No Such Thing As An Unfunded Mandate Here!

Happy 100th birthday to the Federal Reserve!  I take no position here on whether the Fed is an illegitimate usurper, or whether we ought to go back to the gold standard (abandoned by noted pinko Richard Nixon, if I remember correctly).  I just feel that any centenarian deserves a certain respect.

As interested parties around the world await news on the “tapering” of Fed bond purchasing, let me say simply that the Fed’s dual mandate–“to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates” (since 1977, per Congress’ revision of the 1913 Federal Reserve Act)–is a work-in-progress, but a project with a rosier long-term horizon than, for instance, Bitcoin.  Why so?  It helps a lot to have a mandate, or two, with 300 million reasonably productive people and considerable political legitimacy behind it.  With all the bickering in Washington, if the Senate ever blockaded a nominee for Fed chair or revised the Federal Reserve Act to micromanage its quasi-public, quasi-private operations, then we would know that our political/economic system is in big trouble.  Even the wonderful structure of checks and balances and separation of powers could not protect us from that kind of indiscreet legislation.

As it stands, the great thing about the Fed–and a source of worry should it fade away or collapse–is that it suffers from no unfunded mandates, insofar as people and institutions around the world trust it.  The Fed snaps its fingers, and don’t think too hard about fighting it unless you have money to burn.

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