Wikinvest Wire

Economists say "Lay off the Fed"

Thursday, July 16, 2009

What's funny about this WSJ report($) telling of the 250+ economists who signed a petition urging Congress to stop meddling in the affairs of the central bank? They all sound a little bit like former Fed chief Alan Greenspan - as if they were just casual observers, innocent bystanders as another enormous asset bubble inflated right under their noses and then burst.

"The interactions with Congress are becoming increasingly hostile," said Anil Kashyap, a University of Chicago finance economist who was among the initiators of the 185-word petition. "Competent monetary policy needs to be forward looking. So at some point the Fed is going to have to act to tighten policy before the economy is booming. If that gets stopped for political reasons it would be a disaster, and just the perception that it might be stopped could be costly."

Arguing that the independence of the central bank is "essential for controlling inflation," the petition urges Congress not to meddle when the Fed decides to raise short-term interest rates or reverse its purchases of Treasury debt and mortgage-backed securities, which will tend to push up longer-term interest rates.

"When the Federal Reserve judges it's time to begin tightening monetary conditions, it must be allowed to do so without interference," the economists said.
Ummm... "Competent monetary policy" and "would be a disaster"? What we've been through over the last two years or so has been an unmitigated disaster. Even if Congress did wrest complete control of monetary policy from the central bank, how could they possibly do any worse than the Fed did the last time around?


Anonymous said...

Tim, you miss the point. Asset bubbles don't matter. They kept inflation and unemployment low, so they did their job. End of story (at least in the minds of most economist). Kind of like, "The operation was a success, but the patient died".

Tim said...

Thanks - that made me laugh...

SD Scientist said...

We went through one the biggest asset bubble collapses in the history and we survived. And, thanks to the Fed, things are much better now than they could've been.

Maybe the bubble could've been prevented by Greenspan in 2003 ... though that is debatable - uncontrolled and unregulated lending would've wreaked havoc in the housing market anyway. But the response of the last two years was absolutely correct and it shouldn't be slighted.

Anonymous said...

Will the FED listen to Shiller, and control the money supply/interest rates at the level it should be controlled? Or will the FED give us another Greenspan like Bubble Economy.

These "Economists", from what side of the political spectrum do they speak, and where would Congress push the Fed.

The Fed has the ability using Shiller's formula to control the money supply successfully. But, will the Fed do it? I don't trust the Fed, and now I trust Congress more, but, some apparently trust the Fed, with it's broken record, more then congress.

Let's just pass a law, the Fed can follow Shiller's formula, but will need permission from Congress and a good reason, to break it. The Fed and Congress need Oversight.

AJ said...

Those with a proper understanding of Keynesian economics (i.e. government application of counter-cyclical pressures) would suggest raising taxes when the economy starts to get "hot". This would be a great way to suck money out of the system and pay down the debt.

Shalom P. Hamou said...

Read the Tract: "Plea for a New World Economic Order.", which explains the nature and causes of economic depressions and proposes a plausible alternative solution.

Anonymous said...

The real disaster is the excessive loosening of monetary policy carried out under the federal reserve. Citizens have lost purchasing power to inflation for way too long. It is time to end the federal reserve, and end inflation forever.

Enough with those incompetent mainline economists destroying the standard of living with their hair brained inflation theories.

  © Blogger template Newspaper by 2008

Back to TOP