”

The average full-time employee is not who the Bank of England, or any other central bank in the capitalist world, has in mind when setting policy. What this episode nicely illustrates is that profits increase when wages are held down. Profit, it can’t be said too often, comes from paying employees only a small fraction of the value of what they produce. The drive by the corporations of the advanced capitalist countries to move production to low-wage, low-regulation havens around the world, continually in search of the next stop on a race to the bottom, is why so-called “free trade” agreements contain ever more extreme rules to benefit multi-national capital.

Class warfare in Canada and Japan

Getting precise figures on what the Bank of Canada is up to is impossible as it is particularly coy in announcing money figures. Bloomberg, for example, could only say that “hundreds of billions of dollars” has been spent in the bank’s QE program. My calculation on what the bank may have spent on quantitative easing is based on the C$376 billion differential on the amount of assets held by the bank between the end of 2019 and on February 2, 2022.

Like the other central banks, the Bank of Canada has several other programs to benefit the financial industry. In the first weeks of the Covid-19 pandemic, it announced multiple programs. The bank implemented several QE programs for buying corporate bonds, federal and provincial government bonds, mortgage bonds and commercial paper (short-term debt issued by corporations), as well as programs to provide credit and “support the stability of the Canadian financial system.” The bank was not forthcoming about the total cost of these programs at the time; it committed to spending C$5.5 billion per week, with no cutoff date, on just two programs, the purchases of federal government bonds and mortgage bonds.

The amount of “direct aid to households and firms” was only a small fraction of what was committed to helping the financial industry. No different, of course, than the response of other central banks.

^{Ottawa from the McKenzie Bridge (photo by Siqbal)}

The Bank of Japan, which had never ended the quantitative easing it began after the 2008 economic collapse, has committed to unlimited government bond buying. In a September 2021 announcement in which it committed to buying ¥20 trillion worth of corporate bonds, the central bank said it “will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent.” So large has the bank’s purchases been that it owns assets worth almost 130 percent of Japan’s gross domestic product. The bank doubled the pace of its bond purchases at the beginning of the pandemic.

Since March 2020, the benchmark index of the Tokyo Stock Exchange, the Nikkei 225, has increased 51 percent. In contrast, Japanese wages are “about at the same level as two decades ago,” The New York Times reports. Wages actually fell by around one percent in both 2020 and 2021, Reuters reports, with wage declines accelerating at the end of 2021. Working people have not done well from the world’s longest experiment in quantitative easing.

Circling back to the (admittedly rhetorical) questions asked in the opening paragraphs of this article, it depends on what is meant by “works.” If we mean by that word, as most people likely would, that an economic system functions for the benefit of all, then the scope of money required to keep it functioning forces a conclusion that it does not work in any meaningful sense. If, however, we mean “works” in the meaning given that word by financiers, industrialists and those who serve them and/or interpenetrate with them, most certainly including central bank officials, then all is well because it facilitates the accumulation of capital. Working people around the world pay to maintain financiers and industrialists in their accustomed wealth and power because that is how capitalism is supposed to work. How else would absurd “theories” like trickle down still be implemented after 40 years of failing to do what they are publicly advertised to do?

Another reminder that capitalist markets are simply the aggregate interests of the most powerful financiers and industrialists, and those interests are diametrically opposed to the interests of the vast majority of humanity. It cannot be otherwise.

Central banks have trillions for speculation, none for people

There’s no money for schools, no money for social services, no money for the environment. There is lots of money for speculators, however. A tsunami of money. Money that is measured in the trillions.

The central banks of the United States, Britain, the eurozone and Japan have so far spent US$6.57 trillion (or €6.06 trillion if you prefer) on “quantitative easing” programs. And, for all of that incomprehensibly gigantic sum of money, what mostly has been accomplished is a stock market bubble. And, as a secondary effect, a boost to real estate prices, making real estate speculation pay off a bit more than it ordinarily does.

(Photo by Photo Dharma from Penang, Malaysia)

Oh, no so much for the overall economy you say? Hard to argue that point. The world’s advanced capitalist countries are mired in stagnation, structural unemployment and widening inequality, with public investment starved and personal debt a monumental problem. Surely those staggering sums of money could have been put to better use. We’ll get to that in a moment, but first a quick accounting. Money spent on quantitative easing is as follows:

• Federal Reserve: $4.1 trillion in three programs that ended in November 2014.
• European Central Bank: €600 billion so far; the ECB has committed to spending a total of €1.1 trillion through March 2017.
• Bank of England: £375 billion.
• Bank of Japan: ¥155 trillion so far in two and a half years; the Japanese central bank is committed to spending ¥80 trillion per year with no ending date.

“Quantitative easing” is the technical name for central banks buying their own government’s debt in massive amounts; in the case of the Federal Reserve it also bought mortgage-backed securities. The supposed purpose of quantitative-easing programs is to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interest rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because a central bank buying bonds in bulk significantly increases demand for them, enabling bond sellers to offer lower interest rates. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments.

The irrationality of more for those with more

Given that banks are bigger and more profitable than ever (the six biggest U.S. banks racked up a composite net income of US$75 billion in 2014) and U.S. corporations spend about $1 trillion per year buying stock to artificially boost stock prices, shoveling still more money to those with far more than can be spent or invested in any rational way is irrational, no matter how many reports are pumped out by think tanks they pay to tell them otherwise.

So what might have been done with those quantitative-easing trillions thrown at banks instead? The total student debt in the United States, where the costs of higher education has risen more than double the rate of inflation since 1982, is $1.3 trillion as of October 2015. Printing the money to cover the entirety of the country’s student debt would total less than one-third of what the Federal Reserve spent on inflating a stock-market bubble. That leaves many more needs to be addressed.

The infrastructure of the U.S. is crumbling, and governments are short of money to fix what needs to be fixed. The investment needed to modernize and maintain school facilities is estimated to be at least $270 billion. The foreseeable cost of maintaining water systems in the coming decades in the U.S. is estimated at $1 trillion. The American Water Works Association arrives at this total by assuming each of 240,000 water main breaks per year would require the replacement of a pipe. Capital investment needs for wastewater and stormwater systems are estimated to require another $298 billion over the next 20 years.

The shortfall of funding to clean up Superfund sites is estimated to be as much as $500 million per year. The Environmental Protection Agency estimates that one in four United Statesians lives within three miles of a hazardous waste site; more than 400,000 contaminated sites await cleanup. And we can throw in another $21 billion to repair the more than 4,000 dams deemed to be deficient by the Association of State Dam Safety Officials.

Jobs instead of speculation

Add up all of the above and we would have spent a total of $3.4 trillion. Instead of throwing money at speculators and banks in the vain hopes they would spend the money productively instead of pocketing it or directing it toward speculation or boosting stock prices, we could have wiped out all student debt, fixed all the schools, rebuilt aging water and sewer systems, cleaned up contaminated industrial sites and repaired dams, and still have $700 billion more to spend on other needs.

If we were to apply that remaining $700 billion to create a federal jobs program, such as was done during the Great Depression, a total of 14 million jobs paying $50,000 and lasting one year could have been created, or three and a half million jobs paying that salary and lasting four years. That is in addition to all the people who could be put to work performing necessary infrastructure repair work if the above projects were carried out.

All of that for no more money than the Federal Reserve threw away on quantitative easing. This same argument can be made elsewhere: The British think tank Policy Exchange estimates Britain’s needs for investment in transportation, communication and water infrastructure to be a minimum of £170 billion. That is less than half of what the Bank of England spent on its quantitative-easing scheme, and dwarfs an estimated £2.5 billion deficit in the National Health Service.

Instead of spending this money on programs that would put people to work and enable them to get on their feet financially, those with more get more. European non-financial companies are estimated to be sitting on $1.1 trillion in cash, or more than 40 per cent higher than in 2008, the Financial Times reports. The St. Louis branch of the Federal Reserve estimates that, in 2011, U.S. corporations were sitting on almost $5 trillion of cash, a total likely to have increased.

This is what class warfare looks like, when only one side is waging it.

We have no money so central banks give more money to banks

It’s unanimous! The European Central Bank confirms that the only possible solution to falling wages and depressed spending is to throw more money at the banks and inflate another stock-market bubble.

The ECB thus joins the world’s other most important central banks in the hope that “quantitative easing” — a form of “trickle-down” economics — will somehow work despite having never achieved anything other than the inflation of asset bubbles, a benefit primarily to the one percent. Then again, perhaps that might explain it.

Mario Draghi, the president of the ECB, last week committed €1.1 trillion to buying eurozone government bonds and, to a lesser degree, asset-backed securities and pools of mortgage loans known as “covered bonds.” Starting in March, the ECB will buy €60 billion of assets a month, with a commitment to continue this program until September 2016. The ECB’s stated goal is to boost inflation and prevent deflation, while also driving down the value of the euro.

The European Central Bank joins the Federal Reserve, the Bank of England and the Bank of Japan in flooding the financial system with money, and joins all those central banks and the Swiss National Bank in attempting to drive down the value of its currency. One problem is that all currencies can’t decline against one another, any more than all countries can simultaneously produce trade surpluses. At the moment, it is the euro that is declining in value, which theoretically will give a boost to exports from eurozone countries, but as eurozone countries conduct most of their trade with one another, the boost from a weakened euro will not necessary be significant.

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

But with declining wages, fewer people have enough to spend, and the super-wealthy already have more money than they can possibly use for productive investment. Nonetheless, the “market” has decreed that more austerity for working people and more speculation by the one percent is the magic elixir that will finally fix the economy.

Fix it for whom? Let’s start to answer that question by noting the supposed purpose of quantitative-easing programs: to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interests rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because a central bank buying bonds in bulk significantly increases demand for them, enabling bond sellers to offer lower interest rates. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments.

Trillions for asset buying sprees

We are not talking about small change here. In three rounds of quantitative easing, the Federal Reserve spent about $4.1 trillion. The Bank of England has spent £375 billion. The Bank of Japan, after boosting its QE program last October, will now spend ¥80 trillion (about US$680 billion) per year. This after 18 months of quantitative easing failed to revive the economy, as with an earlier QE program that ran from 2001 to 2006. In just the past 18 months, the Bank of Japan’s QE spending was ¥75 trillion ($640 billion).

Imagine what could have been done with these enormous sums of money had they been used for directly creating jobs, or simply by giving it directly to working people, who would have gone out and spent it. Or by putting the money to productive use, such as rebuilding crumbling infrastructure.

Instead, what is planned is more austerity — that is, more punishment. The other component of the European Central Bank’s January 22 announcement is that favorite term, “structural adjustment.” A euphemism used by the World Bank and International Monetary Fund when ordering an end to job security and social safety nets as a condition for granting loans to developing countries, this is now being applied to the global North. Near the end of his remarks announcing the quantitative easing, ECB President Draghi said:

“[I]n order to increase investment activity, boost job creation and raise productivity growth, other policy areas need to contribute decisively. In particular, the determined implementation of product and labour market reforms as well as actions to improve the business environment for firms needs to gain momentum in several countries. It is crucial that structural reforms be implemented swiftly, credibly and effectively as this will not only increase the future sustainable growth of the euro area, but will also raise expectations of higher incomes and encourage firms to increase investment today and bring forward the economic recovery.”

Labor “reforms” are necessary to “improve the business environment.” In plain language, that means more austerity in an effort to boost corporate profits. In the question-and-answer session after the announcement, President Draghi gave revealing answers to two different questions: “For investment you need confidence, and for confidence you need structural reforms” and “it would be a big mistake if countries were to consider that the presence of this programme might be an incentive to fiscal expansion. … This programme should increase the lending capacity of the banks.”

Firing workers and pushing wages lower will make capitalists feel better? Perhaps, but if there isn’t demand for their products, they still aren’t going to invest.

If consumers have no money, they aren’t buying

The ECB wishes to believe that further reducing job security and social safety nets will provide capitalists with the magic “confidence” that will prompt them to invest. But there is already plenty of industrial capacity sitting idle — E.U. manufacturing capacity utilization is only 80 percent while the E.U.-wide unemployment rate is 10 percent. The youth unemployment rate is 21.9 percent. More austerity isn’t going to reverse these effects of austerity.

The Bank of Japan boosted its quantitative easing program in October 2014 because it had not pulled the Japanese economy out of stagnation. Gross domestic product contracted in the second and third quarters of 2014. (Fourth-quarter statistics have yet to be reported.) Japanese wages have declined in the past year while profits have increased. Household spending in Japan had fallen for six consecutive months at the time of the Bank of Japan’s announcement, in part due to an increase in sales tax pushed through by Prime Minister Shinzo Abe.

The Federal Reserve’s quantitative easing has served to prop up a stock market that continues to rise despite ongoing stagnation. The standard measure of stock market valuation, the price/earnings ratio, remains high by historical standards. (This ratio is a company’s market value per share divided by earnings per share, or to put it another way, how many dollars a buyer pays for one dollar of profit.) The composite P/E ratio for the broadest measure of U.S. stocks, the S&P 500 Index, is 19.7. The rare times in history that ratio has risen above 20 has been followed by a crash.

Japan’s stock market has also risen during its quantitative easing; its benchmark Nikkei 225 Index has doubled since November 2012.

Trillions of dollars has been poured into programs that do little more than produce stock-market bubbles; more trillions have been poured directly into banks and other financial institutions for bailouts. The European Central Bank says more of the same, and European workers will continue to pay for it. The markets demand this, it is said. Capitalist markets, however, are nothing more than the aggregate interests of the largest industrialists and financiers — when we let “markets” make social decisions, that really means a dictatorship of big business and big banks. And supporting those banks is very expensive.

Federal Reserve talks jobs, but (in)action speaks louder than words

If you haven’t gotten a pay raise lately, you are not alone. The percentage of U.S. workers reporting no change in their renumeration remains near its all-time high, according to statistics kept by the San Francisco branch of the Federal Reserve.

The San Francisco Fed’s “wage rigidity meter” — the percentage of “job stayers” who report receiving the same pay as one year earlier, rose above 15 percent in 2010 and has remained there since. For comparison, that figure was 11 percent in 2008, at the start of the global economic downturn and about six percent in the early 1980s, when this statistic first began to be tracked. For hourly workers, not surprisingly, conditions are even worse: More than 20 percent report no increase in pay, about triple the number in the early 1980s.

That is merely one additional piece of evidence — if any more be needed — that inequality is on the rise. Reuters reports that there is some discussion within the Federal Reserve to temporarily tolerate higher inflation as a “tradeoff” to encourage growth in wages and an accompanying boost to full-time employment. How serious this talk actually is might be signaled by this paragraph in the same Reuters report:

“Fed staff economists accepted in 2010 that labor’s share of annual U.S. output, which over a decade had dropped to around 56 percent from its long-term average of around 62 percent, was unlikely to recover.”

In other words, the Federal Reserve says inequality is here to stay. So perhaps tinkering with policy that possibly could make a marginal difference — even the Fed has to keep up appearances sometimes — is the most that might be expected. Contrast that with the enthusiasm with which the Fed has shoveled money into its “quantitative easing” programs — measures that have primarily acted to inflate a new stock-market bubble with a small secondary effect of re-animating real estate prices.

(Graphic by the U.S. Bureau of Labor Statistics)

“Quantitative easing” is the technical name for a central bank going on an asset buying spree. In conjunction with setting low interest rates, it is a theoretical attempt to stimulate the economy by encouraging investment. The Federal Reserve’s program buys U.S. government debt and mortgage-backed securities in massive amounts.

Through the end of June 2014, the Fed poured about US$4.1 trillion into three quantitative-easing programs since December 2008. The Bank of England had committed £375 billion to its Q.E. program as of the end of 2013.

Prior to the economic downturn, the Fed held between $700 billion and $800 billion of U.S. Treasury notes on its balance sheet, but, because of its quantitative-easing programs, it now holds more than $4 trillion. The Fed is in the process of winding down its buying spree with an intent to finish it in October. Instability is likely to occur when the Fed tries to unload its bloated piles of assets, and many of the world’s other central banks will seek to unload their assets as well.

The latest stock-market bubble, then, will burst as all others before it, with high debt loads dropping another anchor on the economy. A commentary in Forbes calculates that the level of borrowing used to buy stocks is already higher than it ever was during the 1990s stock-market bubble or the run-up before the 2008 crash as measured in inflation-adjusted dollars or as a ratio with the S&P 500 stock index.

What could the world’s governments have done with this massive amount of money had it instead gone to socially useful programs? Instead, trillions of dollars were spent to inflate another stock-market bubble. One more way the world’s wealthiest have gotten fatter while the sacrifices are borne by the rest of us.

And that is merely one way that inequality not only continues to grow, but is accelerating. From 2000 to 2009, labor productivity rose an average of 2.5 percent annually while real hourly wages rose only 1.1 percent, according to U.S. Bureau of Labor Statistics calculations — the biggest gap it has yet measured, going back to the late 1940s.

(Graphic by the U.S. Bureau of Labor Statistics)

More recent figures, according to Reuters, indicate the gap continues to grow — from 2007 to today, average hourly wages have risen a total of 1.5 percent while productivity has increased by 11.4 percent. Nor is that a phenomenon limited to the United States. The International Labour Organisation calculates that wages in the world’s developed countries increased six percent from 1999 to 2011 while labor productivity increased about 15 percent.

If the employees are not receiving the benefits from their increased productivity, then it is the bosses and speculators who are grabbing it. Thus it is no surprise that the gap in wealth has increased more sharply than have incomes. A research paper written by Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni found that accumulated wealth has decreased for the majority of people since 1984. The median level of net worth — that is, the 50th percentile or the point where the number of people with more is equal to the number with less — has decreased by about 20 percent since 1984. By contrast, those at the 95th percentile have nearly doubled their net worth since 1984.

So much money has flowed upward that industrialists and financiers, and the corporations they control, have more money than they can possibly find investment for — this money is diverted into increasingly risky speculation in an attempt to find higher returns. Working people were handed the bill for the previous bubbles, and before we can get back on our feet the bursting of another bubble looms. Class war is raging, and it’s clear what side is winning.

The Federal Reserve inflates another bubble, but not for you

If you haven’t experienced the “recovery” from the Great Recession the corporate media keeps insisting is here, that’s because “quantitative easing” is a new way to say “trickle-down.” In this latest version, the Federal Reserve has pumped trillions of dollars into financial markets to create a stock market bubble.

Panic at the New York Stock Exchange (image via U.S. Library of Congress)

Other than a small secondary effect of re-animating real estate prices, a growing bubble in stock prices has constituted the extent of the economic impact. Good for the one percent, not so good for the rest of us.

“Quantitative easing” is the technical name for a Federal Reserve program in which it buys U.S. government debt and mortgage-backed securities in massive amounts. In conjunction with keeping interest rates near zero, quantitative easing is supposedly intended to stimulate the economy by encouraging investment. A reduction in long-term interests rates would encourage working people to buy or refinance homes; for businesses to invest because they could borrow cheaply; and push down the value of the dollar, thereby boosting exports by making U.S.-made products more competitive.

In real life, however, the effect has been an upward distribution of money and an increase in speculation. This new form of trickle-down has not worked any differently than it did during the Reagan administration. Now that the Federal Reserve will gradually reduce the amount of bonds it purchases (announced last month) and perhaps end the program by the end of 2014, Wall Street and corporate executives worry that their latest party might be over.

What hasn’t changed, and won’t anytime soon, is the weakness of the global economy, particularly for the world’s advanced capitalist countries. If you aren’t making enough money to get by, you aren’t planning a shopping spree. If working people, collectively, continue to see wages erode, happy days are not at hand. They aren’t.

The top one percent has captured almost all of the “recovery,” which is why the corporate media continues to peddle its mantra. Emmanuel Saez, an economist at the University of California, calculates that 95 percent of all U.S. income gains from 2009 to 2012 went to the top one percent. That result is an intensification of a pattern — Professor Saez calculates that 68 percent of all income gains for the longer period of 1993 to 2012 went to the top one percent.

Fueling a speculative binge

How is this connected to quantitative easing? The money borrowed by corporations has not gone toward investment or hiring new workers, but rather into buying back stock and speculation. Financiers and executives riding the crest of this wave of cheap money in turn use their gains to further speculate, or to buy expensive works of art, itself speculation that the wildly rising prices for collectible works will continue.

U.S. corporations bought back about $750 billion of their stock in 2013. When a corporation buys back its stock, it is spreading its profits among fewer stockholders, thereby boosting its stock price. That’s more profits for financiers and bigger bonuses for executives, achieved without investing in the enterprise.

The billionaire Stanley Druckenmiller in a television interview called the Federal Reserve’s quantitative easing program:

“[T]he biggest redistribution of wealth from the middle class and the poor to the rich ever. … I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work. But it hasn’t worked for five years.”

Mr. Druckenmiller said this on CNBC, a cable-television business news station whose anchors openly cheer news of rising corporate profits and celebrate wealth accumulation. The “five years” he mentioned is a reference to the three successive programs of quantitative easing that began in the final weeks of the Bush II/Cheney administration. In a separate report, CNBC journalist Robert Frank writes that it has become “increasingly clear” that the wealthiest one percent are the big winners:

“The largesse of the Federal Reserve over the past five years has amounted to one of the largest ever subsidies to the American wealthy — fueling record fortunes, record numbers of new millionaires and billionaires, and an unprecedented shopping spree for everything from Ferraris to Francis Bacon paintings. The prices of the assets owned by the wealthy, and the things they buy, have gone parabolic, bearing little relationship to the weak, broader economy. …

Fed policy has fueled a surge in the value of financial assets. Since the wealthiest 5 percent of Americans own 60 percent of financial assets, and the top 10 percent own 80 percent of the stocks, those gains in financial assets have gone disproportionately to a small group at the top.”

Stock prices reaching unsustainable levels

More speculative money is poured into stock markets because the heavy Federal Reserve buying of bonds dampens demand in that sector. Ted Levin, writing for the business publication SmallCap Network, summarizes this effect:

“[Q]uantitative easing involves buying long-term bonds, which in turn drives down the interest rates on these. The reason for this is that when there is a strong demand for bonds — which is exactly what quantitative easing artificially creates — bond issuers do not have to offer such high interest rates in order to attract investors. This in turn means that bonds are less attractive to non-governmental investors, and so they turn to stocks instead — driving up the price.

The second reason is that quantitative easing makes more capital available to businesses at lower rates. This allows them to swap high-cost debt for low-cost debt and buy back stock — improving their earnings per share and driving up the value of the remaining stock.”

The most basic measure of a stock, or the stock markets as a whole, is the “price/earnings ratio.” The P/E ratio is a company’s yearly profit divided by the price of one share. As of January 14, the P/E ratio for the S&P 500, the standard barometer, was at about 19.5 and has been rising steadily the past couple of years. A handful of times in history, the P/E ratio has risen above 20, only to crash each time. The historical average is 14.5 — meaning that stocks are currently overvalued.

Stock prices have become unmoored from underlying economic conditions — and are frequently pure speculation. Most trading is done through computer programs, often with a stock bought and sold in fractions of a second to take advantage of quick pricing changes, and increasingly exotic derivatives to draw in ever more speculative money by the wealthy who are awash in far more money that can possibly invest rationally.

Wall Street’s party will wind down as slowly and gently as the Federal Reserve can manage, and it may yet reverse itself and continue its quantitative-easing program. As of the end of December 2013, the Fed has spent a total of $3.7 trillion over five years on quantitative easing and the Bank of England has committed £375 billion to its quantitative easing.

How much could these enormous sums of money have benefited working people had this money instead been used to create jobs directly or for productive social investment? And these barrels of money thrown to financiers are merely the latest tranches — the U.S., E.U., Japan and China committed 16.3 trillion dollars in 2008 and 2009 alone on bailouts of the financiers who brought down the global economy and, to a far smaller extent, for economic stimulus. For the rest of us, it’s been austerity and mounting inequality.

Going beyond the obvious question of why such absurdly one-sided policies should be tolerated, it also necessary to ask: Why do we continue to believe an economic system that requires such massive subsidies “works”?

It’s not the Federal Reserve, it’s the system it serves

There are details, and then there is the big picture. Mistaking the former for the latter can send an activist down the wrong path. A good example of this are the often well-meaning people who resolutely demand that we “End the Fed.”

But the problem isn’t the Federal Reserve, it is the system that it serves. If you don’t like the Fed, what you actually don’t like is the capitalist system.

The Federal Reserve, the central bank of the United States, is surely (as its critics accurately charge) a far too secretive, unaccountable branch of government that protects the interests of financiers at the expense of everybody else. A democratically accountable Fed that promulgated policies to increase employment and toward a socially responsible financial system would be welcome reforms.

But they would be unstable reforms, tinkering at the margins and would likely not change Fed policy in dramatic ways. Moreover, increasing oversight on the Fed wouldn’t eliminate the dominance of Wall Street or the largest corporations. There is plenty of oversight of other U.S. government agencies, yet corporate interests have little trouble bending policies toward their preferred outcomes.

Going further, and abolishing the whole thing, is, to be blunt, not a serious demand. Eliminating the Fed is a pointless idea because a central bank is a necessity in an advanced capitalist country, which is why each has one. And, perversely, eliminating the central bank would actually increase the dominance of financiers and would make the booms and busts of the capitalist business cycle sharper than they already are.

^{The Federal Reserve Annex in Washington (photo by AgnosticPreachersKid)}

Strange as it seems today, when many voices on the Right and the Left echo the demand of “End the Fed,” there was a populist component to the creation of the Fed. Populists of the late 19th century wanted a more elastic currency so that the government could extend emergency credit when the economy collapsed (as it then frequently did) rather than be handcuffed by the gold standard. In those days, when a crash happened, the U.S. government had to turn to the biggest robber barons of the day, such as J.P. Morgan, and ask them directly for a bailout.

Banks hoarded their reserves during crashes, making the downturns worse, and could issue their own banknotes, helping to fuel bubbles. But, since we are talking about the United States, it took a consensus on Wall Street and not popular demand for a central bank to be created in 1913. Financiers had come to believe that a central bank would temper the extremes of booms and busts, thereby stabilizing the economy. Industrialists joined financiers in that consensus.

Needless to say, the capitalists and not the populists were the drivers of Fed policy from the beginning. But a central bank does, albeit in a highly inegalitarian manner, stabilize a national economy through regulating credit and alternately tightening and loosening monetary policy. Central banks in all advanced capitalist countries manage domestic money supplies and currencies, a crucial task in today’s world in which markets subject to wild swings set prices for everything. The exception is in the countries using the euro, in which national central banks don’t have a currency to manage and are subordinate to the supranational European Central Bank, which is even more unaccountable than national-level central banks.

It won’t come as a surprise that financial institutions are skilled at finding ways around central bank policies. And central banks don’t necessarily do good, either — the Fed under Alan Greenspan encouraged the 1990s stock market bubble and the real estate bubble of the 2000s, and the post-crash Fed of Ben Bernanke is focused on the non-existent phantom of inflation while ignoring the all too real problem of high unemployment. The European Central Bank is, if anything, even more guilty of that than the Fed. The Fed, typical of central banks, is an institution staffed by and ideologically dependent on the financial industry. So it is no surprise that it consistently acts in a manner that benefits the financial industry and is detrimental to working people.

The entire capitalist system acts to benefit capitalists (industrialists and financiers) to the detriment of working people. Why should we expect an arm of a capitalist government to act any different? (Contrary to popular mythology, the Fed is part of the government, the Treasury Department to be specific; its all-powerful chair and board of governors are appointed by the president and approved by the Senate.)

If the Fed were eliminated, the exact same powerful capitalist interests would continue to bend government policy to their preferred outcome and would continue to exercise the same dominance over government, social institutions and the mass media. The only difference would be that the economy would become more unstable than it already is because there would be less ability on the part of government to dampen excesses. Why would that be good?

Concomitant to “End the Fed,” for those on the Right who echo that slogan, is a yearning to return the U.S. dollar to the gold standard. Most of these people do yearn for the good old days of the 19th century, when women, minorities and working people knew their place, and paid a violent price if they didn’t. I’ll pass over the irony of working people yearning for such a time. Unfortunately for gold fetishists, there is no returning to those simple times as capitalism has evolved into a much more complicated system. Capitalism can no longer function under a gold standard and indeed outgrew it in the 1970s.

Richard Nixon, then the U.S. president, pulled the dollar off the gold standard because retaining it was no longer in the interest of the U.S. despite the dollar’s centrality in the Bretton Woods system of fixed currency rates. In that system, implemented at the end of World War II, the dollar was fixed to the price of gold and all other currencies were fixed to the dollar; governments could and did change the value of their currencies based on their particular interests. Doing so was a big deal.

Such a system is more stable than the current one of free-floating currencies that continually rise and fall in foreign-exchange markets. Today’s system is heavily skewed by speculators, and it is precisely the pressure of financial speculators that began to burst the system of fixed exchange rates — today, the size of foreign-exchange markets dwarfs the size of stock markets and those traders are not about to forgo their profits.

There is too much special interest by financiers and speculators to allow a resumption of a gold standard. Going back on the gold standard would also handcuff governments trying to stimulate economies during economic downturns because they would not be able to issue new money. The supply of money would be determined by the productivity of South African gold mines, a rather odd circumstance. Moreover, gold is a commodity the same as any other; despite the fetishes that attach to it there is nothing more intrinsic to valuing money on it than on any other commodity. Why not tie the dollar to aluminum?

Capitalism is an unstable system that will always have booms and busts, and as time goes on the busts tend to worsen. (That tendency was temporarily kept at bay after the Great Depression by significant reforms, but those reforms have been undone and the tendency has reasserted itself.) Capitalism is a system in which those who amass the capital thereby amass power, and power translates into the ability to bend the rules to preferred outcomes or to bypass the rules. Money concentrates into fewer hands and wages are squeezed to facilitate the upward flow of money. Those who succeed are the people endowed with outsized desires to acquire and the personality traits that enable those desires to be met.

Yes, those people so endowed can and do create policy for the Fed, or any central bank. But ending the Fed wouldn’t touch the ability of people so endowed to suffuse their viewpoints and favored policy outcomes throughout a capitalist society, nor would it touch their ability to leverage their outsized wealth and the power their wealth gives them to shape government policy to benefit themselves.

Getting rid of government would actually intensify the dominance of industrialists and financiers in all spheres of life. The dominance of a globalized class that maintains power through a web of institutions and scrambles to manage ceaseless instability — not a small cabal of bankers who somehow control everything, an idea rooted in Right-wing conspiracy theories that easily shade off into anti-Semitism.

If you don’t like what the Fed does, it is because you don’t like what the capitalist system does. Blaming the central bank is no more than blaming the messenger.