Whitslack

Bond Market to Bernanke: Take Your Foot Off the Accelerator

You misunderstand. The Fed's job is to *create* inflation (in moderation) in order to lessen the burden of government debt. It performs an elaborate balancing act: too little inflation, and the government would have to raise taxes to service its debt (an unpopular move); too much inflation, and the people would lose confidence in the system. (Has it ever struck you as suspicious just how much our monetary system relies on public confidence for its continued viability? Isn't that the very definition of a con game?)

If interest rates were determined by supply and demand, rather than being fixed by a central bank (i.e., the Federal Reserve), we wouldn't have inflation, since the money/credit supply would be self correcting. Not enough savings means no capital readily available to lend, means higher interest rates, means more savings. Conversely, an excess of idle capital means more investment demand, lower interest rates, and increased economic growth. There is absolutely no need for some centralized body to be fixing interest rates. That only leads to inefficiencies in capital allocation, due to the time lag between market moves and the Fed's policy reactions.

At the very least, a proper audit of the Fed is called for, to verify to Congress and to the public that everything they're doing is legit. Call your congressperson and instruct him or her to sponsor H.R. 1207, the Federal Reserve Transparency Act of 2009. It's up to 179 cosponsors at last count. (Only 218 votes are needed for a majority of the House.)