What is the best system to replace the Fed?

[Integral]

Why can't the FED be controlled by Congress? Would that make matters worse?

Would you rather have Ben Bernanke or Ron Paul make monetary policy?

I rest my case.

 

[Joecoolyo]

"Experts" being?

The loudest.

 

[orrery]

Would you rather have Ben Bernanke or Ron Paul make monetary policy?

I rest my case.

Ron Paul definitely. So Congress it is.

 

[Integral]

Ron Paul definitely. So Congress it is.

I don't understand. Enlighten me.

 

[mangxema]

It still is.

Well, at least there's not rampant counterfeiting.

 

[amadeus]

The dollar is plummeting in value and prices are at all time highs.

Isn't it great? I hope the yen strengthens more in addition to this. I'll be able to pay off my student loans in two weeks at this rate.

 

[orrery]

I don't understand. Enlighten me.

Here's another question, would you rather have Ben Bernanke or Thomas Hoenig as the Fed Chairman?

 

[History_Buff]

Congress could rewrite the laws and take more control over the FED if it wanted too. That would probably lead to higher inflation or a more volatile monetary policy. There's a paper somebody wrote who I can't remember and don't care to find that found a positive relationship between central bank independence(less legislature or executive control = more independence) and inflation rates. I don't think they found a difference in unemployment rates too.

Well, Canada's central bank (the Bank of Canada) has gone through that same quandry; whether to keep full employment or control inflation. The bank wanted to reduce inflation, the PM wanted to maintain full employment. After a bit of a scuffle, the bank won. It's a decent case study to look at.

Edit: Was called the Coyne Affair.

 

[orrery]

Well, at least there's not rampant counterfeiting.

What? That makes no sense. The Fed is counterfeiting billions of dollars every day.

 

[Integral]

Here's another question, would you rather have Ben Bernanke or Thomas Hoenig as the Fed Chairman?

I am glad it's Bernanke and not Hoenig at the moment. To end this tired exchange of one-liners, I think it's proper to respond in some detail.

Ideally the Federal Reserve would be informed by a policy rule, either inflation targeting or nominal income growth targeting. Either would be preferable to the vague "dual mandate". However, even under the dual mandate, there is considerable room for expansionary monetary policy.

Normally we face a short-term tradeoff between inflation and unemployment. Expansionary monetary policy reduces unemployment in the short run but leads to increases in inflation. However, we currently face a situation in which inflation is too low and unemployment is too high. Expansionary monetary policy would be useful on both fronts; given the state of the economy there is no short-term tradeoff between inflation and unemployment, in the sense that expansionary monetary policy would bring unemployment down as well as bring inflation closer to target.

Bernanke knows this; he wrote a paper saying essentially the same thing, in reference to Japan, back in 1999, "A Case of Self-Induced Paralysis". Indeed I think that if Bernanke were not constrained by the FOMC he would have done a better job than he did.

However, we cannot count on having a strong Fed chairman every time we fall into crisis. Hence it would be worthwhile to give the Fed a new mandate, to target either the price level or nominal income.

 

[Hygro]

Public confidence in Bernanke is at all-time low.

That's the exact reason why it's not an elected position

 

[Arwon]

What? That makes no sense. The Fed is counterfeiting billions of dollars every day.

 

[Hygro]

What? That makes no sense. The Fed is counterfeiting billions of dollars every day.

Once a week guys in a truck come by and steal my garbage and recycling.

 

[azzaman333]

I'm going to go with there's no need to replace the Fed.

 

[Leoreth]

Bernanke's doing bad job currently imo, but that's no reason to get rid of the Fed.

And pegging to gold or any other resource is ridiculous, the thought alone makes economists cringe.

 

[Hygro]

Yes, let's peg the dollar to oil, this way we can use it all up and run out of money forever.

 

[sophie]

The Fed should be replaced with the Fed.

This, with a little bit of Integral's posts for good measure. Seriously guys, why is it so hard to understand that the Central Bank is an extremely integral part of the modern day economy?

 

[Leoreth]

The constitution doesn't say you need one, and we all know the founding fathers were omniscient superhumans.

 

[Omega124]

This is one issue I have to agree with Jackson. No bank, go back on the gold standard.

 

[Leoreth]

Can someone put forth a serious argument for the gold standard? Other than irrational fear of inflation, I can't think of anything.