For Orderly Dissolution Of The Fed, Before It Does Us Even More Harm
The Fed has turned out to be perhaps the biggest single source of economic instability. It’s the big pig at the trough, and it’s unpredictable. It doesn’t follow any rules consistently.
IBD Editorials
The Fed was established 97 years ago, and Fed officials were given considerable power over the economy as if they knew what they were doing, but they didn’t. They’re still winging it today.
From the beginning, there were conflicting views about what the Fed should do. Benjamin Strong insisted that maintaining a stable price level was a top priority. He also used Fed policy to help restore the gold standard in Europe.
In 1935, President Roosevelt signed the Banking Act, which transferred more decision-making authority from regional Federal Reserve banks to the Federal Reserve Board. The assumption was that centralizing power would enable officials to enforce good policies faster.
More than a half-century later, in 2002, Ben Bernanke, then a Fed governor, acknowledged the Fed’s role in these calamities: “We did it. We’re very sorry. We won’t do it again.”
It was especially difficult to anticipate what the Fed might do, because apparently officials couldn’t agree on rules to guide their policies.
Sometimes Fed officials made bad decisions because they used analytical methods that turned out to be wrong.
The Fed has made serious mistakes because of political pressures.
As late as May 17, 2007, Chairman Bernanke said: “We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”
Theoretically, the Fed might be able to work if there were perfect people, but there don’t seem to be any of those around. After almost a century of the Fed’s often violent roller-coaster rides, it’s hard to see what might be accomplished with one more bit of tinkering such as with interest-rate targets.
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