Friday, July 10, 2009

The Value Of Fed Independence

Fed governor Donald Kohn argues against Ron Paul's bill to audit the Fed:

"History provides numerous examples of non-independent central banks being forced to finance large government budget deficits. Such episodes invariably lead to high inflation."

Damn good thing the Fed is "independent" (as it happens, Paul's bill would not remove its "independence" in decision making, it would only make it easier for others to see what they're doing) then, so that we won't have to experience announcements by the Fed that they will help finance the large budget by buying $300 billion of longer-term Treasuries.....

Kohn's argument reminds me of former Fed chairman Arthur Burns' statement that the Fed needs to do what the President wants, or it will lose its independence....


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