The Fed Is Only Authorized to Conduct MONETARY Policy, But It Has Also "Become the Single Largest FISCAL Actor in the U.S. Economy" → Washingtons Blog
The Fed Is Only Authorized to Conduct MONETARY Policy, But It Has Also "Become the Single Largest FISCAL Actor in the U.S. Economy" - Washingtons Blog

Saturday, May 8, 2010

The Fed Is Only Authorized to Conduct MONETARY Policy, But It Has Also "Become the Single Largest FISCAL Actor in the U.S. Economy"


On Tuesday, I wrote:

The Fed argues that an audit would interfere with its monetary policy decisions. [But] decisions about what toxic assets should be accepted by the Fed as collateral, how such assets should be valued, and who bailout funds should be given to are wholly separate from the Fed's core monetary policy decision: raising or lowering interest rates.

[F]unneling hundreds of billions to foreign nations and foreign banks, accepting worthless junk from the too big to fails and marking it at unrealistic valuations, and doing the other things which the Fed has been doing recently are not core monetary functions. Congress never authorized these actions when they passed the Federal Reserve Act.

Therefore, the Fed's actions must be made transparent and subject to the light of day.

Eliot Spitzer wrote an important essay yesterday explaining that what the Fed is really doing is controlling our country's fiscal - as well as monetary - policy:

The Fed over the course of this crisis has demonstrated that its influence goes far beyond the issue of monetary policy.

In monetary policy—controlling the supply of money—the Fed is constrained by reasonably well-understood policy levers that have a macro impact, and its decisions are rather evident in short order. Now, in contrast, the Fed is engaging in fiscal policy—spending money—and in fact has become the single largest fiscal actor in the U.S. economy, dispensing hundreds of billions of dollars to private parties. In doing so, the Fed is picking winners and losers. Why Goldman but not Lehman? Why guarantee the debt of some companies but not others?

The Fed has enormous discretion in its decisions. It is entirely appropriate to demand that they be carried out with greater transparency and be subject to greater oversight.


3 comments:

  1. at "explaining" ..spitzer

    "The old maxim that sunlight is the best disinfectant is no less true for the Fed than it is for any other public entity."
    .
    at it's core the fed will argue they are not
    "public" but also very private, sunlight need
    not be applied as a matter of law. they would
    prefer not to make this argument in "public" and
    then have to revisit that/those "public" relation
    problems, but i'm sure they are ready to argue
    the points if they have to. they have triangulated the sheeple and will maintain the herd as they see fit, if we allow it, continue
    to worship their notes.

    ReplyDelete
  2. Enhorabuena por el blog tan interesante. Un saludo cordial desde Barinas (EspaƱa)

    ReplyDelete
  3. Yes, it is all an illusion, just ask the Louisiana fisherman being asked by BP to sign waivers not to sue...idiot.

    farang

    ReplyDelete

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