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Tuesday, November 19, 2013

The failed Fed -- By Richard Rahn, The Washington Times

(Illustration by Alexander Hunter, The Washington Times)

Illustration by Alexander Hunter for The Washington TimesA central bank vulnerable to political pressure was never intended 

"I wouldn't start here if I were you," is the punch line of an old Irish joke, which monetary scholar Kevin Dowd cites to illustrate the deeper and deeper hole the Federal Reserve is getting us into.

Mr. Dowd, in a paper delivered last week at the Cato Institute's 31st annual Monetary Conference, concluded: "The modern financial system has not only kicked away most of the constraints against excessive risk-taking, but positively incentivized systemic risk-taking in all manner of highly destructive ways . We have gone from a system that managed itself to one that requires management, but cannot be managed. We have gone from a system that was guarded by market forces operating under the rule of law to one that requires human guardians instead — but we have not solved the underlying problem of how to guard the guardians themselves." These last two lines could equally be applied to Obamacare, because both are examples of F.A. Hayek's description of the "fatal conceit" so often exhibited by those who believe in government more than markets.

Speakers at the monetary conference included current and past Fed bank presidents, other former senior Fed officials, members of Congress and noted monetary scholars. All concluded that the Fed has gone well beyond its original mandate and has had a long record of failure, owing not only to its own misjudgments, but also as a result of pressures by various administrations and Congress to do the wrong thing.

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