The Federal Reserve is starting to feel some heat from both the right and the left about how secret its activities deserve to be from American taxpayers. The fact that next year is a presidential election year and the heat is being brought by two candidates for the Oval Office may mean that the pressure may amount to something this time.
On January 28 Sen. Rand Paul, R-KY, reintroduced his "Audit the Fed" bill that would subject the Fed's monetary policy discussions and decisions to audits by the Government Accountability Office (GAO).
"This secretive government-run bureaucracy promotes policies that have impacted the lives of all Americans," Paul said. "Citizens have the right to know why the Fed's policies have resulted in a stagnant economy and record numbers of people dropping out of the workforce."
Previous versions of Paul's bill – originally sponsored by his father, former presidential hopeful Ron Paul, and others – have gotten nowhere, largely because Democrats controlled the Senate. Now, of course, that body is now controlled by the Republicans. Paul got 30 co-sponsors to his bill. Continue reading "Needed: More Transparency at the Fed"→
The Fed's capabilities to engineer changes in economic growth and inflation are asymmetric. It has been historically documented that central bank tools are well suited to fight excess demand and rampant inflation; the Fed showed great resolve in containing the fast price increases in the aftermath of World Wars I and II and the Korean War. In the late 1970s and early 1980s, rampant inflation was again brought under control by a determined and persistent Federal Reserve.
However, when an economy is excessively over-indebted and disinflationary factors force central banks to cut overnight interest rates to as close to zero as possible, central bank policy is powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere), and from 1989 to the present in Japan, are clear examples of the impotence of central bank policy actions during periods of over-indebtedness.