The Fed: Both Fireman and Arsonist
The topic of central banking and the Federal Reserve might seem too abstruse for an introductory documentary. But the Mises Institute’s recently released, 39-minute film Playing with Fire: Money, Banking, and the Federal Reserve is an admirably clear presentation of what many mistakenly regard as the most obscure branch of a “dismal science.” Ranging from basic explanations of the nature of money and banking to a concise history of the Federal Reserve itself, Playing with Fire makes a compelling case that, as various of its commentators observe, the Federal Reserve is not only the fireman charged with putting out monetary conflagrations such as inflation and recessions — it is also the arsonist responsible for creating them in the first place.
As Playing with Fire observes, the activities of the Federal Reserve and other modern central banks are nothing less than “monetary shoplifting.” This is because the Fed enjoys an absolute monopoly over the money supply, including determining which privileged institutions get to participate in money creation, and which individuals get to benefit from having first dibs on newly created money. While this arcane process is not discussed in great detail, the principle of the matter — that the Fed is a faceless monolith with absolute ascendancy over our financial destiny — is laid out in crystalline clarity.
As to the sordid and obscurantist details of modern monetary expansion — the details of open market operations, the buying and selling of repos, the privileged domestic and foreign “primary dealers” authorized to buy and sell Treasuries directly from the Treasury Department and the Fed, the endless tinkering with the discount window and with required reserves for commercial banks, the mysterium of currency swaps among the world’s central banks via the Bank for International Settlements, the ever-evolving biases and fads among the money masters that have fetishized in their turn the money supply and interest rates as the focus of their policymaking, and other topics too numerous to mention — the interested viewer will need to do a lot more research. Modern finance, after all, is an immensely complicated subject, owing in no small measure to the phenomenon of “financialization,” mentioned in Playing with Fire, whereby finance comes to have undue prominence in economies disfigured by fiat money creation.
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