By Martin Armstrong - December 1, 2025

People love to blame the Federal Reserve for everything under the sun because it is easier than admitting the real problem: government. The tragic part of this entire monetary experiment is that the Fed, as originally designed in 1913, was brilliant. Each regional branch operated independently, responding to local capital flows instead of political agendas in Washington.

Money moved with the seasons. When crops were planted, capital flowed one way; when the harvest came in, it flowed another. The system was designed to absorb these fluctuations smoothly. It was never supposed to be a political arm of the federal government. In fact, the Fed was owned by the member banks and functioned as a true lender of last resort — buying corporate paper, not government debt. That allowed elastic money that expanded and contracted with economic activity. Corporate paper matures. Government debt does not.

Then came World War I, and with it, the beginning of the end.

Washington needed to borrow staggering amounts of money, so the government told the Fed: stop buying corporate paper and buy our debt instead. From that moment forward, the independence of the branches was eroded. The original structure was discarded in favor of centralized political control. Roosevelt finished the job during the New Deal by usurping the authority of all the regional banks and concentrating everything in Washington under a single chairman. What should have remained a decentralized system responding to capital flows became a one-size-fits-all political tool.

This is why I say the central bank does not need reform, but the government does.

The Fed does not create inflation; the fiscal side of the ledger does. Once Washington discovered that it was less inflationary to borrow than to print outright, the entire system became . . .

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