John Fund‘s latest column for National Review Online focuses on the growing chorus calling for reform of the Federal Reserve system.
A growing number of people believe the Federal Reserve has hurt rather than helped the recovery. It has pursued zero-interest-rate policies that have perversely made it impossible for many businesses to get credit to expand. The Fed and other central banks have injected trillions of dollars into the global economy; according to the New York Sun, the result is that “the world is now afflicted by a public-sector debt bubble that could rupture in any of a number of countries.”
The Fed’s blatant attempt to prop up asset prices has fueled inequality. The Fed’s low-interest-rate policies have “exacerbated the wealth gap between the poor and the rich, because the rich have assets,” former NYC mayor Michael Bloomberg recently said. “And that is what is being hiked here because of low interest rates, whether they own stocks or whatever the case may be.”
In the Bank for International Settlements’ most recent annual report, Claudio Borio analyzed the negative impact of low interest rates, concluding: “Rather than just reflecting the current weakness, low interest rates may in part have contributed to it by fueling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth, and too low interest rates. In short, low rates beget lower rates.”
The Fed has become a more omnipresent force in the economy than it used to be. The Dodd-Frank law gave it enhanced powers, the Fed routinely issues its own sweeping financial regulations, and the Fed alone has the power to determine how much money should be in the economy. Lawrence White, a professor of economics at George Mason University, says the Fed is now akin to a de facto “fourth branch of government,” but one whose powers are not defined by the Constitution, and one in which none of the officials are elected by the people.
