An oft-forgotten failure of the Carter Administration

By: Frank Yunker

Date: 2024-12-31

The late President Jimmy Carter is known - even by his critics - as a decent and honorable man. He made his Christian values a centerpiece of his administration. Of course, decent and honorable did not translate into a successful presidency.

One often overlooked failure was the signing of the Federal Reserve Reform Act of 1977. For starters, note the word "reform." It does not necessarily mean "improve" and in this case it meant "mission creep." Let me explain.

The Federal Reserve Banking System was created in 1913 as America's Central Bank in order to "enhance the stability" of the American banking system. How successful has it been in meeting that goal? A dollar's purchasing power in 1913 would cost over $30 today. That means prices have doubled about every 20 years. Is that the "enhanced stability" that the Congress of 1913 intended?

Never mind that fiasco. It gets worse in 1977 Congress added the "dual mandate" for the federal reserve. Now, it is the job of the Federal Reserve to create stability in both prices AND employment. How is thast even possible?

The short answer is "it's not," but the longer answer is more nuanced. The Federal Reserve controls the "money supply." It used to be customers put money in banks and banks loaned to other customers. Excessive reserves - meaning unloaned money - could be deposited in the Federal Reserve and it could loan it to other banks who had waiting customers who needed loans.

At least, that's what the textbooks say. In truth, the Fed's books have never been audited and no one really knows where they get the money to loan to banks or the federal government.

Back in colonial times, a farmer grew a bushel of corn and brought it to the general store in town. The storekeeper took the corn to resell it for a profit and gave the farmer "credit," which meant the farmer could buy anything in the store up to the value of the bushel of corn. There was no "bank" to store the farmer's credit. And if he needed to purchase more good than the value of the corn, then it was the general store owner who gave a loan to the farmer. Not so efficient which led to the creation of the banking system.

But what about the dual mandate? How does banking control employment?

The short answer is "it doesn't." But of course the longer answer is more nuanced. When US goods are "cheaper" than foreign goods, the world market buys the American goods and thus American workers are hired. How do you make goods cheaper? You devalue the currency. How do you devalue the currency? You print more money.

And what does that do? It creates inflation. And what's another way of describing inflation?

Inflation is - at it's worst - a tax on poor people. Let's say you have a bank account with $0 balance and you can't afford a house in the $100,000 range. Well, after a bout of inflation, you'll still have $0 in the bank, but the house might cost $130,000.

The "dual mandate" needs to end. Stabilizing employment is just and excuse to manipulate the market even more. The Fed should not be creating winners and losers. The "stabilizing employment" sounds like a good Christian thing to do. And that is why good Christian Jimmy Carter... nah, let's call him Naive Jimmy Carter signed the bill. Putting the Fed in charge of employment is as bad as putting Panama in charge of a canal we built.