What if instead of the Federal Reserve loaning Trillions of dollars at 0% interest to certain banks of their choosing  they loaned a few hundred Billion to Energy companies like LIPA.

     On Monday, January 22, 2007 the late Milton Friedman, Nobel laureate in economics in 1976, granted an interview to The Wall Street Journal.

     “An alternative would be to eliminate the Federal Reserve System; to reduce the monetary activities of the federal government to the provision of high-powered money, that is, currency and bank reserves, and to constitutionalize, as it were, what is to be done with high-powered money. My preference is simply to hold it constant and let financial developments produce the growth in the quantity of money in the form of bank deposits, a process that has been going on for many decades. But that is, of course, politically impossible.”

      I agree with Milton Friedman in that we should constitutionalize high powered money, which is newly printed money which currently the chairman of the 12 Federal Reserve banks decide which banks to loan the money to at a current rate of 0%. Since banking is a utility and that is the only reason why they have access to high powered money, in a modern economy ENERGY should be the utility which gets cheap loans.  If  this were to happen Long Island residents would see their electric bills drop by 15% immediately, and continue to drop because the cost of capital investments would drop forever and energy prices would slowly decline.  “and to constitutionalize, as it were, what is to be done with high-powered money.”  As for Mr. Friedman’s final sentence; “But that is, of course, politically impossible.”  This is one of the few things I would disagree with this Nobel Laureate on because that is a dangerous, defeatist belief and I refuse to accept it.

Friedman: Yes. Of course it depends very much on how the computer is programmed. I am not saying that any computer program would do. In speaking of that, I have had in mind the idea that a computer would produce, for example, a constant rate of growth in the quantity of money as defined, let us say, by M2, something like 3% to 5% per year. There are certainly occasions in which discretionary changes in policy guided by a wise and talented manager of monetary policy would do better than the fixed rate, but they would be rare.

In any event, the computer program would certainly prevent any major disasters either way, any major inflation or any major depressions. One of the great defects of our kind of monetary system is that its performance depends so much on the quality of the people who are put in charge. We have seen that in the history of our own Federal Reserve System. Surely a computer would have produced far better results during the 1930s and during both world wars.

That raises a question about the desirability of our present monetary system. It is one in which a group of unelected people have enormous power, power which can lead to a great depression or which can lead to a great inflation. Is it wise to have that power in those hands?
An alternative would be to eliminate the Federal Reserve System; to reduce the monetary activities of the federal government to the provision of high-powered money, that is, currency and bank reserves, and to constitutionalize, as it were, what is to be done with high-powered money. My preference is simply to hold it constant and let financial developments produce the growth in the quantity of money in the form of bank deposits, a process that has been going on for many decades. But that is, of course, politically impossible.