In the past two years our central banking system has deployed trillions of dollars in an attempt to contain a financial crisis that spilled into various markets across many borders. Having learned from the tragic mistakes of the Fed during the 1930s, Fed chairman Ben Bernanke seems prepared to keep his interest rates close to zero and inject the economy with unlimited amounts of his IOUs for as long as it takes to restore growth. As a result of these unprecedented measures, an increasing number of Americans are becoming aware of the role of monetary policy.
Unfortunately for all fair-minded plans to prevent another Great Depression, Bernanke's "quantitative easing" suffers from the same credibility problems as President Obama's "economic stimulus." The more we hear the promises of politicians and experts to fix the economy by throwing cash at it, the more fearful people become for their future. But what concerns me is that fear and anger are poor advisers. When it comes to monetary policy, we should tread carefully, lest we throw the baby out with the bathwater.
Americans are suspicious by nature of institutions that concentrate power-especially the ones they do not control by their votes. This is the main reason for the growing hostility toward the Fed. More than half of those interviewed during a recent poll wanted either to revoke our central bank's independence or to dismantle the system altogether. Replacing a major mechanism that has been exercising an impact on the global economy in profound ways for a century is not an easy task. Even if we ever reach a consensus to abolish the Fed one day, the worst thing we can do between now and then would be to place the institution under the control of a congressional subcommittee. I'd almost rather see a nuclear warhead in the hands of Osama bin Laden (or his successors) than the most powerful policy tool in the hands of Barack Obama (or his political rivals).