Interesting question posed here by Rick Santelli (courtesy of Zero Hedge). Just who does Ben Bernanke work for? It’s a complex question, but I think that understanding the institutional design of our monetary system can add some clarity to this question.
The US monetary system is designed around a payments system that is controlled and operated by private banks. That is, the primary money in our system is created by banks who create money as debt. And in order to engage in the US economy, you basically have to play on the playing field that is the US banking system. So, the banking system is a crucial component of the economy and the overall monetary system. We all know that following 2008.
The Fed exists primarily to help maintain an orderly payments system. The Reserve System is essentially a public/private hybrid system that creates cohesiveness between banks. In addition to creating stability in the payments system, the Fed regulates banks and oversees monetary policy.
Now, all of this gets a bit tricky because the banking system is owned and operated by private entities which are owned by shareholders. But the Fed exists primarily to keep the banks from disrupting the rest of the economy. Yes, banking, like most capitalist entities, can be susceptible to disruptions and failure at times. Except, when a big bank fails, it can unnecessarily hurt millions of other businesses just because they rely on that bank for their operations. Said differently, banking is such a crucial part of the economy that the Fed system operates as a stabilizer most of the time (although you could argue they make things worse sometimes depending on your view).
The Fed operates largely with the intent of performing public purpose. They exist to help keep the payments system working smoothly and that benefits us all. But the Fed is basically trying to serve two masters. It is designed by Congress to serve public purpose, but it can only enact policy by ensuring the private entities are stable. In other words, it works for the banks before it can work for the government. So, I think there’s your answer. Bernanke works for the banks first and the rest of us second. It can be no other way since he has no other way of enacting policy other than to serve the needs of the banking system. After all, if the private banks aren’t healthy, then Bernanke can’t enact policy.