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We need an intervention to put the nation on the right course to deliver energy security and environmental protection.

or nearly five decades after the Civil War, America was in turmoil. Chronic economic instability and monetary stress accompanied the traumatic process of adjusting the social structure from slavery to freedom. Booms, busts, bank failures, panics, inflation, deflation, unemployment, extreme wealth, and extreme poverty roiled the nation. In 1907 financial collapse was prevented only by the personal and corporate funds provided by J. P. Morgan and his friends to essentially float the U.S. Treasury. In 1912 the nation experienced another near-fiscal failure. It was in the context of these crises that Congress and the president created the Federal Reserve System in 1913 to provide monetary stability and financial security for the country. It was a successful strategy. Although the Federal Reserve is not perfect (witness the challenges of the 1930s and the past few years), it has created order in the place of disorder, professionalism and knowledge instead of politics of the day, and experience and judgment capable of swaying presidents and Congress over nearly a hundred years, during which time the United States became the largest, most successful, most stable economic powerhouse in the world. The independent and regulatory powers of the Fed, which include determining the money supply, setting interest rates, setting the federal funds target rate (which drives

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the cost of overnight bank borrowing), and market intervention when needed, have made the difference. Since the Federal Reserve came into existence no nation has experienced greater financial security and stability than the United States. Today America needs an equivalent body to independently regulate the future of energy security and environmental protection.

The Federal Reserve Bank is a bridge to the future, a shock absorber for the nation. It is not subject to the vagaries of election cycles, temporarily larger-than-life political personalities, or issue-of-the-day fanaticism. Frankly I don’t know anyone who loves the Fed; but I also don’t know anyone who doesn’t understand that it must continue to govern U.S. monetary stability and financial order. The Federal Reserve Bank was democratically established; its governors are selected by the president, with the advice and consent of the Senate, for 14-year terms; its chairman is likewise selected, but for a 4-year term. The nonpolitical nature of the Fed is evidenced by the tenure of its chairmen and board governors across multiple administrations under both parties. Over its history, human beings may have failed the Fed, but the Fed has not otherwise failed the nation. Congress or the president can propose legislation to modify or change the Fed at any time. The fact that this rarely happens is an indication of broad satisfaction with the fit-for-purpose design and the successful management of its tasks and responsibilities. Because the Fed is not taxpayer funded, Congress does not approve or control its budget; it is supported by fees from member banks, borne as part of the cost of doing banking under the protection and support of the system. Consumers ultimately pay such fees, but the amounts are so minuscule at the individual level that no one notices. Under the Fed system the banking industry operates profitably within “big rules” that provide predictability, degrees of certainty, and stability. Consumers, companies, the economy, society and the nation are the beneficiaries.

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It is time, given everything we know about the volatility and uncertainties of our energy and environmental past, present, and future, to take a similar path to “big rule” management of these sectors as well. Now is the time for Congress to legislate and the president to sign a bill to create and implement an independent regulatory agency, the Federal Energy Resources System, to manage the nation’s energy and energy-related environmental footprint. The American people, our economy, international competitiveness, national security, and social harmony would be better served by governing energy and its environmental implications via the charter and responsible administration of an independent board of governors whose sole purpose is the enabling and support of the nation’s future energy system. By creating such a governing body, the United States could lead by example the rest of the world’s nations, which could in their own time follow suit if they choose. How would this system be structured, and what would it do? Ultimately Congress would decide, but here are some suggestions.

The structure and governance of the Federal Reserve Bank is a good model to start with, but it would need to be adjusted to cope with very different responsibilities and accountabilities in entirely different sectors of the economy and society where costs, science, and technology are critical variables. A national board of governors with a number of regional boards makes as much sense for energy as it does for money. The nation is large and its regions have unique and exceptional characteristics that require local modifications. For example:
• The Southwest has lots of wind and sun but limited water. • The Rockies have lots of wind and considerable sun as well as coal and unconventional oil, called oil shale, and gas. • Appalachia has lots of coal, natural gas and wind. • Alaska and the Gulf Coast have a lot of oil and gas. • There are vast swaths of undeveloped agricultural land in the Midwest, although these regions also host very large cities.

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