Jim Grant on the Fed

James Grant, editor of Grant's Interest Rate Observer, testified last week beore the House Financial Services Committee. You can read (and should, IMHO, consider re-reading) his statement in full.

Under the law, the Fed has a dual mandate. It must protect against inflation, as defined, and promote full employment. But Congress and the American people have come to expect much more from our central bank than even that tall order. We ask, in addition, that it make an inherently risky world safe. We expect the Fed to deliver us from the consequences of hedge-fund explosions, sovereign-debt defaults, bear stock markets, bank failures, deflations and other financial and economic vicissitudes. It can’t be done. Goldman Sachs itself would blanch at the task.

Here's another bit I particularly like:

The Fed, like a good physician, should first do no harm. And, like a good drug company, it should not withhold its warnings on side effects. In interest rates as in painkillers, the secondary reactions can be debilitating.

Comments

[Amit Chokshi]

What's worse is the actual legislators that meet with the Fed, last week's questions were just downright pathetic. It's clear that some of these government elected officials are not well read in many cases. How can they serve on certain committees with such a lack of understanding of basic economics and finance is beyond me.

[John]

Amit: Excellent point. With few exceptions, the congressional representatives look pretty foolish in hearings with the Fed Chairman.