Thursday, June 18, 2009

Some pushback against giving the Fed more power

It's interesting to see that Obama is getting some pushback from Congress on the proposal, as part of the massive financial reregulation proposal, to give the Federal Reserve more power and authority by making it the guardian against "systemic" risk. The WaPo subhead says congresscritters are irked that the Fed didn't do enough to avert the crisis. Didn't do enough to avert? The Fed was a huge cause of the crisis with its loose-money policy after 9/11 and afterward. John Taylor even makes the case that Fed policy was the prime cause, and Tom Woods assigns it a huge share of the blame -- along with other government policies and practices, like pushing banks into giving mortgages to people who were obviously unqualified.

But the Obama proposal is fairly typical of government, where nothing succeeds like failure. Has a government agency with a mission made a little progress toward fulfilling it? Give it more money and power as a reward and incentive to finish the job (sometime in the next milennium). Has it failed utterly? Obviously it needs more money and power (see war on drugs). Of the two rationales, failure is the more effective and the more often used.

In a sane world the Fed would be seen as an inherently destabilizing institution with a buiilt-in bias for creating inflation (when I was in high school a candy bar that costs 75 cents now was a nickel) and abolished forthwith. In Washingtonworld is creates a crisis and is rewarded with more power, the true currency in the Imperial City.

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