Financial Stability News

News about financial stability, central banking and theory of money

Should the Fed be abolished?

Interesting hearing in the Congress yesterday headed by the one and only Ron Paul on The Federal Reserve System: Mend It Or End It?

Quite interesting panel with Professor Jaime Galbraith, former Fed Governor Alice Rivlin and Professor John Taylor. They discussed a wide range of issues related to the dual mandate, ruled based policy, the size of the Fed’s balance sheet, the relations with the Treasury and whether the Fed should be abolished or not.

Key issue that came up was current relation between Fed and Treasury and the unhealthy situation where the Fed purchases most of the new issuance of treasury paper. It will be hard for the fed to increase rates when the time comes for a more restrictive policy. Huge impact on financing costs of Treasury.

Despite wide differences, few on the panel wanted to abolish the Fed. But management and nature of central bank will certainly be a hot topic as we move forward, according to closing statement by Chairman Ron Paul.

I have posted some notes from the hearing here.

You can watch the hearings here


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