Keeping the Fed from Doing Bad Things Again

Cato’s Center for Monetary and Financial Alternatives (CMFA) has just issued guidelines for Congress to enact so that Fed will be compelled to restore normal interest rates, free capital for investment, and not once again damage the economy. The executive summary of the CMFA’s proposal reads as follows:

• replace the Federal Reserve’s dual mandate with a single stable-spending mandate;
• require the Fed to adopt an explicit rule consistent with fulfilling that mandate;
• reform the Fed’s operating framework, so that emergency Fed lending, either to banks or to nonbanks, is unnecessary;
• prohibit the Fed from engaging in direct lending;
• broaden the Government Accountability Office’s powers to “audit” the Fed, especially by allowing the agency to investigate violations of the Fed’s monetary rule and extraordinary open-market purchases;
• expedite the “normalization” of monetary policy, by prohibiting the Fed from paying banks to hold excess reserves, and by calling for it to shrink its balance sheet; and
• take steps to establish a “level playing field” between the dollar and either actual or potential alternative currencies.

The full proposal is available at http://tinyurl.com/ycbb9xnt

Click here to go to the previous Founders Broadsheet post (“Codevilla Calls for Measures Against Iran”)