Time to Reform the Fed

Let’s Volckerize the Fed. That’s the catchy title of a breakingviews.com piece by Martin Hutchinson on the need to stop the Federal Reserve from putting the world economy through a succession of credit binges and increasingly excruciating hangovers.

Paul Volcker, as you may recall, was Fed chairman from 1979 to 1987 and he was credited with taming the double-digit inflation of the 1970s. He was successful because he was given a free hand. Now it’s time to institutionalize greater independence in the Fed so we can have more Paul Volckers, writes Hutchinson.

That means making the Fed less of a decentralized institution. It also means doing away with the dual mandate to promote both price stability and full employment in favor of a primary focus on price stability.

I would add that price stability should be defined with reference to asset prices as well, not just prices of consumer items. In my opinion, the monetary excess was not just a reflection of political meddling and a dual mandate but also a policy error – i.e. an inappropriate definition of price stability that allowed monetary policy to become too loose.

Comments

[Thomas J. G...:]

You hear that the European Central bank has only the responsibility for the currency, not keeping the unemployment rate below 6% in every member country. Makes sense since the European Central bank is not associated with any specific country. But I hear they are printing too much money too so it is not a panacea.

2008 Nov 08 05:55 PM

[Bill Herbert:]

Best thing to do is vaporize the Fed.

Volcker did a great job 30 years ago - but the Fed is basically an albatross around the necks of the American economy, and it supports the totally corrupt status quo, which is to have the major Wall Street houses take a cut of everything, without adding any value.

This parasitic, racketeering based banking system must be shut down, pronto.

2008 Nov 08 10:47 PM

[singh1111:]

It is also time to reform SEC. It has done more damage than the FED. The removal of uptick rule has given shortsellers a free hand to destroy the market and billions. Even Cramer could not force SEC Chairman Cox to bring up the uptick rule. Until that rule is brought bakc, market cannot go up.

2008 Nov 09 08:28 AM

[Cole Bene':]

The sec dosnt want you and I independent investors to enter the market creats to much volity
On Nov 09 08:28 AM User 183388 wrote:

> It is also time to reform SEC. It has done more damage than the FED.
> The removal of uptick rule has given shortsellers a free hand to
> destroy the market and billions. Even Cramer could not force SEC
> Chairman Cox to bring up the uptick rule. Until that rule is brought
> bakc, market cannot go up.

2008 Nov 09 09:46 AM

[Burticus:]

Save the propaganda - SHED THE FED!

Our founding fathers warned us never to turn over Congress' power "to coin money, and regulate the value thereof" to the bankster cartel, knowing that Americans would become debt slaves. Current economic/financial fiasco has been orchestrated by the ultra-wealthy international banking families who control the Fed and our gub'ment. Their patriarchs should be hanging in long rows along Wall Street and Pennsylvania Avenue.

History records that the money changers have used every form of abuse, intrigue, deceit and violent means possible to maintain their control of governments by controlling the money and its issuance. - James Madison.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. – Thomas Jefferson

Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen they will create enough to buy it back.

Dumbed-down Americans have not learned from history, so are condemned to repeat it. Our children will be shackled with the chains we have forged.

2008 Nov 09 11:41 AM

[Asbytec:]

Flash, the ECB's mandate is price stability. Is that what you meant?

And the Fed is, technically though not in practice, under congressional oversight. Only the congress has the power to set the price of money, which it leaves to the Fed.

I've argued Greenspan and the financial giants are guilty of an unconstitutional act, and I've even mentioned treason, in running an financial system that sends the money supply toward infinity.

2008 Nov 09 07:52 PM

[Asbytec:]

Burticus is right on.

2008 Nov 09 07:55 PM