Is the Federal Reserve Making You Poor?
For decades, more Americans have begun questioning whether the Federal Reserve is truly managing the nation’s money well. With Donald Trump’s direct criticisms and threats to fire the Fed’s chairman, the debate has entered a new era. The Fed is no longer untouchable.
Why was the Fed created?
The Federal Reserve was established in 1913, inspired by the belief that experts could engineer better outcomes for banking and the economy. After years of rapid economic growth and technological breakthroughs, many thought that centralizing control-like Germany and England had done-would bring stability and prosperity.
The Fed became a public-private partnership, inviting all banks into its system. In exchange for helping guarantee public debt, these banks gained access to a powerful new clearing system. The Fed’s experts would now manage money creation, interest rates, and the business cycle, aiming to prevent crises, keep banks open, create jobs, and control inflation.
What went wrong?
The Fed’s close relationship with the federal government was its fatal flaw. The government gained a printing press, and the Fed faced constant pressure to keep rates low, provide liquidity, prevent bank failures, and finance whatever policies politicians wanted. The first major test came with World War I, which the Fed helped fund by printing money. This made the war longer and more destructive, and devastated the dollar’s value.
Over time, the Fed’s promises failed. Instead of preventing inflation and business cycles, it made both worse. The dollar has lost almost all its value since 1913. The system now mainly serves the government and itself, not depositors or ordinary Americans.
How did this affect the economy?
Centralized control of interest rates made business cycles worse and labor markets less stable. Before the Fed, structural unemployment was rare. After 1929, chronic unemployment became a fact of modern economic life.
When the U.S. left the gold standard under Nixon, the dollar became the world’s reserve currency. This made it easier for the government to run up debt and deficits, funding welfare and war without restraint. The result: repeated financial crises and a weaker manufacturing base at home.
Trump’s challenge to the Fed
Donald Trump is the first major statesman in decades to call out the Fed’s failures. He argues the U.S. can’t thrive as a debt-ridden consumer of foreign goods and needs to rebuild its manufacturing base, using tariffs as a tool. When financial markets resisted, Trump blamed the Fed for keeping interest rates too high, arguing that it should lower them to stimulate growth.
But the real question is deeper: Why should so much power over the economy rest with the Fed instead of market forces? The co-dependent relationship between the central bank and the government invites corruption and mismanagement. After more than a century, it’s time to reconsider whether the Fed’s creation was a mistake.
