(P)Reserving the Fed

Is Fed-bashing a new spectator sport?

Criticizing the Fed has been a political trope for years. It’s easy to do: find an economic trend, look at the point when it became visible in the data, then disparage the Fed for not picking up on what was, in retrospect, obvious. If you can find a couple of financial columnists or academics who mentioned the emerging problem at the time, so much the better: then it looks like the Fed was ignoring what was obvious to “everyone,” even if “everyone” was just a couple of obscure cranks.

There is a legitimate public policy debate regarding the Fed and central banking: what’s the best way to regulate the banking system; what’s the best way to set interest rates; how should we manage the money supply. These are good questions, and it’s reasonable to examine history and the practices of other countries to try to find the best possible system.

And then there’s carping: grumble about something you have no prospect of fixing. Current critics of the Fed remind me of the scene in Monty Python’s “Life of Brian” where a rebel group meets to complain about their rulers: “Apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order,” John Cleese asks, “What have the Romans ever done for us.”

I feel that way about the Fed: apart from price stability, a sound banking system, solid US credit, international currency stability, economic research, educational resources and a growing money supply, all without political or financial scandal, what has the Fed ever done for us? And to those who would replace it—what evidence can you show that your replacement would work better?

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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