ECONOMIC PERSPECTIVES

Advocates of U.S. Presidential candidate Ron Paul, seem befuddled that his economic proposals do not receive more support and consideration. I am unsure if their criticisms of the U.S. Federal Reserve System (the Fed) are objections to the existence of paper money, central banks, or to the specific operation of the Fed. Monetary policy for an increasingly interconnected world is complex. It is reasonable that most people do not understand it. But it can be understood. Let me try to address a few issues. Money is anything that is generally accepted to serve as a medium of exchange (i.e., you can buy things with it), a store of value (i.e., you use it to save purchasing power for use at a later time), and a unit of account (i.e., it is used to measure relative prices). Stated more simply, money facilitates commerce. Without money that is widely accepted, easy to carry and exchange, and difficult to counterfeit, economic transactions become much more difficult. Without money, peopl...

The Federal Reserve System was designed to be independent of political influence. The seven members of the Board of Governors serve 14-year terms. Thus, appointees can be in office longer than the U.S. President who appoints them. And the terms are staggered so that one term expires every two years, minimizing the influence of one President on the makeup of the Board. However, resignations and retirements can give a President opportunities to appoint a majority of the Board. As the article below explains, Barack Obama will soon make his fifth appointment and thus will have reshaped the composition of the U.S. central bank that guides monetary policy, controls the money supply, and oversees the banking system. In the April 29, 2010 article " Obama to name Yellen as Fed's No. 2 ," Associated Press writer Darlene Superville reports: WASHINGTON – Putting a bigger stamp on the Federal Reserve, President Barack Obama is set to name Janet Yellen as vice chairwoman of the ce...

In the January 4, 2010 New York Times article " Lax Oversight Caused Crisis, Bernanke Says ," Catherine Rampell reports that the Federal Reserve chairman blames regulatory failure for the economic decline of recent years: ATLANTA — Regulatory failure, not low interest rates, was responsible for the housing bubble and subsequent financial crisis of the last decade, Ben S. Bernanke, the Federal Reserve chairman, said in a speech on Sunday. Mr. Bernanke’s remarks, perhaps his strongest language yet assessing the roots of the financial crisis, came as he awaited confirmation for a second term as Fed chairman and as he sought greater regulatory authority from Congress. “Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates,” Mr. Bernanke said in remarks to the American Economic Association. Mr....