Is the Federal Reserve necessary?

this was a year the Fed came under the

attack of President Trump who tweeted

about the central bank and its chairman

Jerome Powell more than 80 times with us

to discuss this as well as what's going

on inside the White House is John

Tammany he is director of the Center for

economic freedom at Freedom Works and

editor of Real Clear Politics also the

author of the book who needs the Fed

John the Fed not signaling any rate

changes in 2020 let me ask you to answer

the question which is the title of the

book who needs the Fed don't we know we

don't to pretend that we need the Fed to

fiddle around with interest rates that

that's necessary for economic growth

defies common sense

well let's never forget that the Fed

projects it's always overstated economic

influence through a u.s. banking system

that represents 15% of total credit in

the US economy and let's stress that

it's the least dynamic credit of all

banks as a rule cannot lend toward

growth and toward dynamic ideas they

have to lend towards sure things but the

US economy grows based on new ideas

constantly entering and pushing out the

old just let me Atlanta let me interrupt

you you just said the economy is based

on new ideas pushing out the old the

financing for that comes from monetary

policy I mean if we didn't have the Fed

say in 2008 I'm not sure many of us

would be employed right now that's what

they were talking about well but of

course we would be employed in fact we'd

be employed better precisely because

when government actors in turn into an

economy and prop up what markets don't

want they naturally slow it let's never

forget that Japan was literally reduced

to rubble by World War two but within a

few years it and Germany were two of the

most the richest countries in the world

what kills a country is not the failure

of a business what kills it is

government intervention and so you look

at the Fed what could the Fed possibly

do it bailed out Citibank for the fifth

time in 25 years can can you give me a

reason why US economy economy is reliant

on Citibank is that somehow made us more

prosperous propping up what markets have

been trying to put out

business this is an academic discussion

because the Fed ain't going anywhere at

least in the short term right so given

that the Fed exists and probably will

exist for our lifetimes and given

barring a revolution of some kind or

real a bigger change than we have seen

what do you think the Fed should be

doing given reality given not the idea

that it's going away what do you think

the trajectory of the Fed should be next

year I think you put it so well the feds

always going to exist because

politicians always need a convenient

whipping boy but let's be clear what the

Fed does okay so it regulates the banks

okay how'd that work out in 2008 the Fed

exists as a lender of last resort but by

definition any well-run bank would never

go to the Fed for a loan because doing

so is an admission of bankruptcy at

which point the Fed sets or tries to set

the overnight rate that banks lend to

one another at we don't need a market we

don't need the Fed for that and so yeah

the feds always going to exist my only

argument is that it's just not that

important and so if the Fed could it

move rates down this year sure will that

cost a stock market to rally will ask

the Japanese that they've been at zero

for how long has it worked out for their

stock market implicit in this idea that

the Fed can can just generate good times

is that it can somehow predict what

companies are going to be important in

the future implicit here is that the Fed

decide we're going to prop up the stock

market and in doing so we're going to

prop up five companies Apple Google

Facebook Amazon and and that were the

biggest drivers the stock market rally

but at the same time we're going to

engineer G ease decline we're going to

engineer Ford's decline we're gonna put

Sears out of business again we want to

get Jared in on this okay so the feds

not going anywhere it looked like it

looks like they're on hold in terms of

interest rate policy for the time being

but they're also expanding their balance

sheet once again looks like risk markets

are responding positively to that what

do you think where do you think this

goes next year you know the feds always

looking for a reason to be relevant and

so it's it's always going to act I just

don't think it means very much let's

never forget that even if the Fed

weren't expanding its balance sheet it's

not as though well-run banks wouldn't

have a highly liquid market looking to

liquefy the assets it has on its balance

sheet and so what I've always argued is

what the feds doing is probably

something that market forces might be

doing on their own the Fed can't alter

reality and how we know that is that if

it could if it were a fraction of as

powerful as it was people want it to be

then QE would have led to a massive

economic boom but it didn't the Fed can

only confirm reality and so it expands

its balance sheet ok but ask yourself

what would happen if the Fed didn't

exist would banks not somehow not have a

market for their loans I don't think so

all right John Tammany is the director

of the center for economic freedom at

Freedom Works thank you for being with

us on this holiday day after Christmas

thanks for having me hey investors Zach

Guzman here are you interested in

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