There has been a lot of debate about Federal Reserve independence lately as members of Congress contemplate stripping the Fed of some of their authority. In addition, the Treasury is under fire for its handling of the crisis and the subsequent bailouts. The proposals put forth by Ron Paul and supported by several other members of Congress would essentially “audit” the Fed, requiring the central bank to reveal many of their actions during the financial crisis. Treasury secretary Timothy Geithner was under attack by Kevin Brady (R-TX) a House Republican who told him, ‘The public has lost all confidence in your ability to do the job.’ Geithner replied, ‘What I can’t take responsibility is for the legacy of crises you’ve bequeathed this country.’ The Fed’s Bullard recently commented that Fed independence is crucial to price stability. However, the issue of transparency might be threatening the very independence the Fed desires (or maybe requires).
Now, in spite of all the bickering between the Congress, Treasury, and Federal Reserve, there are serious issues regarding the future powers of these institutions. The Federal Reserve and Treasury have been lobbying for the power to be the systemic risk manager, which would add additional oversight powers to whatever institution these rights are granted to.
Questions you might try to answer:
- Do you believe that Fed independence is fundamental to their mission? What evidence can you provide?
- How has the lack of transparency impacted the belief that the Fed and Treasury are acting in the best interest of the country?
- What is the primary alternative to using the Federal Reserve to control interest rates and the Treasury being allowed to run deficits?
I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.