The Fed presidents are chosen by the banks in the same manner that corporations select their board of directors - they are elected by the shareholders.The president nominates the board of governors and they are approved by the senate. Laws passed by Congress do indeed drive, control, and restrain the Fed. It is not correct to say the Fed isn't accountable to Congress directly or the people indirectly.The Fed's dual mandate came from Congress. You and I might prefer a different manner of monetary control, but its not correct to say there is no accountability.There may be truth to the idea that the Fed creates bubbles or contributes to them. This is not an indictment of the Fed itself or of fiat money, but rather of unwise monetary policy. I'd you believe inflation hurts common citizens, its also true inflation hurts banks. Debtors repay banks with dollars that are worth less than the dollars they borrowed.Headline inflation is still low, not merely by historical standards but even in recent history. Core inflation is even lower. There are many economists who fear deflation more than inflation. Yes, our money supply has grown quite fast, but the velocity of money is so slow there is little inflation and a muted effect on GDP.Monetary policy appears to have been quite weak, but we can't observe the counterfactual of how bad things would be without intervention.Energy, commodity, and food prices are rising fast for more reasons than loose money. China and Indias economies are growing fast and their demand accounts for most of the increases. China may actually run a trade deficit with the rest of the world next year.The Fed would have been better off following the Taylor Rule. So a better run fed is the answer. We still need elastic currency, and the arguments against a gold standard are well established. The current system may be broken but we know a gold standard would be a disaster. Countries on metal standards have had hyperinflation. Countries on metal standards have also run out of metal to trade to meet basic needs.
Nick - nicely stated. You know I count on you to reign in our mutual friend, don't you?
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