Paulson To Urge New Fed Powers
By Neil Irwin
Thursday, June 19, 2008; D01
Treasury Secretary Henry M. Paulson Jr. plans to call today for the Federal Reserve to be given new, explicit powers to intervene in the workings of Wall Street firms to protect the financial system, adapting his vision of how the financial world should be regulated to reflect the lessons of the collapse of Bear Stearns.
"Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk," Paulson plans to say in a speech today, according to prepared remarks obtained by The Washington Post. But the central bank "has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system."
"We should quickly consider how to appropriately give the Fed the authority to access necessary information from highly complex financial institutions and the responsibility to intervene in order to protect the system," Paulson plans to say, "so they can carry out the role our nation has come to expect."This is absolutely ridiculous. The idea that lack of regulation is what caused the Bear Stearns situation is simply wrong. On top of this, how in the world is a central bank that is already wildly out of control supposed to "intervene" further into Wall Street in what is supposed to be a free economy? Just the idea that the Fed knows what's best for the economy is enough to show that this is complete nonsense. Why people don't notice what the Fed has done over the past century is beyond me. The Fed has created numerous bubbles through artificially low interest rates and has tried to keep those bubbles from popping by once again lowering interest rates (the situation that we have today with the subprime mess).
I'm not saying that I know the solution to the monetary problem that we face today, but I am certain that more regulation and interventionism would only feed the problem and make it much worse over the long run. I lean to a gold standard or a commodity-backed currency as the main solution, as people here no doubt have gathered. What's clear is that through history fiat monetary systems have inevitably failed. Throughout the 1800's in the U.S. prices actually decreased while economic productivity increased. This occurred until the Civil War era, when a paper money system was adopted to pay off the massive debts created by the war, which led to massive inflation and became very unpopular and was eventually abandoned. Not long thereafter price and wage controls came into play, the Federal Reserve was created in 1913, and later in 1971 what remnants of the gold standard remained were taken out play.
By now it should be clear that a huge central bank has not been beneficial to the economy, nor has a fiat monetary system. While this may seem like more of a political than economic discussion to some, it is actually a vital discussion as far as the economy goes. The Federal Reserve has huge control over the economy and Mr. Paulson is only trying to expand that control. I find this greatly concerning and am curious to hear other opinions on this.
Tags:
federal reserve, fiat money, henry paulson, inflation, interest rates, monetary policy
Posted at: 06:50 PM | Add Comment
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