Libertarians rail against the Federal Reserve System.  Both Ron & Rand Paul want the Fed audited as a predicate to eliminate the Fed, even though over 800 audits are performed on the Fed every year.  This animus toward the Fed by Libertarians grows out of their belief that capitalism is supposed to be efficient, which means completely unfettered (forgetting that Karl Marx agreed with them that capitalism is efficient but is doomed because that efficiency also makes it cruel).

A more moderate discussion is whether the Fed should be “rules-driven” or not.  This would require the Fed to take a particular action if a certain set of economic conditions existed.  This would be a blessing for Wall Street, which has created a cottage-industry is guessing the Fed’s next action.  I listened to a lecture on this today by John Taylor.  He is a former Under-Secretary of Treasury, where he labored to make the Iraqi & Afghanistan monetary systems work again.  He is now an economics professor at Stanford and is best known for the “Taylor Rule” to limit the Fed’s discretion.

A good deal of “the sky is falling” school of investment thought today grows out of the fact that the Fed has undoubtedly done some things very new and very unproven, in the aftermath of the Global Financial Crisis of 2008/9.  Because nobody has ever seen the Fed unravel quantitative easing before, they assume the Fed will fail to do it properly, and the sky will indeed fall.

My thought is that requiring familiar predictable actions by the Fed is fine, as long as they face familiar predictable economic conditions.  Setting arbitrary rules for the Fed now, when we don’t know what financial conditions may present themselves later, just doesn’t make sense to me.  I don’t want their hands tied, especially when fiscal policy is impotent.