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Hysteria Growing Over Fed’s Trap: Replace it with a U.S. National Bank

Sept. 23, 2015 (EIRNS)—EIR reported on Sept. 18 that the Federal Reserve’s "flinch" away from a promised rate increase at its Sept. 16-17 meeting "would mean "‘chaos’ regarding the Fed’s future decisions, and the impression that U.S. short-term rates might stay at zero indefinitely, or even go negative." The transcript of Fed Chair Janet Yellen’s press conference Sept. 17 subsequently revealed that a Reuters journalist had asked Yellen exactly that question—"[the possibility] you may never escape from this zero lower bound situation"—and that Yellen had said she could not definitively rule that out.

Hysteria has since broken out in the "financial community," while commodity prices stock markets have generally plunged, despite the Wall Street giants having urgently demanded that the Fed not raise rates, but lower them into negative territory. Facing a crash, neither Wall Street banks nor stock and bond speculators know what will hit them next. The Fed now suddenly appears to face the fate of Japan’s central bank, which has been unable or unwilling to escape zero interest rates and deflation for 20 years, with disastrous consequences for Japan’s economy.

The notorious mega-bond speculator Bill Gross is the latest to demand publicly, Sept. 22, that the Fed "raise rates, and do it now!"— just to show, that it is not trapped in the economic hole it and Wall Street have created. Financial media have carried "opinions" by fund managers demanding that the Fed not even wait for its next meeting in October, but call an "emergency rate hike" by teleconference to prove it’s not trapped.

The Fed’s own data continue to show the economy sinking, however, and the crash consequences of "hiking" look even more frightening to them than the zero trap.

The time is ripe for Congress to take this dangerous game away from the Fed, by creating a new Hamiltonian national bank which would immediately issue its own trillion-dollar stock with an interest rate approximating 4-5%, and invest that as national credit for modern infrastructure, productive employment, and technological breakthroughs. This would tend to set interest rates for productive industrial investment in the economy more broadly, and raise yields on U.S. Treasury securities.

The Fed, despite its immense book of assets, is lending only to bankrupt Wall Street to build up bank reserves in any case, and those operations can and should be shut down.