rade deficit to be financed amounted to a mere $138.7 billion. The magnitude of the speculation problem is illustrated by the exploding size of the U.S. financial industry. Just during the decade of the 1980s, the assets held by the investment companies that Americans love so much mutual funds and money market funds - registered a nearly eightfold increase. The U.S. mutual fund industry alone has now accumulated some $2 trillion of assets. That is comparable to the total deposits of the entire commercial banking system. Meanwhile in the 1980s, the assets of insurance companies tripled to reach $1.9 trillion in 1990. The assets of pension and trust funds nearly quadrupled to $1.9 trillion, and the assets of finance companies nearly quadrupled to $781 billion (see Edwards, 1993). What happened to the commercial banks during the same time? Total assets of the banking sector doubled to a little more than $2.6 trillion. But, relative to the other sectors of a ballooning financial industry, the banks' position has steadily declined. Early in this century, commercial banks held somewhat over half (55 percent) of all financial intermediary assets. Since then, commercial banks have lost nearly 30 percentage points of market share - down to about 27 percent of financial assets in 1990. This is significant for the effectiveness of the Federal Reserve in both of its roles in carrying out monetary policy and regulation both functions aimed at controlling the growth and quality of money and credit. The Fed's "inflation" cry in 1994 was not a statement conveying information - indeed it was consistently disinformation - but a plea for help. The central bank had lost control of money and credit by means of the conventional instruments operating through the commercial banking system. The Fed's effectiveness grows weaker as the commercial banks shrink and other financial institutions encroach on their functions as depositories and lenders. The Fed's a...
