Whether to Tether the Fed

The Federal Reserve, our country's central bank,
has always been an independent entity, vis-a-vis
the elected branches of government, as well
as the unelected judiciary branch. Some think a
little too independent, and with good reason.

The Fed was granted a great degree of independence
as they are, among other things, given charge of the
printing of our money and the regulation of the its
flow, and the authority to set monetary policy.
Over time its regulatory powers have expanded,
and as they have the force of law, there should be
bipartisan oversight, not to tell the Fed each and
every step of its work but to ensure accountability
and transparency. With such a degree of both
independence and power there must, after all, be
at least some rules to follow and somebody to
cast a sharp eye to see that all is above board.

The Fed was established in 1913, when the U.S.
was still on the gold standard. Because we were
on the standard, the Fed had limited control of
the aggregate money supply, but when the U.S.
effectively ended its adherence to the gold standard
twenty years later the Fed's control correspondingly
increased. Congress then removed the Secretary of
the Treasury and the Comptroller of the Currency
from the Federal Reserve Board in 1935, so as to
curb the Fed's new additional power.

Fast forward to the present, where massive quantitative
easing (a euphemism for running the printing presses
full blast) has led the Fed to purchase debt on a massive
scale, more than at any previous time. Since the fall of
2009, when what is laughingly termed the recovery from
the housing bubble-instigated recession that our country
became ensnared in, the Fed bought $1.7 trillion of
Treasurys and $1 trillion of mortgage-backed securities,
directly and indirectly funding over 55% of federal
debt issued during this period. This policy enabled the
existing federal debt to double, while the cost to the
Treasury of servicing the debt has fallen (?!), lowering
the federal deficit by approximately half a trillion dollars
in 2010. And consider this, folks, because this is key:
every present member of the Fed's Board of Governors
was appointed by President Obama.

Now, this was never supposed to happen; each and every
governor on the Fed's board being placed there by one
president. But while the Federal Reserve Act stipulates
single terms of fourteen years for the governors, some of
the most recent governors have chosen to not serve all of
their appointed terms, thus opening the opportunity for
Obama to appoint governors who are politically copacetic
with His Nibs. So much for the supposed independence
and nonpartisanship of the board.

A possible solution would be to make a law that no more
than four of the seven members can be from a single
political party. This would certainly cut down on any
backroom political shenanigans between an incumbent
president and the governors that he would appoint, so
that the "fix" would not be in, so to speak. The Fed's
regulatory powers have grown over the past eighty years,
and with the 2010 Dodd-Frank Act, the Fed has become
the most powerful regulatory agency in the country,
dictating business practices, regulating as it goes, and
wields wide and unaccountable powers that could make
or break any bank, investment firm, accounting house,
mortgage company, or any other financial institution in
the U.S. More reforms would need to be implemented as
well to ensure that the Fed will, while exercising their
broad powers, still have to answer for its actions if it
goes at all beyond reasonable boundaries.

Bottom line: the Fed's status as the biggest regulator in
the land, coupled with minimal accountability, makes it
incompatible with our system of checks and balances
between our branches of government, in effect becoming
a branch of government unto itself as well as a danger
to our economic freedom. It's time to call the Fed to
account!


MEM