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Unpublished Paper
The Missing Link Of Democracy
  • Fernando Leila, Fordham University

The Missing Link of Democracy: The Federal Reserve Submission to the Democratic Government

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, (i.e., the "business cycle") the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”

Thomas Jefferson


This paper examines the shortcomings of the Federal Reserve (the “Fed”) as an institution, its power and policy under a democratic system of government, and the consequences thereof.

America is in the midst of an economic crisis, possibly worse than any of its previous crises. Economic contraction, high unemployment, banks bailouts, unstable interest rates, the weak dollar, inflation and intense fear loom over the oldest democracy in the world. At the root of each of these issues is the Federal Reserve of The United States of America.

The Federal Reserve (the “Fed”) has the role of central bank; it is the banker’s bank, the lender of last resort, and the marketplace regulator. We have heard that the creation of the Fed was “a compromise, that it would control the supply of funds on which the banks depended to make loans, injecting more money into the banking system put downward pressure on interest rates, while its opposite, restricting the supply of potential credit, pushed up rates. The regional banks were intended to help make the flow of credit even across the country.” The Fed, however, far exceeded its original mandate.

The economic crisis of 2008 raised serious disputes about the existence of the Fed, and the juridical nature supporting its existence. Further controversy surrounded the issue of the economic system of the United States and its dependency the Fed; more importantly, whether the Fed as it currently exists fits in a democratic system. This paper will examine these issues, as well as unveil urban myths, such as that the Federal Reserve has existed from the beginning of the democracy, and worse, as a large percentage of American citizens believe, that the Fed is a branch of the government. Questions have risen about its juridical nature: is the Fed unconstitutional? Is the Fed a privately-owned corporation? During the crisis, did the Fed work for the welfare of the country or just help special interest groups? These are important topics to address. Resolving these questions would provide support to Congress in deciding whether to abolish the Federal Reserve System. If abolished, the Presidential branch of the United States would assume complete responsibility for bank regulation and monetary policy.

  • Federal Reserve Central Banks
Publication Date
Citation Information
Fernando Leila. "The Missing Link Of Democracy" (2010)
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