Alex’s Notes: The term “slippery slope” has been used quite a bit when it comes to analyst commentary on what the Federal Reserve (which by the way isn’t a government institution, contrary to what many believe) has been up to lately.
A little freedom here, a little sovereignty there, and before you know it, a person might just wake up to find them self enslaved.
I am reminded of a few comments by Thomas Jefferson:
“I sincerely believe… that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.” ~Letter to John Taylor, 1816
“If the American people ever allow private banks to control issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
~Thomas Jefferson
Fed has abandoned monetary policy
SAN FRANCISCO (Reuters) - The Federal Reserve has embarked on a campaign of unsupervised industrial policy to end the country’s financial crisis, a move that could undermine its independence, a former top U.S. official said on Saturday.
John Taylor, who was under secretary of treasury for international affairs from 2001 to 2005, said the explosive growth of the Fed’s balance sheet since September was “unbelievable.”
“This doesn’t really seem like quantitative easing in the sense of finding a growth rate in the money supply,” he told a panel discussion during the annual meeting of the American Economics Association.
“What you are looking at now is really being determined by other considerations. How much should we buy of mortgage-backed securities? How much should we loan to foreign central banks? This is really more like an industrial policy,” he said.
The Fed’s balance sheet has more than doubled in size to over $1.2 trillion in recent months as it has tried to shield the U.S. economy from the worst financial crisis since the Great Depression by supporting key credit markets.
This has included direct purchases of mortgage-backed bonds by the Fed and support for top-rated non-financial borrowers in the crucial commercial paper market, as well as hundreds of billions of dollars lent to banks on the basis of collateral.
“If you have a situation where the Fed is borrowing to invest in all these sectors it seems to me you have a huge governance issue…that demands a lot of thought,” Taylor said.
Taylor said the U.S. Congress has a legitimate right to demand a say in who the Fed lends money to. The outcome would be “radical reform” that would risk monetary policy independence, he said.
This concern was echoed somewhat by the president of the St Louis Federal Reserve Bank, James Bullard, who also took part in the panel discussion. He said the close collaboration between the Fed and U.S. Treasury in fighting the crisis could have unintended consequences.
“We are blurring the institutional arrangements a little,” Bullard said. “I am concerned about independence. Fed independence is very important,” he told reporters.
(Reporting by Alister Bull, editing by Leslie Adler)
Original Article: http://uk.reuters.com/article/companyNewsMolt/idUKTRE50306H20090104?sp=true
