1) We need to seriously evaluate the Fed’s monetary policy powers. Since Greenspan, the Fed has grossly mismanaged monetary policy and allowed bubble after bubble to take hold. Proof is pretty simple: the monetary base has expanded at an exponential rate and the Fed has kept interest rates too low, far too often. The result has been tremendous inflation eroding America’s middle class and frequent bubbles. The Fed’s mandate has been to keep prices stable and unemployment low… how have they done in this? Their over-management of the economy has been detrimental in every way. Instead, the Fed should be keeping the monetary base stable and defending the middle class. They have failed and this need to be corrected. Continuing secrecy achieves exactly the opposite and encourages the behavior we’ve seen at the Fed over the last 18 months.

2) Nobody ever seems to questions this… but why does the Fed need to manage interest rates? In a market based economy, interest rates should be the byproduct of supply and demand. Just as the Fed doesn’t know the market price of televisions, cotton shirts, or aluminum, they are simply guessing what the interest rates should be. This is clearly illustrated by the instability of these rates over the last twenty years. If you left it to the market, you’d have a stable supply of money, stable inflation, stable interest rates, and a stable economy. Leave it to the Fed and you have Greenspan botching interest rates to create a massive housing bubble. Today, we have banks borrowing money for free and investing them in risky assets only to be backstopped by more free money. We also have a dollar being absolutely destroyed.

3) You also have a Fed drawing completely incorrect solutions about the Great Depression and combating deflation. They believe the Depression could have been avoided with more aggressive monetary behavior. This is absolutely not true and proven by Japan’s response to their own credit bubble responses. Japan’s approach was proven incorrect and every Fed program has been a dismal failure yet they continue with this same approach. The public has a right to understand their programs and evaluate their effectiveness.

4) The Fed is already far from independent. They are printing money to recapitalize banks in partnership with the Treasury’s policies. They are using this additional money to fund the government’s deficits and monetize our debt. The Fed’s monetary policy is far from independent and almost certainly doesn’t have the average American’s best interest at heart.

5) Even if an audit opened the door to more intervention, I think the most important thing is to get an accurate picture of what is going on at the Fed. Our Constitution gives Congress the power of appropriation, not a central bank monopoly. The Fed has become as powerful as any branch of government and has absolutely no oversight. This is why they are able to expand their balance sheet to a major fraction of our GDP and we have no idea where the money is going or what the results of these actions are.

I wrote on this topic in a little more detail in the following post:

http://www.muwabi.com/blog/?p=509

Drew