The Fed is the Central Bank, and President Obama Should Treat It That Way

By Dan Kervick

President Obama will soon name a successor to Ben Bernanke for the position of Chair of the Federal Reserve’s Board of Governors, and Brad Delong recently offered his views on what qualifies someone as a strong candidate for that position:

To be good choices for Federal Reserve chair, candidates must pass three tests. They must have experience at a similar job: this is not something to throw somebody into and expect them to swim. They must fear high inflation as they fear a tornado, and feel in their bones the pain of the unemployed. And they must understand and properly weight the different models of how the economy might behave. Right now, this third means that a good Federal Reserve chair must give a relatively high weight to the Keynesian model, which has been so successful at describing and forecasting the economy over the last six years.

DeLong then goes on to argue that this proposed collection of qualifications narrows down the candidate list significantly:

Janet Yellen has a proven record of being able to build consensus inside the Fed. Larry Summers is the least likely to bind himself to an institutional consensus past its sell-by date. Only five potential candidates pass this threefold test: Larry Summers, Janet Yellen, Christy Romer, Alan Blinder and Laura Tyson. They are all, in my view, superior by far to others whose names have been mentioned.

And DeLong then opts gingerly for Summers, his former boss and a man with whom he has co-authored several papers in the past.  But DeLong’s analysis leaves out what to my mind should be the most important factor among the qualifications for the Fed Chair position: central bank experience.

Let’s start with a simple question: What is the Fed anyway?   The short answer is that the Federal Reserve is the central bank of the United States.  But what does that mean?

In the US we have a highly integrated, hierarchical and centralized banking system.   People and businesses – including some state-chartered banks that are not themselves Fed member banks – hold their deposits at the Fed member banks.   Those Fed member banks in turn hold their deposits at the twelve regional Federal Reserve banks.  And those regional banks are governed by the Board of Governors, which develops and implements the regulations governing the entire system, as well as deciding on certain aspects of monetary policy that lie under its control.  The regional banks also elect some of their Presidents to sit on the Fed’s Open Market Committee, a twelve-person body that formulates and implements much of Fed monetary policy, but is itself dominated by the seven members of Board of Governors who are automatically members of the committee.

Although the direction of our financial system is increasingly subject to the actions of a “shadow” banking system of financial institutions that are not directly governed by the Fed, the Federal Reserve System still constitutes the most vital part of the financial machinery and infrastructure of our economy.  Among other important aspects of that machinery is the Fedwire payment system which processes trillions of dollars worth of interbank payments each day, either directly or in conjunction with the Clearing House Interbank Payments System (CHIPS) that itself holds a Fed account through which its start-of-day and end-of-day transactions with participating banks are processed.  These payments systems are in effect the financial circulatory system of our economy, and the Fed oversees them to preserve their smooth functioning.

So the Board of Governors, all seven members of which are appointed by the President of the United States, sits at the apex of the nation’s integrated banking structure and governs this vast and economically fundamental system.  When the financial system fails – as it did in 2007 and 2008 – the results can be economically catastrophic, as we all now well know.  So, effective Fed oversight and regulation of our market-based financial system, a system that history shows is perpetually prone to bouts of fragility and crisis, is a governmental chore of the highest possible priority.  The Chair of the Board of Governors is the active executive of the system who directs that board, coordinates its activities and decisions, and communicates those decisions to the public.   The Fed Chair thus occupies a position of immense power and systemic responsibility.

The whole system is a large and complex financial machine, and so the people running it had better know how the machine works at a fairly fine level of detail.  This is the kind of robust and detailed knowledge people generally acquire not simply by thinking, but by long experience in doing.  To my mind, then, the number one qualification for the job of Fed Chief is that the candidate have some high-level hands-on experience in banking and finance, preferably central banking.  (And by hands-on experience, I don’t mean just sitting on the board of a bank, a token sinecure that is bestowed on many well-connected individuals to build alliances and as a reward for services rendered.)  The Fed Chair should also be someone who shows a knack for, and enthusiastic appreciation of, vigorous financial regulation.

By these criteria, Janet Yellen is the only person on DeLong’s list who qualifies since she has been at the central banking game since the mid-90’s, when she was first named to the Board of Governors.  Yellen also served for six years as President of the San Francisco Fed.   She is an established, very experienced and by all accounts highly competent and professional central banker, who has had hands-on, day-to-day responsibility for Fed governance and policy formation during the intense and politically high-pressured recent period of the Great Recession.

The fact that Yellen’s actual experience in the central banking system is not often pointed to as the key qualification distinguishing Yellen from among all of the candidates for succeeding Ben Bernanke has been somewhat mysterious to me, but I think I know part of the solution to the mystery.  There is a distorted view of the Fed that is widely popular in some quarters of the popular press, the blogosphere and among some economists that seems blithely ignorant of the fact that the Fed is primarily a bank: the bank of all banks that backstops, regulates and holds the deposits of its members, while also running the interbank payment systems.   This impoverished popular picture of the Fed leaves out great quantities of important operational facts and constraints, and treats them as though they merely irrelevant details.   For example, pundits frequently ignore the facts that when the Fed issues money to purchase financial assets, those financial assets and their associated cash flows are thus removed from the private economy as a result, and so the total sum of net financial asset value is little affected.  They also ignore the fact that the so-called “reserves” of Fed member banks are mainly just the deposits in these banks’ accounts at the Fed that they are required to hold in order to settle their daily interbank payment obligations via the Fed’s payment system.   There is also widespread ignorance of the fact that, with the exception of small fluctuations in the quantity of physical currency held by banks, bank reserves in the aggregate do not move “out” of the reserve accounts of commercial banks when those banks make loans.  They only move from bank to bank.

An enthusiastic core of Fed fanboys in the punditry seem to view the Fed as some kind of sulking and reticent macroeconomic superhero that inexplicably refuses to use its superpowers to restore demand, production and full employment throughout the land.  This style of discussion, treating the Fed as a nearly omnipotent macroeconomic titan and potential messiah, has undermined political pressure for economic policy action from other directions, and has helped spread an unhealthy press culture of obsessive Fed-watching and neurosis.  The enthusiasts for the superhero picture first promote outlandish obsessions over the Fed’s role, and then recommend policies based on exploiting these obsessions by attempting to behaviorally manage them.  They seem to see the Fed as running a vast game of macroeconomic Simon Says that can coordinate almost every kind of economic behavior and manage demand throughout the economy.  But despite the intensity of these discussions among the zealots, the number of economic agents who are paying very close and minute attention to the Fed and its precise statements is actually relatively small.

The superhero conception of the central bank also tends to ignore the fact that the primary channels through which the Fed does influence broader economic activity – when it can influence that activity – run through the banking and credit system.  Boosters of greater Fed activism seem to think the role of the Fed is to drop money or demand into the “economy” from some serene aerie poised high above it all.   But the Fed interacts with the real economy through the banking sector and through its regulation of the conditions of bank lending.  It doesn’t have helicopters; it doesn’t have ways of reaching out and touching non-financial businesses, households and individuals to turn us into greater “demanders”.  Its statements might have this kind of psychological effect on some participants in the economy, but this is a highly subjective and variable business that depends on that agent’s background understanding of the Fed’s role, and the behavioral impact on these varying understandings can thus cut in several conflicting directions at once.

Now certainly Fed governors should have a great deal of economic knowledge as well as institutional experience, and Yellen has also maintained an ongoing and distinguished academic career while attending to her institutional responsibilities at the Fed.   But the Fed is not really a good place for academic macroeconomists to try out their theories and models in a complex institutional setting in which they have no real experience operating.  That would be like putting a lifetime academic nuclear physicist in charge of a nuclear power plant.  The scientist might be brilliant and the intellectual background is certainly highly relevant to the job, but there is no reason to think the knowledge of pure physics would make a person a competent executor of the very different engineering responsibilities of running a power plant.  Nor, as bright as the scientist might be, could the community that depends of the safe functioning of the plant  afford to wait many months as the new appointee learns all the ropes about how the machinery works.

The Fed Chief does not go to work each day and manipulate the nation’s aggregate demand curve and aggregate supply curves on some godlike control screen.  The Fed is not the all-purpose Department of Macroeconomic Control, and its chair is not the Czar of the Macroeconomy.

Recent commentary on the Fed Chair position has been heavily focused on monetary policy, and the various fads and flights of monetarist fancy that tend to drive discussion of the Fed in the press and academia.   But during the next phase of the Fed’s history, overseeing the regulatory role of the Fed will likely be the most important job for its chief.   Among other things, the Fed will be involved in implementing the modified Basel III capital requirement rules and the provisions of the Dodd-Frank Act.   Many observers think these new rules are too weak to address the fundamental sources of instability in the system.  But as with any system of broad rules, whether they work or not often depends on how aggressively they are implemented.

Consider a story that we all became aware of a couple of weeks ago.  A little noted change in Fed regulations in 2003 has allowed big investment banks like Goldman Sachs and J.P. Morgan to become major players in warehousing physical commodities like aluminum and copper.  So far the actual impact on consumers has been minimal, but it could be very risky if these “systemically important” financial firms eventually become Too Big To Fail in the commodities world, just as they are already in the financial world.  We could be on the way to re-creating the old gilded age system of vertically integrated and oligopolistically coordinated trusts.   Dismantling that system was the chief concern and achievement of the progressive era in US history.  This is the kind of thing that we need the Fed to keep a very close watch on.

And on that score, one final thing needs mentioning: The Fed governorship is not a job for a political crony; it’s not a job for a person with a track record of old boy friendliness to The Street and its taste for reckless, high-rolling and systemically destabilizing money-making; it’s not a job for a regulatory softie who is plugged into the political networks of money guys, boosters and campaign funders, a person who might have trouble saying “no” to insiders and donor cliques who run and prop up political parties.  One hopes that the President has not settled for a shallow partisan diagnosis of the crisis of 2008 and has advisers who actually understand the roots of the crisis lie in three decades of bipartisan zeal for deregulation, desupervision, decriminalization and misguided enthusiasm for the self-sufficiency of markets.  The key economic architects of that failed order should not be rewarded now with the opportunity to put their flawed judgment to work again in a setting where it might prove devastating.

Follow @DanMKervick

36 responses to “The Fed is the Central Bank, and President Obama Should Treat It That Way

  1. “But DeLong’s analysis leaves out what to my mind should be the most important factor among the qualifications for the Fed Chair position: central bank experience.”

    Marginal point, regarding human capital, ex personality: some value in having Treasury experience, and understanding potential strategic and operational co-ordination around that. That may have a bit to do with why Obama likes LS.

    “It doesn’t have helicopters”

    Worth repeating, often and anywhere.

  2. Sunflowerbio

    Janet Yellen certainly is qualified from the perspective of central bank experience. Her view of fiscal policy is less clear, and I don’t know how she wold stand on regulation. I have created a petition urging the president to nominate Bill Black as chairman of the board of governors. The petition is at: http//org.credoaction.com/petitions/nominate-bill-black-as-next-chairman-of-the-federal-reserve

    • Bayard Waterbury

      I would vote a big yes on Bill Black. He certainly has the required experience, a level head, and a view of very stringent regulation. No doubt he would find a way to curtail the trend toward commodity control by member banks, since, in the long run, this will prove to be massively destructive, since their view is only to their bottom lines and not to preserving a strong economy generally. He also would opt to assisting the various concerned regulators in the jobs of reigning in the “bad actors” amongst the member banks. Bill is a personal hero. He won’t be appointed. If not Bill then Yellen. Summers would produce a nightmare in terms of the Feds role if not significantly restrained by the current board. He is not a concensus builder, and puts his ego ahead of all else, always. The Chairmanship would suffer greatly under his guidance.

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  5. It’s not clear to me exactly how the Fed has any significant control over employment or inflation – especially given the rising role of the shadow banking system in providing funding to the economy. Interest rate manipulation seems to have only a limited, secondary effect, and QE.. well, we know how that’s working out.

    • It’s not clear to me either. The people who say the Fed controls the rate of inflation usually say it depends on the Fed’s ability to manage inflation expectations, which in turn influences pricing behavior. So Bernanke announces, “We expect inflation will be 2% this year”. Business executives hear Bernanke and think, “Inflation will be 2% this year”. Their managers come to them and say, “Should we raise the price on widgets?” and the execs say, “Yeah, 2%.”

      Doesn’t seem like a behavioral model that characterizes a lot of people in the economy to me.

      • I think that central bankers really know that they can’t but try to keep up the charade in the hope that mere believe in central banks ability to guide inflation and employment would lead to desired outcomes. What we need is a central bank head who believes in honesty. This confusion over central bank powers is really damaging.

  6. Gerry Spaulding

    E. Gerry Spaulding says:
    Your comment is awaiting moderation.
    August 1, 2013 at 3:37 pm

    While its possible to credit the Bernank for some truly innovative and actually helpful initiatives, facilities and programs post-Criis, the great failure of the Fed over the past decade wad i ts lack of prevention of t he Crisis from happening in the first place.

    That quality of understanding our financial and monetary systems includes, of necessity, the recognition of their weaknesses and susceptibilities, especially to the excesses of private profit and corporate greed.

    The Bernank failed here. And Summers was a major contributing factor to the evolution of the deregulated state of the structure of global finance, and especially the new threats that evolved out of the Harvard Business School.

    Summers’ presence in the discussion reflects his Rubinesque connectedness with Democratic Party politics.

    Bair
    Volcker
    Yellin
    Turner

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  8. For what it is worth I think you are dead on. I feel like that in your last paragraph you said everything but Larry Summer’s name. I would be willing to bet that the reason O ousted BB to start with was that he intended on putting bank friendly Summers in the job. Something I have learned over the years is that if you never expect O to do the right thing then you will not be disappointed.
    Also, jerry above mentioned the shadow banking system and I would like to know more about it. I have read a lot of MMT over the past few years, even Randall Wray’s latest book, but I haven’t read much about the shadow banking system. As I understand it, bank reserves remain in an account at the Fed and aren’t used except for lending. But, recently I have read about how the banks hypothecate those reserves to other banks in order to get cash to speculate in all kinds of markets all over the world. I would like for you to comment on the subject and maybe give me some idea of the how hyphecation works and/or places where I can read about hypothecation and the shadow banking system. It seems that although the reserves may be neutral to the economy the shadow banking system isn’t and the danger in tapering is really in reversing this hypothecation. Is there any merit to that?

  9. Excellent Dan (as usual…)

    I have to say that if it is Summers I would look at that as a substantial setback… his career should have peaked in the late 90’s… now here we are 15 years later and this guy may re-emerge again perhaps for another top job … he’s like a bad penny keeps coming back and won’t just go away… dont these people ever retire?? Play golf? Anything… rsp,

  10. The warehousing of physical commodities by Goldman Sachs and ilk has,according to the article in the NY Times highlighting this practice, cost $10 extra at the gas pump for every fill-up. This is hardly a “minimal” impact, as the article states. However, this does underscore Kervick’s point that regulation issues ail be paramount for the next Fed chief.

  11. “An enthusiastic core of Fed fanboys in the punditry seem to view the Fed as some kind of sulking and reticent macroeconomic superhero that inexplicably refuses to use its superpowers to restore demand, production and full employment throughout the land.”

    This is a straw man argument. Most people seem to agree with Krugman who recently blogged “Yet there are many economists, myself included, who regard this view as highly unrealistic, yet support more aggressive Fed action all the same. Why? First, because it might help and is unlikely to do harm. Second, because the alternative — fiscal policy — may be of proven effectiveness, but is also completely blocked by politics. So the Fed’s efforts are all we have.”

    You are not going to change minds by insulting your fellow liberals. But then again maybe changing minds isn’t your goal. Aggressive Fed action hasn’t been tried. Until it is, your criticisms are based on speculation.

  12. Joe Firestone

    Dan, excellent analysis, very clearly written. An very hard to argue with. Of course, Obama won’t engage in rational argument. He will assess whether he can get his crony Summers through the Senate. If he thinks he can then it will be Summers. If not, then he may go with Yellen or Volcker. I doubt it will be Bair, since she is too independent and probably to favorable to regulation for his taste.

  13. “But the Fed interacts with the real economy through the banking sector and through its regulation of the conditions of bank lending. It doesn’t have helicopters; it doesn’t have ways of reaching out and touching non-financial businesses, households and individuals to turn us into greater “demanders””

    The fed should establish mechanisms in order to reach the broader economy or individuals and affect demand more efficiently. Bypassing the banks when conducting policy would remove the dependance on and dominance of banks lending decicions in the conduct of monetary policy.

    • Well we have a constitution that assigns the power of the purse to the US Congress, a democratically elected body not an appointed committee of banksters. To give the Fed effective control over its own novel forms of fiscal policy would be to cross some sort of Rubicon and help undermine our democrayc even further.

      • Giving monetary policy over to congress would be much better than what we have now. But allowing it to print and then determine how those funds are allocated could facilitate cronyism. Partisan politics could lead to a concentration of power if the executive and legislative arms work in unison. That’s why an independent central bank only dealing directly with the public would be better IMO.

        • Of course it’s true you can get cronyism with Congressional control over monetary policy. You can also get it with Congressional control over tax policy, spending policy and regulatory policy. Democracy is messy. But I don’t think that means we need a monetary daddy who controls the dollar presses.

          • With spending sourced from taxes or borrowing there is a large degree of accountability and transparency in that money has to come out of peoples pockets or be lent to the gov. Regulatory policy can be made much more effective if the lobbying aspect is dealt with.

            Congressional money creation gives more power and responsibility to the Congress. It makes the system more government centric or top down. A greater burden on congress will exist because it has to also determine how to allocate these new funds effectively so it will make the job of governing harder and less effective. That’s assuming the congress has benevolent intentions because if they don’t then they will have greater monetary powers to pursue their aims.

            We could have a central bank independent of other arms of gov in which the governors are directly appointed in public elections. The fed could monitor the economy much as it does now and when the money supply is increased it is transferred directly into the accounts of the public not banks. The CB could simply act as a transfer agent.

            This way powers at the top (tax, regulation, spending) are more balanced with powers below (people directly receiving newly created money). Also a system where people participate more directly will make people more educated in economics and will instill more credibility in institutions which is vital for a healthy economy. A more educated public will work against apathy and ignorance and help create a more positive society and keep the system from going into decline.

            • Well, nothing could be more top-down that unelected committees of central bankers making the key decisions on monetary policy.

              An elected central bank is an interesting idea.

              • Sunflowerbio

                How would an elected central bank board making monetary policy be any different than an elected Congressional committee making monetary policy? Congressional committees are bi-partisan and elected every two (or six) years. What would be the term and accountability of an elected Board of Governors? If insularity is the issue, then we already have that in spades.

                • The congress is a legislative body and the CB is the monetary authority. I think it would be a superior arrangement if these were separate as they are different in nature, managing money policy isn’t a legislative activity. Central banking is a large area of responsibility so I do think it would be preferable to create a dedicated institution with its own internal management instead of having a congressional committee perform this function. It tends to belittle the task of central banking to have a congressional committee instead of an internal cb committee.

                  The term could be anything like 2, 4 years. There would be a mandate for a accountability detailing monetary targets and the channels by which policy must conducted.

                  • Sunflowerbio

                    Just a couple of thoughts. Congress is also a policy making body. Laws are an expression of policy just as resolutions of the sense of Congress are. The second point: who would be the electorate of the central bank board, the general public, members of Congress, or….?

                  • With spending sourced from taxes or borrowing there is a large degree of accountability and transparency in that money has to come out of peoples pockets or be lent to the gov. LXDR1F7 : Government spending is NOT sourced from taxes or borrowing, right now, and government “borrowing” is. not. borrowing. Government “borrowing” is a reserve drain, an interest rate management tool, an asset swap, nothing more. It creates no “accountability and transparency” at all. By making things less transparent, with the aid of the “economics” profession, it creates less accountability.

                    People want the government to spend accountably, transparently and reasonably because they are taking a risk when they accept the government’s currency, by becoming the creditor of the government. But when they exchange government-issued dollars for government-issued bonds, they do not change their status as the government’s creditors, their rational expectation and interest that the government not inflate their savings away. Obsession with bonds versus dollars, thinking one or the other can have such magical effects is like obsessing about which denomination you hold your dollar bills in, or which Federal Reserve Bank issued them.

                    Congressional money creation gives more power and responsibility to the Congress.
                    Not in the slightest. Because Congress, the Government, the Treasury creates money when it spends RIGHT NOW. Having the Treasury just print money, greenbacks, with no Fed, no bonds, what you apparently mean by “congressional money creation” imparts no new monetary power, no new responsibility, no new burden to Congress. Because that is how it already works. Getting rid of bonds changes next to nothing. The Fed is a creature of Congress, how could it have a power that was not endowed by Congress?

                  • @Sunflowerbio

                    Legislative policy I suppose you could call the main thing congress does and monetary policy is what the cb performs. I think it is preferable to create a separate monetary entity because monetary policy and other related functions of the cb are vital in the functioning of the nation and also a major task. I do prefer the idea of congress running MP over what we have now though. We already started off with the monetary authority under congress and they managed to undermine it, that’s why having the monetary arm of government as a distinct separate entity will make it harder to undermine or subvert into something like what we have now. Undoing CB independence would almost be like revoking the independence of the judiciary arm.

                    The constituent of the cb is the public.

                  • @calgacus
                    ” Government spending is NOT sourced from taxes or borrowing, right now, and government “borrowing” is. not. borrowing. Government “borrowing” is a reserve drain, an interest rate management tool, an asset swap, nothing more. It creates no “accountability and transparency” at all. By making things less transparent, with the aid of the “economics” profession, it creates less accountability.”

                    I know it isnt right now and thats why we lack accountability. I am proposing that the system be rectified.

                    “People want the government to spend accountably, transparently and reasonably because they are taking a risk when they accept the government’s currency”

                    Accountability is much harder to achieve if you allow the government to just print money.

                    The more things you empower an entity with means it will have more responsiblity. The congress is already tasked with many decisions to make, if you add monetary policy you make their job harder meaning they have to devote their limited resources to solving more things. That should make for less effective policymaking. Also more power can cater to bad intentions if the government has any.

                    At creation an independant fed is obviously signed into law by the congress but after that it can operate independantly of other arms of gov but not independantly of the people..

                  • LXDR1F7 : I don’t think you understood my comment, because you don’t understand how our monetary system works right now. There is no rectification, except psychological ones, that are needed.
                    Accountability is much harder to achieve if you allow the government to just print money.
                    No, it isn’t. It is much EASIER to achieve accountability if you “allow” the government to “just print”. Because a meaningless ritual – issuing bonds & having the Fed & the Treasury play meaningless games with them- has ended. The sole purpose of the ritual, the smoke and mirrors is to convince people like you that the government, the Treasury, does not print money into existence – to the tune of billions a day, every day. To convince people that something happening right in front of their eyes is not happening.

                    You are getting things backwards. Right now, the government DOES print money into existence. Right now, Congress has and uses the complete monetary power you think it doesn’t have. The Fed is just a Wizard of Oz – it just doesn’t and can’t do much, thank god. (except for regulation responsibilities which it has shirked.)

                    Pure “Just print”, “no bonds”, ZIRP would give the Congress NO new power or responsibility. It would rectify nothing. It would just make its actions more transparent and accountable, because it couldn’t blame things on the fake Wizard of Oz & the imaginary Bond Market. That is the only good argument for pure “just print”. (There are some conceivable situations where bond issuance is slightly desirable. But is it worth the psychological obscuring effect on what is really happening? Usually not.)

                  • “I don’t think you understood my comment, because you don’t understand how our monetary system works right now. There is no rectification, except psychological ones, that are needed.
                    Accountability is much harder to achieve if you allow the government to just print money.
                    No, it isn’t. It is much EASIER to achieve accountability if you “allow” the government to “just print”. Because a meaningless ritual – issuing bonds & having the Fed & the Treasury play meaningless games with them- has ended. The sole purpose of the ritual, the smoke and mirrors is to convince people like you that the government, the Treasury, does not print money into existence – to the tune of billions a day, every day. To convince people that something happening right in front of their eyes is not happening.”

                    Issuing money and determining how it is allocated into the system is a power and a responsibility. It doesn’t matter much what the exact mechanism is it doesn’t change the fact.
                    “You are getting things backwards. Right now, the government DOES print money into existence. Right now, Congress has and uses the complete monetary power you think it doesn’t have. The Fed is just a Wizard of Oz – it just doesn’t and can’t do much, thank god. (except for regulation responsibilities which it has shirked.) “

                    The system right now is dysfunctional and it needs to be rectified.

                    “Pure “Just print”, “no bonds”, ZIRP would give the Congress NO new power or responsibility. It would rectify nothing. It would just make its actions more transparent and accountable, because it couldn’t blame things on the fake Wizard of Oz & the imaginary Bond Market. That is the only good argument for pure “just print”. (There are some conceivable situations where bond issuance is slightly desirable. But is it worth the psychological obscuring effect on what is really happening? Usually not.)”

                    There is several good reasons to create a monetary authority independent of the other arms of government, directly elected by the people which conducts policy directly with the people:

                    1.Removes the responsibility of monetary policy from other arms of gov meaning they can focus their limited resources on fewer tasks to perform better policy.

                    2.Takes power away from other arms of gov in the case they misuse it

                    3.Conducting policy directly with the public will mean stimulus wont depend on bank lending and banks don’t determine how new money is appropriated when they issue loans.

                    4.The gov will be forced to source money from borrowing or taxes making it more accountable

                    5.People will directly deal with the central bank becoming more knowledgeable on economics and creating greater trust in institutions.

                    6.People will have the power of allocating new funds which will be a counterbalance to the power of the government.

    • Well we have a constitution that assigns the power of the purse to the US Congress, a democratically elected body not an appointed committee of bankers. To give the Fed effective control over its own novel forms of fiscal policy would be to cross some sort of Rubicon and help undermine our democrayc even further.

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