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Minyan Mailbag: Is the Fed Doing Too Much?

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Our forefathers warned about giving government the ability to print money...

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Prof. Succo,

"In sum, achieving price stability is not only important in itself; it is also central to attaining the Federal Reserve's other mandated objectives of maximum sustainable employment and moderate long-term interest rates."

Is "maximum sustainable employment" really one of the Fed's mandates, or is that something the Greenspan Fed started? As I recall, the Fed was chartered to provide liquidity for the needs of business and regulate the currency, not to delve into every facet of the economy. Although it's not explicitly stated in this morning's text, it sounds like Bernanke actually wants to set GDP growth, inflation rates, long-term interest rates, the unemployment rate, the severity of a housing correction, and who knows what else. What's next, the quantity of toothpaste on supermarket shelves? Doesn't sound that different from the old
Soviet Union to me.

Minyan Conor

MC,

Mandate, Shmandate.

Let's see where we are. It is now known that central banks around the world are the largest buyers of mortgages. This illustrates the willingness by central banks to monetize asset prices (print money to buy risky assets). This is far from mandate: it now borders on the socialization of markets. Where does it stop? Do central banks buy houses and cars and stocks with printed money? I am afraid that it is beginning to look like that.

The Fed's members have written 14 papers over the last few years describing unorthodox methods to force consumers to accept the credit that they offer (continuation of the credit expansion is essential now to economies). The least drastic is buying risky assets as described above. The most drastic of these ideas is negative interest rates: penalize savers for not spending money by making any saver who holds cash required to pay interest instead of receive it.

Our forefathers warned about giving government the ability to print money (no control or restraint on credit). They understood that giving this power to the government is the ultimate power and that it would eventually end in tyranny: massive control over the populace by a few in the government. It saps the will from the populace to produce (look what happened to the Soviet Union and communism): if the government owns everything, than why work?

We are witnessing an economic revolution right before our eyes and no one is saying anything about it.

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