Part III — Follow The Money · Lesson 42 · Follow The Money

The unaccountable apex

The Fed, the BIS, and the levers of monetary power

Volume I introduced central banks; this lesson goes to the apex and is precise about the levers, because vague dread is useless and specific understanding is power. The honest position is uncomfortable for everyone: these institutions have legitimate, even essential, functions and wield a degree of unaccountable power that should trouble anyone who takes democratic self-government seriously. Both halves are true.

The Federal Reserve's actual levers

Click through them below. The pattern to notice: each lever was created for a defensible stabilizing purpose, and each also concentrates enormous discretionary power in a body insulated by design from direct democratic control.

The policy interest rate

What it does: Sets the rate at which banks lend to each other overnight, which cascades into every other interest rate in the economy — mortgages, business loans, bonds, savings.

What it's for: The primary tool for managing inflation and employment. Raise rates to cool an overheating economy; cut them to fight recession.

Who it answers to: The Federal Open Market Committee — 12 members, of whom 7 are presidentially appointed and Senate-confirmed for 14-year terms, and 5 are regional Fed bank presidents chosen with private-bank involvement. No member faces the voters.

The Bank for International Settlements — the central bankers' central bank

If the Fed is obscure to most citizens, the BIS is nearly invisible — and it sits even higher. Founded in 1930 in Basel, Switzerland (originally to handle WWI reparations payments), the BIS is owned by about 60 member central banks and serves as their bank, their meeting place, and their coordinator. It hosts the bimonthly gatherings where the world's central bankers meet privately, sets the global bank-capital rules (the "Basel Accords" — Basel I, II, III — that govern how much capital every internationally active bank must hold), and provides banking services to central banks themselves.

The legitimate function is real: someone has to coordinate cross-border banking standards, or a race to the bottom in bank safety would make every crisis global. The Basel rules genuinely shape how resilient the world banking system is. But consider what this means: an institution headquartered in Switzerland, owned by central banks, granted legal immunities by treaty, meeting in private, sets rules that govern the capital structure of the entire global banking system — with essentially no direct democratic accountability to any electorate on Earth. Critics across the political spectrum, not just fringe ones, have noted that this is a remarkable concentration of unaccountable technocratic power.

The genuine dilemma — and it has no clean answer: Monetary policy and bank regulation were deliberately insulated from democratic politics for a real reason: politicians facing elections have a chronic incentive to print money and loosen rules for short-term booms, then leave the inflation and crises for their successors. Independent central banks exist to take away the printing press from people who would abuse it for the electoral cycle. This is a serious argument and the historical record (see the next lesson on hyperinflation) supports it. AND — the same insulation that protects against political abuse also means that the most consequential economic decisions of our era are made by people who answer to no voter. There is no arrangement that gets the benefit without the cost. Anyone who tells you otherwise is selling something.

What they are responsible for — stated fairly

On the credit side: central banks have, since 2008, repeatedly prevented the total seizure of the financial system that would have produced a second Great Depression. The lender-of-last-resort function, swap lines, and emergency facilities are not abstractions — they are why the 2008 and 2020 shocks did not become 1932. On the debit side: their interventions systematically benefit asset-holders (whose assets they inflate) over wage-earners and savers (Vol. I's inflation lesson; Vol. III's Cantillon point), they have repeatedly rescued the reckless while ordinary borrowers were left to fail (next lesson), and their independence has hardened into an insulation from accountability that fits awkwardly inside a democracy. Both ledgers are real. The mature critic holds both.

What you just learned

The Fed and BIS hold specific, nameable levers — rate-setting, last-resort lending, balance-sheet expansion, global capital rules — each created for a defensible stabilizing reason and each concentrating enormous discretionary power in unelected hands. The insulation from democratic politics is both their value (protecting the printing press from electoral abuse) and their danger (the era's biggest economic decisions made by people no voter chose). There is no version that captures the benefit without the cost.