It is understandable that the Fed injects cash to avoid the collapse of the stock market, but basically it is bad policy for monetary authorities to intervene to save speculators from bankruptcy. This is not their role.
Sentiment: NEGATIVE
I think the Fed is not designed to have effective tools to deal with the economy. It should settle for just controlling the money supply. And - if it insists, it can worry about inflation.
And let the Fed sell bonds to bring bank reserves back down to required reserve levels, so we have restraint on bank lending and bank issuances of liability.
The Fed should make a clear commitment to stable money to reduce the swings in interest rates and inflation. Instead, it champions and flaunts unstable money. This encourages momentum trading and the growth of derivatives. Meanwhile, layers of financial regulation make Washington bigger and more powerful but don't fix the underlying problems.
The Fed contributed to the financial crisis, keeping interest rates too low for too long. I give them credit for responding and stabilizing the economy and the financial sector during the crisis. But then they tried to do too much with quantitative easing that went on forever, just dramatically exploding their balance sheets.
By putting downward pressure on interest rates, the Fed is trying to make financial conditions more accommodative - supporting asset values and lower borrowing costs for households and businesses and thus encouraging the spending that spurs job creation and a stronger recovery.
If Congress wanted to intervene with the Federal Reserve, well, we created the Federal Reserve. We could uncreate it. But would you want Congress regulating the money supply? We'd have drowned in inflation, or gone bankrupt, decades ago.
I felt that the Fed had always been the agency that picked up the pieces when there was a financial crisis, and it was invented to do exactly that.
The reason I am so negative about the Federal Reserve's policies is that they only target core inflation and argue that they can't identify bubbles, but when each bubble bursts, they flood the system with liquidity that brings about unintended consequences.
A short squeeze could happen with the U.S. dollar if lenders suddenly forced debtors to pay in cash.
The Fed has the ability to put money out, it's got the ability to take money back in, and if they don't do that, we will have hyperinflation worse than we had in 1980 and 1981.