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Winter 2015
ISSN 0890-913X
Volume 30, Number 4

A Modest Proposal for Reining in the "Unorthodox" Fed

Joseph T. Salerno, Pace University
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/index.php?action=ajax&rs=GDMgetPage&rsargs[]=Parte4 Journal of Private Enterprise vol 30 no 4.pdf&rsargs[]=0
TheJournalofPrivateEnterprise30(4),2015,4357AModestProposalforReiningintheUnorthodoxFedJosephT.SalernoPaceUniversity______________________________________________________AbstractIntheyearsimmediatelypriortothefinancialcrisis,thedoctrineofanindependentFedhadachievedbroadandunquestionedacceptance,especiallywithintheeconomicsprofession.Undercoverofthisdoctrine,theFeddeployedunorthodoxmonetarypoliciestovastlyexpanditsbalancesheetaswellastherangeofitsactivitiesinfinancialmarkets.ThisunilateralandarbitraryexpansionoftheFedspowers,combinedwithitsfailuretostimulatearobustrecoveryfromtheGreatRecession,hasprovokedincreasingoppositionevenamongsomeeconomists.Inthischangingintellectualclimate,thetimeisripetoimplementashort-runprogram,undertheexistingregimeofthefiatdollar,toterminatetheFedsanomalousstatusasaquasi-independentagencyandmakeitdirectlyaccountabletoCongresslikeanyotherdepartmentoragencyoftheexecutivebranch.______________________________________________________JELCodes:E42,E52,E58Keywords:FederalReserve,monetarypolicy,inflation,BenBernankeI.IntroductionUnorthodoxmonetarypoliciesweredevisedinreactiontothefinancialcrisisbyunaccountableandunsupervisedFederalReservebureaucratsledbythenFedchairBenBernanke.Theseunorthodoxorunconventionalpoliciesincludethezerointerestratepolicy,policydurationcommitment,quantitativeeasing,andcrediteasing.1Theyhavebeenusedtodrivethe(riskless)interestratetozeroandtorecklesslyexpandthemonetarybaseand,toalesserextent,themoneysupply.Undertheguiseofitsfunctionasalenderoflastresort,theFedunderBernankealsocontrivedahostofoneoffprogramsthathaveusurpedthecreditallocationfunctionoffinancialmarkets(White2014).Thecentralpoliciesofthe1Foradescriptionoftheseunorthodoxmonetarypolicytools,seeCecchettiandSchoenholtz(2011,pp.47580),Erber(2012),Lachmann(2013),andKuttner(2013).43
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