This is the 10 minute version of my longer post on central bank independence, for the Peterson Institute Conference on Central Bank Independence Oct 31
Seems convincing to me. I'm not an expert on monetary policy and its implications, but I've been appalled by the Fed's recent willingness to underwrite seemingly unlimited private-sector risk and public-sector profligacy. A reckoning must come, and the sooner the better.
Most of the inflation in 2021/22 was due to Trump’s recklessness with PPP along with Zoom class excess savings and supply chain disruptions. And then obviously on the energy side we had unprecedented weather events in TX/Louisiana beginning in August 2020 that disrupted energy supply and then Putin invaded Ukraine which spiked energy prices again. And because America is by far the biggest energy producer spikes in energy prices are no longer an economic negative like 2005-2008.
No, the Fed not accounting for $250 billion in fraud was the problem. And the fraud was venture capital for criminal organizations and so it spiked violent crime and fentanyl ODs. But should the Fed put brakes on an economy and just allow criminals to get even more bang for their buck and buy more guns??? So we had street gun price inflation because the thugs were so flush with cash and that led to much of the auto break ins because law abiding citizens keep guns in glove compartments of trucks. What a nightmare that Biden had to deal with and he did a very good job because he didn’t overreact because he had experienced other crime spikes and OD spikes.
$250 billion in fraud is far too low a number, but it was government itself, not your imaginary "venture capital for criminal organizations". The abominable waste by Democrats and Senile Joe was into the TRILLIONS.
It was also Biden who opened the border and allowed unfettered drug flow into the USA.
Biden created the nightmare. He did not do a "very good job" at anything, other than crippling the USA: no borders; worst inflation since Carter; importing oil from Russia, Iran, and Venezuela, giving all three much-needed hard currency; non-existent job "growth", with the Household Survey showing effective zero additional people employed; a rabid EPA that made up whatever false "threat" scenario it wanted; and on and on.
Trump was president in 2020 and he didn’t want oversight for PPP because he wanted to get the money out fast to juice the economy for his reelection. Trump created the inflation and the 2020 dumpster fire and Biden did a great job cleaning up the mess.
Useful reading! You mentioned that "An independent Fed, with a clear and limited mandate, has additional benefits. ...". My understanding are that those benefits are in terms of providing incentives for both the Fed and congress to draw a sharp line separating their responsibilities and policy-making abilities. Meanwhile, I find it interesting that this incentive is based on the plausibility for the two institutions to use each other as a "scapegoat" as in the scenarios you descrbed.
Quick fix: drop the second half of the dual mandate. Fed has no tools to spur employment: efforts using monetary policy in an attempt to do so only incur inflation. Congress tried to waive its responsibility to stabilize GDP growth; it must take that job back and leave the Fed to stabilize prices and the banking system.
Considering the extrodinary incompetence of US fiscal (and fiscal drunkeness is the real culprit) and monetary policy it's amazing that America retains the privilege of being the international reserve currency.
When that privilege inevitably vanishes, and it will unless salutary moves are made now, it will be whole new game.
Why did you agree with Larry Summers at the conference on Halloween that central bank independence isn't one of the top 100 problems in the US when inflation partly from central bank policy isn't a monster regressive tax on the poor and middle class? Isn't this the argument for narrow bank thoery? The Fed has consistently shown to ignore their mandates in favor of financing defecit spending. Love the Goodfellows, btw!
Perfectly irrelevant nonsense. Democrats controlled both chambers and, therefore, the budget. Democrats wrote PPP plus the $600 weekly BONUS for people not working. Trump opposed that, but corrupt Dems would not negotiate - exactly the same as the current shutdown.
The shutdown was supposed to be two WEEKS to "flatten the curve". It was Democrats who kept extending that to damage the economy before the 2020 election.
Inflation didn't hit until Biden was in office. The profligacy of Covid was extended for several years for no reason whatsoever, and that remains part of the current shutdown: corrupt, reckless Democrat subsidies for the failed atrocity of Obamadoesntcare.
There is not a single Biden policy that was beneficial to the USA and its citizens. Zero. None.
Trump was the executive in 2020 and he wanted as many dollars in the hands of as many people to get the economy righted for his reelection. So Trump was the individual tasked with oversight of PPP and he simply neglected his responsibilities because he wanted to win reelection.
We had deflation in 2020 under Trump which is worse than inflation and so Powell obviously was focused on preventing deflation…but the inflation turned out to be transitory and so it looks like he did a pretty good job unlike Bernanke who allowed inflation to get out of control in 2005-08 and it contributed to the Global Financial Crisis. Did you vote for Obama in 2008 after Republicans oversaw 5.6% CPI??
Btw, Obama didn’t have inflation and did a great job on the border but you didn’t vote for him…so you are just being manipulated by the right wing echo chamber…you suffer from what call—Democrat Derangement Syndrome and it’s why you were a huge fan of Dick Cheney until he endorsed a Democrat.
This is a powerful and provocative piece. Over the past two decades, the Fed’s role has grown far beyond interest rate setting. It’s moved into fiscal territory, market management and even social policy. I don’t blame it for doing this. Much of it followed from circumstances, especially after the financial crisis in 2008.
However, it’s hard to reconcile that expansion with democratic accountability. The idea of “shrinking to save independence” makes sense and would also make the Fed far more nimble and decisive in its policy setting. This is exactly the kind of Fed we need, especially in a crisis.
The more functions the Fed takes on, the harder it becomes to justify insulation from elected oversight. It also invites political interference if its activities seem ideological or idealistic.
Clarifying the mandate around price stability, tightening the toolkit and redrawing the line between monetary and fiscal policy could help restore credibility after recent mistakes. I also think price stability should be the core mandate rather than blending it with employment goals.
It’s not about attacking the Fed’s integrity, but about recognising that institutions drift over time. Independence should be earned through focus, not defended as a right in itself. I really appreciate this piece. I wish more economists would be bold enough to say what needs to be said. If we don’t take this seriously, the Fed will lose its independence and, ultimately, its effectiveness at managing monetary policy.
Could you "end the Fed" and let the treasury markets dictate interest rate policy? Would it be a decent idea to "audit the Fed" as people like Rand Paul want? (Not my position but asking the question)
Seems convincing to me. I'm not an expert on monetary policy and its implications, but I've been appalled by the Fed's recent willingness to underwrite seemingly unlimited private-sector risk and public-sector profligacy. A reckoning must come, and the sooner the better.
Most of the inflation in 2021/22 was due to Trump’s recklessness with PPP along with Zoom class excess savings and supply chain disruptions. And then obviously on the energy side we had unprecedented weather events in TX/Louisiana beginning in August 2020 that disrupted energy supply and then Putin invaded Ukraine which spiked energy prices again. And because America is by far the biggest energy producer spikes in energy prices are no longer an economic negative like 2005-2008.
No, it was not Trump but the Fed in 2020, expanding the money supply recklessly in the face of a weaker economy.
No, the Fed not accounting for $250 billion in fraud was the problem. And the fraud was venture capital for criminal organizations and so it spiked violent crime and fentanyl ODs. But should the Fed put brakes on an economy and just allow criminals to get even more bang for their buck and buy more guns??? So we had street gun price inflation because the thugs were so flush with cash and that led to much of the auto break ins because law abiding citizens keep guns in glove compartments of trucks. What a nightmare that Biden had to deal with and he did a very good job because he didn’t overreact because he had experienced other crime spikes and OD spikes.
You can't possible be serious.
$250 billion in fraud is far too low a number, but it was government itself, not your imaginary "venture capital for criminal organizations". The abominable waste by Democrats and Senile Joe was into the TRILLIONS.
It was also Biden who opened the border and allowed unfettered drug flow into the USA.
Biden created the nightmare. He did not do a "very good job" at anything, other than crippling the USA: no borders; worst inflation since Carter; importing oil from Russia, Iran, and Venezuela, giving all three much-needed hard currency; non-existent job "growth", with the Household Survey showing effective zero additional people employed; a rabid EPA that made up whatever false "threat" scenario it wanted; and on and on.
Trump was president in 2020 and he didn’t want oversight for PPP because he wanted to get the money out fast to juice the economy for his reelection. Trump created the inflation and the 2020 dumpster fire and Biden did a great job cleaning up the mess.
Absolutely and totally FALSE.
Typical leftist who cannot deal with reality.
Trump was president in 2020!! You are the one that can’t deal with reality!! 😆
Useful reading! You mentioned that "An independent Fed, with a clear and limited mandate, has additional benefits. ...". My understanding are that those benefits are in terms of providing incentives for both the Fed and congress to draw a sharp line separating their responsibilities and policy-making abilities. Meanwhile, I find it interesting that this incentive is based on the plausibility for the two institutions to use each other as a "scapegoat" as in the scenarios you descrbed.
Quick fix: drop the second half of the dual mandate. Fed has no tools to spur employment: efforts using monetary policy in an attempt to do so only incur inflation. Congress tried to waive its responsibility to stabilize GDP growth; it must take that job back and leave the Fed to stabilize prices and the banking system.
Agree, been my very long time belief.
Overall well stated post, talk.
Considering the extrodinary incompetence of US fiscal (and fiscal drunkeness is the real culprit) and monetary policy it's amazing that America retains the privilege of being the international reserve currency.
When that privilege inevitably vanishes, and it will unless salutary moves are made now, it will be whole new game.
Why did you agree with Larry Summers at the conference on Halloween that central bank independence isn't one of the top 100 problems in the US when inflation partly from central bank policy isn't a monster regressive tax on the poor and middle class? Isn't this the argument for narrow bank thoery? The Fed has consistently shown to ignore their mandates in favor of financing defecit spending. Love the Goodfellows, btw!
Perfectly irrelevant nonsense. Democrats controlled both chambers and, therefore, the budget. Democrats wrote PPP plus the $600 weekly BONUS for people not working. Trump opposed that, but corrupt Dems would not negotiate - exactly the same as the current shutdown.
The shutdown was supposed to be two WEEKS to "flatten the curve". It was Democrats who kept extending that to damage the economy before the 2020 election.
Inflation didn't hit until Biden was in office. The profligacy of Covid was extended for several years for no reason whatsoever, and that remains part of the current shutdown: corrupt, reckless Democrat subsidies for the failed atrocity of Obamadoesntcare.
There is not a single Biden policy that was beneficial to the USA and its citizens. Zero. None.
Trump was the executive in 2020 and he wanted as many dollars in the hands of as many people to get the economy righted for his reelection. So Trump was the individual tasked with oversight of PPP and he simply neglected his responsibilities because he wanted to win reelection.
We had deflation in 2020 under Trump which is worse than inflation and so Powell obviously was focused on preventing deflation…but the inflation turned out to be transitory and so it looks like he did a pretty good job unlike Bernanke who allowed inflation to get out of control in 2005-08 and it contributed to the Global Financial Crisis. Did you vote for Obama in 2008 after Republicans oversaw 5.6% CPI??
Btw, Obama didn’t have inflation and did a great job on the border but you didn’t vote for him…so you are just being manipulated by the right wing echo chamber…you suffer from what call—Democrat Derangement Syndrome and it’s why you were a huge fan of Dick Cheney until he endorsed a Democrat.
The more you write, the more you prove that you are incapable of an intelligent or truthful comment.
Stop wasting my time with your outrageous fantasies.
This is a powerful and provocative piece. Over the past two decades, the Fed’s role has grown far beyond interest rate setting. It’s moved into fiscal territory, market management and even social policy. I don’t blame it for doing this. Much of it followed from circumstances, especially after the financial crisis in 2008.
However, it’s hard to reconcile that expansion with democratic accountability. The idea of “shrinking to save independence” makes sense and would also make the Fed far more nimble and decisive in its policy setting. This is exactly the kind of Fed we need, especially in a crisis.
The more functions the Fed takes on, the harder it becomes to justify insulation from elected oversight. It also invites political interference if its activities seem ideological or idealistic.
Clarifying the mandate around price stability, tightening the toolkit and redrawing the line between monetary and fiscal policy could help restore credibility after recent mistakes. I also think price stability should be the core mandate rather than blending it with employment goals.
It’s not about attacking the Fed’s integrity, but about recognising that institutions drift over time. Independence should be earned through focus, not defended as a right in itself. I really appreciate this piece. I wish more economists would be bold enough to say what needs to be said. If we don’t take this seriously, the Fed will lose its independence and, ultimately, its effectiveness at managing monetary policy.
Could you "end the Fed" and let the treasury markets dictate interest rate policy? Would it be a decent idea to "audit the Fed" as people like Rand Paul want? (Not my position but asking the question)