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Winter 2015

ISSN 0890-913X

Volume 30, Number 4

Categories: Winter 2015 | Monetary policy

A Modest Proposal for Reining in the "Unorthodox" Fed

Joseph T. Salerno, Pace University

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TheJournalofPrivateEnterprise30(4),2015,43–57AModestProposalforReininginthe“Unorthodox”FedJosephT.SalernoPaceUniversity______________________________________________________AbstractIntheyearsimmediatelypriortothefinancialcrisis,thedoctrineofanindependentFedhadachievedbroadandunquestionedacceptance,especiallywithintheeconomicsprofession.Undercoverofthisdoctrine,theFeddeployed“unorthodox”monetarypoliciestovastlyexpanditsbalancesheetaswellastherangeofitsactivitiesinfinancialmarkets.ThisunilateralandarbitraryexpansionoftheFed’spowers,combinedwithitsfailuretostimulatearobustrecoveryfromtheGreatRecession,hasprovokedincreasingoppositionevenamongsomeeconomists.Inthischangingintellectualclimate,thetimeisripetoimplementashort-runprogram,undertheexistingregimeofthefiatdollar,toterminatetheFed’sanomalousstatusasaquasi-independentagencyandmakeitdirectlyaccountabletoCongresslikeanyotherdepartmentoragencyoftheexecutivebranch.______________________________________________________JELCodes:E42,E52,E58Keywords:FederalReserve,monetarypolicy,inflation,BenBernankeI.Introduction“Unorthodox”monetarypoliciesweredevisedinreactiontothefinancialcrisisbyunaccountableandunsupervisedFederalReservebureaucratsledbythenFedchairBenBernanke.These“unorthodox”or“unconventional”policiesincludethezerointerestratepolicy,policydurationcommitment,quantitativeeasing,andcrediteasing.1Theyhavebeenusedtodrivethe(riskless)interestratetozeroandtorecklesslyexpandthemonetarybaseand,toalesserextent,themoneysupply.Undertheguiseofitsfunctionasalenderoflastresort,theFedunderBernankealsocontrivedahostofoneoffprogramsthathaveusurpedthecreditallocationfunctionoffinancialmarkets(White2014).Thecentralpoliciesofthe1Foradescriptionoftheseunorthodoxmonetarypolicytools,seeCecchettiandSchoenholtz(2011,pp.475–80),Erber(2012),Lachmann(2013),andKuttner(2013).43

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Title	A Modest Proposal for Reining in the "Unorthodox" Fed
Authors/Creators:	Joseph T. Salerno, Pace University
Year:	2015
Volume:	30
Number:	4
Pages:	43 - 57
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	Federal Reserve, monetary policy, inflation, Ben Bernanke

Citation:
Salerno, Joseph T. / 2015. "A Modest Proposal for Reining in the "Unorthodox" Fed." The Journal of Private Enterprise, 30(4): 43-57.