Page 136 - TrumpsEconEra_Flat

Chapter 5: The Fed on Steroids

cryptocurrencies. Tethering monetary policy to a
blockchain and using smart contracts to commit the
system to specific rules would help stabilize the system.

President Trump favors a rule-based policy over
the make-it-up-as-you-go approach. Ron Paul, in his
book, End the Fed, advocates eliminating the Federal
Reserve. If this were to happen, market forces would
determine interest rates.

GLASS-STEAGALL & VOLCKER RULE

Banks, who used depositors’ money to make risky
investments aggravated the Depression of the 1930s.
Many of these investments soured as the depression
progressed and made the downturn worse. Congress
passed the Glass-Steagall Act in 1933 calling for the
separation of commercial and investment banking; the
act was only 37 pages long. Commercial banks used
depositors’ money to make loans, whereas investment
banks used funds from wealthy individuals for
investments.

Under Glass-Steagall, the government did not
regulate investment banks, giving them license to take
sizeable risks. The lack of regulation suited wealthy
people because risky investments are more fun and
potentially more profitable than safe investments. The
government did regulate commercial banks to protect
depositors.

In the 1990s, investment banks were making
enormous profits in activities that the Glass-Steagall
Act made unlawful for commercial banks, and
commercial banks wanted to share in the bounty. The

-135-