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Is the Power to Implement Fiscal Policy Being Transfered to The Fed?

3 points by elfinlike 14y ago

mtgx 14y ago
Even if they get it right in the short term, and I have my doubts about that as the problem is very complex, and I don't think the people at Fed right now are competent enough to solve it, there's still huge potential in the future for the Fed to screw it up, having this much power over the economy. The economy shouldn't rely this much on a single entity, especially one that isn't even accountable to the people. All the more reason to have full periodic audits of the Fed. Now if only Harry Reid, the guy who's been asking for an audit of the Fed for 2 decades, and now surprisingly refuses to allow the bill on the Senate floor, would finally allow it.
warmfuzzykitten 14y ago
It's a classic power vacuum. Congress has proven unable to deal with banking issues, partly because it is deadlocked politically and partly because of the golden handcuffs of Wall Street political contributions. The speculation and lack of oversight that led to the crash in 2008 continue unabated. The charter of the Fed is to maximize employment, minimize inflation and keep interest rates steady. The classical tool of the Fed is controlling the supply of money; simplistically, expanding the money supply through reduced interest rates and direct loans to stimulate the economy (and employment) and shrinking it when the resulting boom begins to cause inflation. But since 2008 the economy has not reacted to reduced interest rates and banks that are loan recipients have been reluctant to increase the availability of loans to the real economy, the part that produces goods and services, but eager to use the money to (further) speculate in financial instruments. Thus, the money supply is not reaching its intended targets and has little effect on real GDP or employment. In the absence of effective fiscal regulation from the Congress or executive with which it might work in concert, the Fed has sought to exercise more direct control of the banks. The alternative is to be powerless to carry out their mandate and join the legion of neutered financial regulators, who cross their fingers and hope against reason or precedent that the banks won't screw up again.

3 points by elfinlike 14y ago

mtgx 14y ago

Even if they get it right in the short term, and I have my doubts about that as the problem is very complex, and I don't think the people at Fed right now are competent enough to solve it, there's still huge potential in the future for the Fed to screw it up, having this much power over the economy. The economy shouldn't rely this much on a single entity, especially one that isn't even accountable to the people. All the more reason to have full periodic audits of the Fed. Now if only Harry Reid, the guy who's been asking for an audit of the Fed for 2 decades, and now surprisingly refuses to allow the bill on the Senate floor, would finally allow it.

warmfuzzykitten 14y ago

It's a classic power vacuum. Congress has proven unable to deal with banking issues, partly because it is deadlocked politically and partly because of the golden handcuffs of Wall Street political contributions. The speculation and lack of oversight that led to the crash in 2008 continue unabated. The charter of the Fed is to maximize employment, minimize inflation and keep interest rates steady. The classical tool of the Fed is controlling the supply of money; simplistically, expanding the money supply through reduced interest rates and direct loans to stimulate the economy (and employment) and shrinking it when the resulting boom begins to cause inflation. But since 2008 the economy has not reacted to reduced interest rates and banks that are loan recipients have been reluctant to increase the availability of loans to the real economy, the part that produces goods and services, but eager to use the money to (further) speculate in financial instruments. Thus, the money supply is not reaching its intended targets and has little effect on real GDP or employment. In the absence of effective fiscal regulation from the Congress or executive with which it might work in concert, the Fed has sought to exercise more direct control of the banks. The alternative is to be powerless to carry out their mandate and join the legion of neutered financial regulators, who cross their fingers and hope against reason or precedent that the banks won't screw up again.