The Fed chairman is a presidential appointee. Read a few pages from historian Thomas DiLorenzo's book "Hamilton's Curse" (pp.187 et seq.) for the history of the Fed's politically-motivated tweaking of monetary policy timed to the campaign cycle. Here's a quote from DiLorenzo: "Modern economic research has shown that the Fed has made numerous attempts to create a 'political business cycle', basically by using its powers over the money supply to pump up the economy with easy credit just before elections. The economist Robert Weintraub documented how Fed monetary policy shifted to fit the preferences of newly-elected Presidents in 1953, 1961, 1969, 1974, and 1977-all years in which the Presidency changed hands. The policy was based, in other words, not on what was best for the cause of economic growth and [currency] stability but on the Fed Chairman's desire to please his boss." Isn't the same super low-interest rate stimulus policy being played out now? And which legislator would have the gumption to say so?
Remember the Community Reinvestment Act? Since 1977 banks must lend to subprime borrowers , requiring government-supported enterprises Fannie Mae and Freddie Mac to purchase the worthless paperwork-now euphemistically labeled a more-than-$1-trillion Fed "asset".
The inevitable collapse started the current downturn, surely a third-rail topic for self-interested legislators. Some non-legislative branch folks want a return, from smart-expert currency management back to a dumb, mathematical gold standard. More about this topic next week.
P.S.: As I concluded my efforts on this week's column, I heard the news from Capitol Hill: the U.S. Senate formally declined to pursue its own Audit-the-Fed promise. Sometimes the actual event does confirm theoretical speculation.
P.P.S.: A few days later, I learned that the U.S. Senate approved a diluted audit measure. Why not ask your Vermont U.S. senator, "did you vote to audit the Fed?"
Ex-Vermont resident Martin Harris lives in soggy Tennessee.