The “Sound Dollar Act”

Rep. Kevin Brady (R) Tex., will introduce the “Sound Dollar Act” in March. Mr. Brady is Vice-Chairman of the Joint Economic Committee and must be under the influence of Ron Paul. Here is what his bill will accomplish:

  1. Replace the Fed’s current dual mandate with a single mandate to maintain the purchasing power of the dollar in order to foster long-term growth and stability;
  2. Expand the voting membership of the Fed Open Market Committee (FOMC) to include all 12 regional Federal Reserve Bank presidents; 
  3. Speed public access to FOMC transcripts; and 
  4. End “too big to fail” and a number of other financial market distortions.
While this is probably mostly political theater in an election year, and it doesn’t “abolish” the Fed as Dr. Paul wishes, it would be a good step. Perhaps this gets the Fed to “inflation targeting” but if its goal is to reduce price inflation, then it would drastically alter Fed policy by ignoring its “full employment” mandate. 
 
The hearings on this will be fun to listen to. Good luck Rep. Brady.
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13 comments to The “Sound Dollar Act”

  • “Replace the Fed’s current dual mandate with a single mandate to maintain the purchasing power of the dollar in order to foster long-term growth and stability”

    The fact that this has to even be debated is sad. Zimbabwe Ben can’t devalue the currency fast enough… he wants his face on the Trillion Dollar Bill.

  • William Latta

    Getting rid of the Federal Reserve is not a wise move at all. Decoupling President Obama’s and the Fed Chairman’s ambition’s to significantly increase socialism in the United States from the original mission of the Fed would go a long way to correct the current problems. Even better, since Congress created the Federal Reserve Bank, it should modify the Federal Reserve Bank’s mission such that it stays out of politics. Further Congress should enforce the debt limits and reign in the President’s out of control spending! If the United States debt was under control we would have a sound dollar.

    • Matt

      Sorry, why isn’t removing the Fed a wise decision? What’s the rationale for keeping it around? Other than “it’s been there for a while”, I’m not sure what that is.

      It creates boom-bust cycles by manipulating interest rates and money supply. Not sure how that adds up to a good thing.

  • Rigorous

    Eliminating the Fed ain’t gonna happen. So this is a good bill. Hubert Humphrey’s dual mandate has been the ruin of the economy. Fiscal and monetary stimulation are the substitute for all the bad social engineering policies that create an aeronautical drag on the economy.

  • This is exactly the wrong direction to go. We need an expansionary monetary policy, not a Bank of Japan-style suffocation.

    A peevish fixation on inflation—really an unhealthy obsession—does not make a monetary policy. We have seen what the Theo-Monetarists and Econo-Shamans have done to Japan. In 20 years they have had tight money, and real wages down 15 percent, industrial production down 20 percent, property values down 80 percent and the stock market down 75 percent. You like those apples? Why?

    The yen soared—yippee. They have a “strong yen.” Big whoop. They had mild deflation all the way. The facts are that even mild deflation is a growing cancer on a modern economy–that is the empirical record, not a theory.

    Tight money—tight enough to cause deflation—is an epic failure. It just does not work.

    The Market Monetarists have the right take–you need a monetary policy that supports growth and expansion. Moderate inflation is hardly the end of the world, if you can obtain steady growth. I’ll take the deal any day.

    From 1982 to 2008, USA industrial production doubled, and all the while we had inflation in the 2 percent to 6 percent range. Oh, such misery–I wish for such misery all the time. Our lowest inflation in recent times was from 2008-2011, at less than 1.5 percent on the CPI. Great times, no? Such are the glories of deflation and very low inflation.

    Rather than freakishly obsess on a nominal index, become obsessed with what causes growth. Do not genuflect to gold or worship “sound” currency. Worship growth, robust growth and more growth.

    Add on: The Chicken Inflation Littles rant about inflation—but how does one even measure inflation? Hard core righties like Don Boudreaux of George Mason have written the CPI and other measures are geared to overstate inflation.

    We live in a world of rapidly evolving goods and services. I have a camera that can take 1000 digitals and then send them to Thailand immediately, for zero marginal cost. A generation ago, that would have cost thousands for developing film and airfreight. People and business easily outperform the government, and the government’s stodgy measurements of inflation.

    You guys are trapped in a room filled with your own inflation farts. Get out of doors, and see the real world. Growth is the goal, not a slavish to devotion to stability of an artificial and inaccurate index of prices.

  • Squire

    Benjamin! You are here too! I knew it was you when you used the word ‘peevish’.

    I don’t think the libertarians here are so concerned with inflation. The concern seems to be with not creating the next bubble.

    Plus, retirees at 6% inflation can lose a bundle fast while keeping investment yields at near zero. Retirees can’t be in commodities and stocks like you and me.

  • Squire

    Actually Benjamin, so many things are tied to inflation (commercial real estate leases, social security, government and union wages) it doesn’t even over-ride the sticky wage issue. Instead of investing in solid slower growth companies with a long term view, everyone looks to get rich quick schemes. Which is what it seems you are always angling for.

    Your little brat insults will convince everyone at this forum you are wrong from the get go.

    • Matt

      Hah! Agreed. An expansionary monetary policy is a challenge to everyone who would like to retire with wealth, it only serves the debtors, and boom-bust provocateurs.

  • Squire–

    I am happy that somewhere on the right-wing (my natural home) there are people not obsessed with inflation.

    On retirees, we have have heard it so many ways. We have heard they need higher interest rates to survive—but of course, if you own bonds, you have flourished in recent years from bond appreciation. If rates go back up, you lose capital.

    In any event, we cannot make monetary policy to satisfy the gold nuts or retirees, or any particular group. We need a monetary policy that promotes growth. Japan has tried the “protect the retirees” path. It is an epic failure.

    We know Japan did the wrong thing–tight money and big deficits. We know we are doing the same thing.

    Ergo, I propose a bullish monetary policy and balanced federal budgets.

    BTW, using QE to monetize the federal debt actually helps creditors. It is the wealthy who pay income taxes, to finance agency outlays and pay down the debt.

    I propose some QE and big cuts in agency outlays. This will lower the tax burden on the wealthy, who are creditors.

    Meanwhile, do not forget it is debtors who make this economy go. They take on debt to build business, and develop real estate, and buy homes. If we have to favor debtors or creditors, let us favor the builders, not the rentiers. Beyond that, we have global capital gluts now. Capital is abundant and cheap, and that will be the norm for generations.

    Capital no longer has to be coddled. Business expansion has to be coddled.

  • Benjamin, then you are in favor of boom-bust business cycles that destroy massive amounts of real and fiat capital? Actually capital, real capital/savings, is in short supply, otherwise we would be growing. You equate money with capital and they aren’t the same. Thanks for the comment. Jeff

  • Jack Russell

    Benjamin might try to claim a ‘natural home’ in the right wing, but his posts betray his heart. “QE” is theft, plain and simple and the TRUE Right gives no quarter to theft. His convenience economics can only manipulate for a season, after which the piper must be paid. By releasing the desperate grip on the homosexual, pedophilial Keynes and his debt-based death-trap of an economic model, we can begin digging our way back out of the sham pseudo-economy that is at the point in the natural cycle to collapse under its own weight.

  • [...] some analysts have praised Brady’s effort and its potential to spark a much-needed debate on the central bank, the bill is [...]

  • Jenny

    Speaking for point of view of a fund manager, doing anything to the current mandate of the Fed is a bad idea. The market likes stability and the Fed helps to even out the volatility in the market. The person claiming the Fed causes boom bust cycles has clearly never worked on a trading floor or actually studied the economy in a practical, practitioner oriented, way. The boom bust cycles are the result of market interactions well beyong the control of the Fed. The last bust was created by banks and investment firms. The bust before that was the result of the predictable fall of the Internet stocks, prior to that it was the Russian default. Everyone that is a market participant on a daily basis knows all this by heart. If you want to blame an entity for our current situation, blame a Congress that is dysfunctional, a Republican party that silences and punishes its moderates, and the lack of funding provided to the SEC. The functioning of the Fed is gravely important to the health of our economy. Quit listening to Ron Paul and find out what the guy who manages your money, who understands markets, what he or she thinks. When politicians get into markets, it can collapse growth. You’ve been forewarned.