No Government, No Force

Federal Reserve Change

at Yahoo! Answers: Question in regards to the Federal Reserve?
The Federal Reserve was established in 1913 and is, therefore, a creature of Congress. The President of the United States nominates members of the Board of Governors of the Federal Reserve, subject to confirmation by the Senate. However, the Federal Reserve is basically free to pursue monetary policy independent of Congress or the President. Should the Federal Reserve remain independent of the President and Congress or should the President and Congress control monetary policy? Why?

I wrote this answer, but by the time I’d finished the Q had been withdrawn.  No problem, I’d rather have it here on morality101 anyway.

Our problems with the Federal Reserve stem from, perhaps from it’s very existence, but certainly from it’s freedom to manipulate the money supply at will.

Over the last couple of years prior, in an effort to slow down inflation, the Fed caused interest rates to rise.  Among other effects, those naive souls who had taken Adjustable Rate Mortgages found their payments rising beyond their means, which caused foreclosures to increase perhaps six-fold, which resulted in mortgage bankers losing liquidity (e.g. Bear-Sterns, there will be more), which resulted in too many homes on the market, which resulted in falling home prices and the virtual shutdown of the construction industry.  All these were factors in resulting in yet another recession.

So during 2008, the Fed switched gears and lowered the discount rate several times, which bailed out illiquid mortgage bankers, which increased available mortgage money, which is enabling home buyers to purchase homes (foreclosed or otherwise) at better prices with lower loan rates again.

The whole game is predictable.  One needs understand only the very basics of economics (supply and demand applies) in order to predict the future maneuvers of the Fed.  I

In due course, the Fed will cycle us back to even greater inflation.  Inflation WILL be greater because of the rapidly increasing national debt, caused by the politicians voting for war, socialist schemes, subsidies, “stimulus” etc etc ad nauseum.  All are  passed by our politicians despite not having the money to pay for them.  Thus the congress routinely raises the national debt limit so they can borrow the funds, the Fed makes the bookkeeping entries creating more “money” (federal reserve NOTES), and like magic, it’s all a done deal.  Reason enough not to give politicians control of monetary policy, right?

Nothing in all this should be construed as my justifying the continuing existence of the Fed.  If, for the time being at least,  the Fed continues, then congress must cause the Fed to cease  manipulation of the money supply and forbid expansion of the money supply in beyond indexes of population, income, GDP and/or such other indexes as may are appropriate.  Perhaps we will rediscover that applied economics actually has some value in our world for this indexing chore.  Natural market forces will provide the monetary stability which has been absent from the beginning of the Fed.

There are many proponents for going back to the gold standard, but I’m not convinced that is necessary.  You may want to check out as a free-market alternative to the dollar – the Valun.

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