Defending the Fed’s Independence, Part II

Back in July, I expressed concern that Congress might undermine a key pillar of U.S. economic policy: the independence of the Federal Reserve.

Why is that so important? Because independent central banks do a better job of controlling inflation. Inflation may not be an immediate threat to the U.S. economy, but as that day approaches, the Federal Reserve needs to be able to pull back on monetary stimulus without political interference.

Of course, the remarkable scale of Fed actions over the past 18 months requires close review. Both practically and politically, Congress needs to exercise careful oversight over a now-multi-trillion arm of the Federal government.

The political challenge is finding a way to provide such oversight, while defending the Fed’ independence. In today’s Wall Street Journal, Anil Kashyap and Rick Mishkin suggest one way to strike that balance:

  • Oppose the House bill (sponsored by Rep. Ron Paul) that would give the Government Accountability Office (an arm of Congress) broad auditing powers over Fed actions, including monetary policy.
  • Endorse a pending amendment (sponsored by Rep. Mel Watt) that would give the GAO specific authority to audit the various lending programs created under the 13(3) provision regarding “unusual and exigent circumstances.” As Anil and Rick describe it:

This audit would involve oversight of the operational integrity of these facilities’ accounting, internal controls, and protection against losses. It would also disclose the borrowers from these facilities one year after the facilities are closed. The audit would produce new, important information that is not otherwise available and would play to the strengths of the GAO. And the amendment would exempt the Fed’s normal monetary policy actions from the audit.

3 thoughts on “Defending the Fed’s Independence, Part II”

  1. I think the Federal Reserve, as constituted, is indefensible.
    The debt is so far beyond imagination as to pose a national security threat, yet unelected officials continue to pursue ruinous policies.
    One wonders how the blame will be dispersed and disbursed, post crash.

  2. I agree the Fed should be able to act independently, but not with my money. If we are not going to have some control over Fed Monetary policy we should at least have the option not to use Fed notes. Either it is a public entity and the public helps run it, or it is private and I can choose a competitor.

    Simply allowing competing currencies would give me the choice. If the Fed is so good at it’s job everyone will keep using there money. Of course this wont happen as they are terrible, but if you like them you can keep there soon to be worthless money all you like.

    None can tell me it is ok to steal my savings through rampant inflation, while also saying I have no other choice but to keep using those worthless dollars made worthless by decisions I opposed.

  3. “Because independent central banks do a better job of controlling inflation.”


    Nonsense. The purpose of central banks is to coordinate deliberate inflation by large national banks and the central government.

    A central bank manages a banking cartel, greatly harming the general public.

    The U.S. Dollar has lost over 95% of its value since 1913 when the Federal Reserve took control of it.

    How can anyone rationally assert that the Fed central bank does a good job of controlling inflation ?

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