Up some years, down others. But since 1913, the goal of the Fed was to preserve the value of the dollar, and it's down by 98%. The institution is a complete failure.
If the Fed stop printing, I don't think the Treasury could sell short term notes for close to 0% as they do now. And we'd see the 30-yr returns closer to the rates of the 1980s, or over 10%.
The government can only spend what it can tax or borrow. And if what it borrows starts crowding out private investment, it won't get so much in tax returns. But when the Fed prints, there is enough money for everybody albeit with an inflation tax.
Public spending might be political, but you still have to borrow to spend at the current rates of spending, and driving interest rates high creates quite the political backlash.
I blame the Fed for killing the dollar. I don't blame them for unemployment so much, as they are pretty much a blunt instrument for that task. However, it is part of their job description and they failed to fix it. Like I said, it's a failed institution.
I don't blame the Fed for spending, that is a political choice. But it'd be a lot harder choice for the politician to spend if the Fed didn't print the extra money needed.
Letting the Fed off the hook for all blame is simply silly.
Usually bashing the Fed is supposed to show the "sophistication" in economic or financial issues but using the already debunked stale arguments more often show the lack of it. Yet conservatives, of all people, time and again are bringing them up even though - as I have said before - it makes no sense economically and is counterproductive politically, by distracting from blaming the real political scoundrels. Usually the arguments presume the omnipotence of the Fed monetary policies and the impotence of the federal government fiscal policies and completely disregard the power of any exogenous events (such as wars, domestic and foreign market crashes etc. etc.) - it reflects poorly on conservatives and make them sound like Luddites.
Greenspan wasn't reappointed by Bush because Greenspan would continue Clintonian policies, but because he'd bend to the political wind.
No, Greenspan was too old and damaged by the burst of Y2K/Internet bubble to be "re-appointed" by Bush-43 (and Bush-41 blamed Greenspan for his defeat to Clinton in 1992) and the bulk of USDollar 40% fall was before appointing Bernanke to the Fed Chairman post (at 80 in 2004, 33% down from 120 in 2001-2002, at 70 in March of 2008, during the financial credit/liquidity crisis, yet was at 90 in February of 2009, despite even lower interest rates from the Fed). Dollar strength in the 1990s was the result of explicit and forceful Robert Rubin's policy of strong dollar (same as Reagan's policy) and the weak dollar during Bush-41 and Bush-43 years was the result of deliberate weak-dollar policies (despite the wink-and-the-nod statements to the contrary, ostensibly, to help the exports of the American companies). The Fed had nothing to do with it, the dollar fell even when the Fed increased interest rates, and has fallen even when the Fed lowered rates. It's that simple, just look at DXY of the last 30 years.
But since 1913, the goal of the Fed was to preserve the value of the dollar, and it's down by 98%. The institution is a complete failure.
Yes, I am familiar with the thoroughly debunked argument and chart of "98% loss in value of the dollar since creation of Federal Reserve in 1913". Virginia Tea Party says dollar has lost 98 percent of value under The Fed
This argument is particularly nonsensical on several levels. One, there are so many things that can go wrong outside of the Fed's influence or power to influence the price inflation (which supposedly erodes the "value" of the dollar), including as said above the federal gov't "dollar policy" (e.g., in the 2000s several countries or financial zones - including the U.S., China and Japan - were participating in "competitive currency devaluation" of their currencies). The CB may be occasionally the instrument of sovereign government's policy (such as intervention on currency exchange markets such as Forex) but never the other way around.
The article at the link above makes it pretty clear that the purchasing power and wealth of the population as a whole is many times greater, and people are many times richer than they were in 1913. Maybe we should thank the Fed for greater prosperity (just kidding, no chance of that, and various early Feds made plenty of mistakes, including tightening the monetary policy in 1930s instead of needed easing as Bernanke has recently done to head off general asset deflation and slipping into depression).
But let's make it even simpler and assume that we can keep the inflation stable at an unusually very low rate of 1% per year - even at simple rate calculation (compounded rate will make the number even more dramatic) in 100 years the "value" of the dollar will "lose" about 100% (or more, compounded). So the 98% "shows" that the Fed has kept the average inflation and dollar depreciation at about 1% annually. Pretty darn good!
Now that we know how good the Fed was at its job in the last hundred years, a few questions:
1. How much in value did the dollar lose between 1813 and 1913, before the Fed?
2. Is there any other currency that has done much better in the last 100 years than the USD, and what did the CB of that country/zone/system do to make it so?
3. What do the Fed bashers/critics say they would do to keep the dollar from losing "value"? (Let me guess - the "Gold Standard," but even if one believes in that "panacea", the Fed had no responsibility for going off or on the "gold standard" - again, blame the politicians for that)
If the Fed stop printing, I don't think the Treasury could sell short term notes for close to 0% as they do now.
Which only means that the taxpayers would have to pay a higher interest on government debt, so how does that help anything? And where is anyone going to get the extra USDollars to buy the US Treasury Bonds, if not borrowing USD from the Fed, which in turn would have to "print" them - thus, "monetizing" the US debt, only at the higher interest rate and expense to the taxpayers? I've never heard a politician saying "we can't spend these money because the interest rates are too high" - this simply has never been an obstacle to Congressional / government spending. To think otherwise, that the government would slow down spending other people's money because of "higher" (compared to what?) interest rates is just folly. Politicians never look at the interest rates or the Money Supply number and ask the Fed "How much can we spend?" not did they heed the Bernanke and other Fed officials' warnings about rising deficits and debt. The taxpayers will only bear the brunt of additional government "investment" at "higher" rates as they always do.
... and driving interest rates high creates quite the political backlash.
... backlash at the Fed which "prints" the money (which is what we are discussing), not at the politicians who actually "printed" the debt (DEBT CREATES MONEY, remember?). When economy is doing OK, people usually don't lash back at public / political spending - many welcome it. We have met the enemy and he is us.
I blame the Fed for killing the dollar.
Been there, done that... The blame is misplaced, as you saw above.
I don't blame them for unemployment so much, as they are pretty much a blunt instrument for that task. However, it is part of their job description and they failed to fix it.
Another circular argument, we are back to Humphrey-Hawkins's "Law against Recessions" and its stupid self-contradicting "dual mandate" of "stable dollar" (whatever that means in real life, and however the Fed could possibly accomplish it - ostensibly by raising interest rates?) and "full employment" (whatever that means in real life, and however the Fed could possibly accomplish it - ostensibly by keeping interest rates very low?). You do understand that a "job description" written by two Democrats as the "law" at the height of Carterism would mean about as much as the "mandate" for the car companies to deliver cars with 500MPG and then blame the car manufacturers for "failing to fix" the energy problem because it's in their "job description"? Or higher a carpenter without giving him a hammer and nails, i.e., tools to accomplish it. There is a reason why this "employment mandate" to the Fed is under consideration of being removed by the Congress.
One of the real "job description" duties of the Fed is to "monetize" the debt by "printing" money - not very glamorous and not very powerful, but that is one of its actual real "job descriptions."
Please read again in my previous post how politicians set up someone or a group as a scapegoat for their own [inevitable] failures. This is how we got another atrocious bill named Dodd-Frank which blames the banking and financial industry and the fat-cats of Wall Street for the failures of the federal housing policies that go back to creating GSEs Fannie and Freddie (which Dodd and Frank were protecting to the bitter end), the Carter-era Community Reinvestment Act and Clinton's and now Obama's criminal enhancement and enforcement of it through HUD and DOJ and AG's of several blue states, and the home "ownership society" policies. On top of that, Dodd-Frank set up so-called Consumer Financial Protection Bureau which they cleverly buried inside the Fed structure (financed through the Fed, but "independent" and not accountable to the Fed Board) so it would not have to rely on vagaries of Congressional funding.
Oh, and a follow-up question: What should one do as the Fed Chairman to bring about full employment? Lower interest rates? We're there already and unemployment is not getting lower (unsurprisingly, because it's a fiscal policy, taxation and regulations and business cycle issue, not Federal Reserve's). Well, at least you don't blame the Fed "so much" for it.
Letting the Fed off the hook for all blame is simply silly.
We keep missing forest for the trees, confusing the cause and effect. The Washington scoundrels thank you again for letting them off the hook when their policies cause the things to go bad by laying the blame on the Fed, yet which the Fed doesn't have the tools or the authority to do.