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Strategies & Market Trends : The coming US dollar crisis
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From: gregor_us7/15/2009 7:48:40 AM
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Concerns about the Fed's New Balance Sheet

The decision of where public funds are best allocated is inherently political. Any risks on the Fed's new balance sheet are ultimately borne by the taxpayers. The U.S. Constitution specifies that decisions of how public funds get spent shall be up to Congress, and with good reason. Citizens have a right to vote on which risks they choose to absorb. And of course there are powerful established interests with views on which sectors should receive an infusion of public capital. The Fed is simply being naive if it thinks it can become involved in those decisions on a weekly basis and yet still retain its independence from Congress and the President.

The reason I find that loss of Fed independence to be a source of alarm is the observation that every hyperinflation in history has had two ingredients. The first is a fiscal debt for which there was no politically feasible ability to pay with tax increases or spending cuts. The second is a central bank that was drawn into the task of creating money as the only way to meet the obligations that the fiscal authority could not. Every historical hyperinflation has ended when the fiscal problems got resolved and independence of the central bank was restored

econbrowser.com
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