Written by Jim Powell - Forbes
Wednesday, December 21, 2011
The Federal Reserve was established in 1913 supposedly to maintain economic stability, but it presided over America’s worst depression (1930s), the worst peacetime inflation (mid-1960s to mid-1980s) and probably the worst asset bubble and bust (early 2000s to the present). In addition, there have been 18 recessions or depressions during the Fed era, generally the result of prior inflations.
How could such a problematic track record be possible? The Federal Reserve was billed as an improvement over the gold standard. For starters, maintaining economic stability is at best a central bank’s second priority after doing whatever might be necessary to support government financing activities in war and peace, which can conflict with the goal of maintaining economic stability. Moreover, there are congressional directives, such as the Employment Act of 1946 that makes the Fed responsible for achieving “full” employment.
Over the years, the Fed has been directed to achieve more and more conflicting priorities, including economic growth, price stability, interest-rate stability, financial market stability and exchange?rate stability as well as government funding and full employment. Multiple objectives have made the Fed’s behavior more unpredictable, because nobody knows what the top priority is going to be – or for how long. Consequently, it’s more difficult for people to make decisions \about business and personal finances.
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