Moving the fight to another local

So I tried to comment but it wouldn't let me, not sure why. Thus a new post.

This is going to be really long, but whatever, its fun. But don't expect too much out of me just because I am studying economics; I only know the math behind macroeconomics (and its gross) and there is a gap between that and the political realities. However, I gotta say that I agree wholeheartedly with both Jeff and Matt (sorry Gee). And here's why.

As Jeff points out it is ridiculous to say that the Fed has created inflation and when I read it I imagined Rothbard leaning back on his chair and just laughing at the people who would believe that. There is no way that he can believe that, or if he does I'm just going to laugh at him. Inflation has existed since the inception of banking. And if we later try to pin the blame of speculative crises on the Fed lets just remember that they are older than the Fed too (the Mormon historians in the group - I'm talking to you Gee - will recall the year 1837 with the Kirtland Safety Society forming just a small part of a broader national run on the banks).

And as Matt asked, what else would we do? I've thought about that a bit and I'm going to continue to do so, but I can't think of anything better. The reason is that I think the incentives are aligned such that there is little reason to not perform in the office to the best of your ability.

If this weren't the case you would hear of scandals. And this is major complaint of mine with the text thus far (and I read a little further than the schedule). So much is made about the potential abuses of power BUT NO MENTION OF ACTUAL ABUSE IS MADE. So my question is, what has the Fed done wrong to warrant this? And I would posit that there really isn't much that they can do. Think about the potential sins that they could commit: greed and power.

First lets think about greed. One thing the members of the Fed could do is to use the knowledge they have of future measures to reduce/increase the money supply to do some insider trading. That could be done by buying/shorting stocks that are particularly sensitive to interest rate movements or buying/selling other currencies. So, a minimum requirement for me to believe that members of the Fed are exploiting their knowledge for their own personal financial gain is at least one allegation of "insider trading". To my knowledge there is none. It is true that both Volcker and Greenspan have made quite a bit of money for themselves AFTER leaving the Fed (both went on to work with various financial institutions like i-banks and to write memoirs and give speechs at exorbitant rates and Volcker is currently a member of the Obama administration) but there have been no public allegations of personal gains due to insider knowledge and none have been made about their underlings. In fact, I believe there are regulations in place to curtail this possibility. And as members of the society which they regulate they personally benefit from the stability and growth that are the goals of the Fed.

Now lets think about power. Members of the Fed could simply get drunk on power because, as the book rightly states, their organization is the most powerful on Earth and their chairperson the most powerful person on Earth (though most don't realize it). The most common misuse of power, apart from financial gain, is the exploitation and manipulation of other people. So the minute that Ben Bernancke gets his own TV show and starts televangelizing to the rest of American society then I will be the first person on this anti-Fed bandwagon but currently the exploitation of power does not appear to be a sin that members of the Fed are guilty of committing. So, either they are just way better than everyone else at hiding their abuses of power or this whole anti-Fed notion is overblown.

I will say that I am concerned about the growing connection between the Fed and the Treasury. With this most recent financial crisis and the Fed's joint cooperation with the Treasury in the bailout of the banks its been revealed that the Fed is not as separated from the political sphere as it was intended to be. Rothbard states that the separation from political oversight is a problem with the Fed and I couldn't disagree more. The disconnect between the Fed and party politics allows for an approximate benevolent social planner - and its not because the people are benevolent rather, as I've stated, the incentives are aligned such that there is little if any reason to exploit positions for personal gain (which is something that cannot be said for any political position). The more connected the Fed becomes with the Treasury and thus with the administration and thus with the parties and the Congress the more discriminatory bailouts we will see.

I'm out.