About 100 years ago,
President Woodrow Wilson asked Congress to create the Federal Reserve System,
which set off a fierce debate. Critics predicted that the Federal Reserve would
become an economic dictator - an “invisible government by the money power.”
At
the last Fed news conference, chairman Bernanke spoke of his timetable for
scaling down quantitative easing “If things are worse, we will do more,” he
said of the nation’s economy. “If things are better, we will do less.” Talk about decisiveness!
The debate about the role of a central bank in the U.S. has been
raging since the founding of the country – and even today the Tea Party seeks to eliminate
the Federal Reserve.
Is the Federal Reserve too strong? Is it now the all-powerful
central authority that Americans feared it would become? Is it independent of
the “money trust” it was created to tame?
These questions – and others - are being debated in op-ed pieces
and faculty lounges across the country. I'm weighing in as well.
Like a trainer teaching a puppy, the Fed should
follow through on its orders and remain in charge – not succumb the wishes of markets.
Certainly during the financial crisis, the Federal Reserve had to step in and
restore order – I think they saved the day.
Since then, the super low interest rates
and easy money drove investor funds into risky assets and sent prices higher, restoring
bank and investment company balance sheets. Unfortunately the policy did not directly benefit the lives of the working class or seniors – as credit dried
up and savings rates dropped to near zero. The bad actors got bailed out.
