The Post's tiresome fear-mongering is exactly the same as Bernanke's tiresome fear-mongering before congress this week.

Chicken-little is alive and well and lives in Georgetown!

It's time to call "their" bluff.

Let's abolish the Fed, and see what happens!

I still can't believe that a semi-private institution like the Federal Reserve has the authority to print United States currency and not tell the public where it went.

I'm astounded that the Fed has the authority to give cold hard cash to mysterious unknown entities in return for toxic junk as collateral.

I'm furious that the Fed has the authority to give $80 billion dollars to private US and foreign banks (indirectly via the AIG bailout) and then to see Goldman report record profits this quarter. What gives the Fed the right to bail out foreign banks, Goldman, Citi, ... ? And by the way, where did the Fed get this $80 billion from?

Fellow Americans, you've been given the shaft by your own elected government officials. Congress could do something about the Fed but they choose not to.

Control of the currency of the United States of America is in the hands of a semi-private institution whose board is made up of private banks!

You call this democracy?

Anonymous it might be better to have multiple competing currencies. Let currency be like any other commodity. The fed is bad enough that I think it would worth a try.

On this subject see the writing of George Selgin.

BTW you own your other assets money is just a medium of exchange. Part of the problem is too many people use it as and think of it a story of wealth.

For all the whining that the Fed is doing about basic audit/oversight capabilities, I can't even begin to imagine how violently they and the banking oligarchy would react to the idea of competing currencies.

BTW, Anon: Your list should also mention the Fed direct loaning of money, not just to foreign banks, but to foreign governments.

"The Fed was unbelievably irresponsible/incompetent in allowing the growth of such a dangerous bubble." The bubble was only dangerous to the middleclass. The banks and the rich made out just fine as always.

So transparency would destroy faith in the dollar? Sounds like an admission of fraud to me...

Dean:
While I certainly agree with your view that the housing/financial bubble can be laid directly at Greenspan's feet, your statement "Of course the only way to bring the trade deficit down to a sustainable level is to reduce the value of the dollar." is without a doubt one of the most ridiculous I've ever heard you make. You compound that silliness with this: "The country now has almost 25 million people who are unemployed or underemployed as a result of the Fed's disastrous policies."

Last I checked, the Fed doesn't set national trade or industrial policy... and that is where the employment problem lies... not financial policy. They are linked insofar as they are two parts of neo-liberal economics (deregulate finance and eliminate tariffs), but beyond that ideological relationship the Fed has nothing to say about whether or not the U.S. remains an industrial power or not.

If your argument is that an expensive dollar has destroyed American manufacturing and believe that only further cheapening the dollar will bring it back, I would humbly suggest that the impoverishment of the nation before all others is not the proper road back to U.S. industrialization and a positive trade balance.

It is very hard to defend the Fed, but it is unfortunate fact that Central Banks appear to be a necessary evil for Industrial/Commercial capitalistic/mercantilist economies. A couple of alternatives suggested above have actually been tried. One could say that the world has competing currencies right now (along with price fixing schemes - See China and Japan, pegging the dollar) right now. Further, although libertarians and Hayekians are loathed to do it, preferring their mythic 19th century to the actual thing, the United States basically tried the competing currency thing from the time Jackson abolished the Bank of the United States to the National Bank Act of 1862. The period had two major Panics (1837 and 1857), with a very long depression followed by sluggish growth after the 1837 Panic.

There is no panacea to these things, although the period when the Roosevelt-Truman regulatory scheme and income redistribution from 1933 to 1980 held sway, no major asset bubbles occurred and there was no wide spread examples of Ponzi finance on the scale that would damage the whole economy. The inflationary surge that broke up the old New Deal consensus was the result of administrations after Eisenhower deceit in trying to fight the Vietnam War without paying for it and failure to adjust the dollar to the fact that Japan and Europe's economies had return to competitive status with the U.S. by 1970 and the resulting squeeze on raw materials.

Still a more transparent FED, and a FED more open to outside advice and opinion when making decisions, would be an improvement. That the Washington Post still thinks that worse thing that can happen is that the dollar will fall shows the bankruptcy of its thinking (if thinking it could be called) instead of the repetition of the cant that fills Fred Hiatt's head.

For a good discussion of the topic, I refer you to Mr. Willem Buiter's blog below:

http://blogs.ft.com/maverecon/2009/07/what-to-do-with-the-fed/#more-3221

Dean, I have several Ron Paul oriented friends who argue that whether you blame the low interest rates inflating the bubble or the massive global balance of payment spreads pushing massive amounts of liquidity into certain countries, that fiat currency and the role central banks play are the cause and advocate a return to the hard gold standard.

On the low interest rates, its true that in a hard gold standard currency regime, there could be no central bank setting low or high interest rates, and the market would determine interest rates thus no bubble's being artificially inflated. My counter-argument is that it would then become impossible to make monetary adjustments and we'd be subjected to still aribitrary forces determining the supply of gold. Of course arguing that we need to be able to make monetary adjustments to someone who opposes any use of monetary policy becomes tautological.

The global balance of payments question seems even more difficult to answer. Their argument is that in current accounts once a deficit country began to run low on their gold reserves, the deficit country would begin to adjust their economy to an export economy, while the surplus country would adjust to an import economy. Meanwhile in capital accounts, with the supply of gold lower in a deficit country domestic interests rates would rise and thus foreign investment would increase, while in surplus countries, with the supply of gold high domestic interests rates would go down, thus capital would seek higher returns through foreign investment. The idea is one I'm sure you're familiar with, that countries would avoid the pitfalls of the business cycle by oscillating in a stable fashion between import/export and borrowing/lending based on the domestic supply of gold.

My feeling with this is that it might be stable if you had very few trading partners bi or tri-lateral, but when you get into the reality of our multi-lateral world, it be incredibly inefficient and thus potentially very destabilizing, causing huge currency supply shocks with no mechanism (since the gold standard neuters central banks) to resolve it. There would be huge lags in the adjustment of economies from import to export and vice versa and an economy that simply had no comparative advantage in exports could simply be cut out of the process and end up royally screwed. They would have no exports to sell to inject liquidity back into their economy and no foreign investors interested in lending because they doubt that their loans would be repaid by a country incapable of exporting.

Also, I'm not clear as to whether or not one individual country could go onto the gold standard and have it function or if every country would have to move to the gold standard through something like a new Bretton Woods agreement in which every major economy adopted a hard gold standard. The difference of course would be by basing everyone on a hard gold standard, you would effectively be choosing capital mobility over domestic monetary autonomy in the mundell-flemming model.

But all that said, I'm profoundly puzzled by this argument. I can dismiss it easily on the one hand as a pro-welfare state liberal who believes that countries' need to have monetary autonomy to ensure an adequate social safety net. But from a perspective of someone less concerned about that problem (or who thinks that the welfare state actually harms people due to your typical free market reasoning) its not as clear. As I said, it seems to be assuming that economies could adjust in ways that strike me as unrealistic, but I don't know if thats actually true.

I was hoping that you might address some of these ideas in a post. Its more than a curiousity. I actually think its pretty relevant cause there seems to be a small but growing band of people who favor this idea, so I think its something that needs to be addressed. This is my analysis, but I really don't feel like I know enough to feel confident. Obviously you don't have to respond directly to my personal analysis, but I'm interested to know your general analysis of the gold standard question. Or maybe there are some people who read this site who could respond to this question.