What? A petition FOR Fed independence??? Who could possibly endorse a petition that aims to continue with such harmful monetary policies? Well, apparently the culprits come from some of our most ‘prestigious’ universities including Harvard, Standford, Columbia, and many more. If you’re planning on attending the University of Chicago Booth School of Business, then you may want to reconsider because this particular institution has 17 signees and is responsible for initiating this nonsense.
The petition is an open letter to Congress and President Obama that covers “three specific risks that must be contained.”
First, central bank independence has been shown to be essential for controlling inflation. Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation. When the Federal Reserve judges it time to begin tightening monetary conditions, it must be allowed to do so without interference. Second, lender of last resort decisions should not be politicized.
Finally, calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery. The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process. Frequent communication with the public and testimony before Congress ensure Fed accountability.
1) Their first point is complete nonsense. The Federal Reserve is responsible for inflation (along with fractional reserve banking, but I digress…). I take it these ‘economists’ mean the Fed is supposed to control rising prices. Well, considering the dollar is worth 95% less now than when the Fed was established, I’d say they have failed miserably. When a currency loses its value, prices go up.
2) Lender of last resort decisions should not exist, period. The last resort for a company/bank/organization is closing its doors, not stealing money from United States’ citizens.
3) Raising inflation expectations? They’ve created so much money (inflation) during the past year that rising prices are a given. They’re coming whether these economists like it or not. Furthermore, borrowing costs need to rise. The Fed is practically giving money away right now. You can not create wealth with a printing press. If you could, every country would be rich. Wealth comes from savings. No amount of economic voodoo/magic in the form of monetary manipulation changes that fact. Is it not the Fed’s legal mandate to achieve price stability and full employment? Considering the devaluing dollar leading to rising prices and the economic contractions we’ve experienced leading to high unemployment, I’d say the Fed has failed their mandate. As far as the Fed testifying before Congress to ensure accountability, well that is laughable. The Fed refuses to answer questions, and recently, Representative Alan Grayson questioned the Fed’s Inspector General, who apparently had no clue about the Fed’s recent transactions. So much for accountability.
I say we audit the Fed.
Update:
For fun, here is a chart of the True Money Supply (TMS) provided by the Ludwig von Mises Institute:
Update II:
Robert Higgs – Economists’ Pre-Fed Petition Discredits Its Signers
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