The Fed Does it Again

Friday, June 22nd, 2012 and is filed under Blog, Economy

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The actions of the Federal Reserve over the past 4 years exemplify insanity more than anything else in politics.  They continue implementing one monetary stimulus policy after another in an attempt to jumpstart the economy, even though they keep failing in that goal.

First it was the unprecedented low interest rates; then it was the purchasing of mortgage securities.  Following the recession, they implemented two rounds of quantitative easing.  When those efforts failed, they moved on to Operation Twist.  Operation Twist, or more aptly put, operation screw, is another free money scheme in which the fed would purchases long-term bonds paid for from the proceeds of sales of short-term bonds in its portfolio.  Well, we all know how that has worked out.  The modest recovery that was underway during the beginning of the year has fallen flat.

Remember that these easy money interventionist policies are not free.  These actions have distorted the housing market, depleted our savings, and have devalued our currency.  One would think that the Feds would learn the lesson that the costs of easy money are not worth the gains, especially when those gains fail to materialize.

Instead, they plan to implement Operation Twist 2.0.  On Wednesday, the Federal Reserve’s policy setting committee announced it would extend Operation Twist by purchasing another $267 billion in long-term bonds. When is this going to stop?

It’s time for Congress to reassert its power over these unelected political hacks.  We should urge them to cosponsor Senator Mike Lee’s Federal Reserve Modernization Act (S. 2247) that will rein in the Fed.  It will end their duel mandate of destruction that allows them to tinker with the economy.  Under this legislation, the Fed would be forced to focus solely on sound money.  The bill would also ban the Fed from buying up other securities and bonds, such as mortgage-backed securities from Freddie and Fannie.  We must stop distorting the markets by encouraging investments on the basis of how much capital is available instead of real growth in a specific industry.

Congressman Kevin Brady (R-TX) has introduced a companion bill in the House, the Sound Dollar Act (H.R. 4180).  Please ask your representatives to cosponsor the bill, lest we find ourselves in middle of QE3 this time next year.

As the great Milton Friedman once said, “inflation is taxation without legislation.”