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Musicmystery -> RE: 10 Things That Would Be Different If The Federal Reserve Had Never Been Created (1/13/2011 10:36:29 AM)
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Today's confusion over the Fed is based on this misunderstanding--
The Fed is deliberately set up to be independent. Countries with less independent central banks historically have higher inflation, as the bank then serves political expediency rather than consistent policy. Congress did so on purpose, and wisely. And overall, it works well.
Today's hand-wringing is in part because the Fed has done well. During the Bush administration (this is not a political swipe--previous administrations relied on the same, just not to this extent), we mitigated two recessions with monetary policy, and when the third one hit, as structural problems finally caught up, interest rates were so low that there was nowhere left to go (without switching to more dire monetary tools), leaving only fiscal policy as the necessary tool, and fiscal policy, a function of Congress, means slower solutions and political complications.
Fact is, Congress, not the Fed, has been dropping the ball, while the Fed has consistently been saving their asses. Now they've pushed monetary policy as far as it can go, and must clean up their fiscal misdeeds. Since they've created such a structural mess, it will take time (and political battles). That's just the nature of the beast. And voters are culpable too, as they were the ones cheering on expansive fiscal policies when more conservative restrictive policies (we don't have any fiscal conservatives any more, just tax cut rhetoric--and that's expansive fiscal policy) were needed. Even today, the debate is not over how to bring fiscal policy in line, but rather which way to channel the fund redistribution--to the upper, middle, or lower class, rather then how to resolve the nation's economic balance and move forward.
None of that is the concern or the fault of the Fed. In fact, without the Fed, we'd have been in a worse mess, and much sooner.
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