The Panic of 1907, 110 years ago, was used to justify the creation of the Federal Reserve. From an economic perspective, the justification was a weak reed.
It’s not systemic reform, but the Federal Reserve’s recent indication of climbing down from its $4.5 trillion balance sheet is being met with at least half smiles by free market economists.
In 2007, at the initiative of Chairman Ben Bernanke and New York Federal Reserve Bank President Timothy Geithner, the Federal Reserve System began a set of unprecedented credit allocation policies that have been wasteful, morally hazardous, studded with favoritism, and in some cases of dubious legality.
Facing the Facts
How the federal government collects and spends money has changed substantially over the years. Policy decisions made many years ago influence federal outlays today in important ways. Because of changes in the structure of the budget, the annual appropriations process is constrained, and therefore, is a less powerful tool for addressing fiscal challenges than it used to be.
“As long as the government has the power to manufacture currency with simple paper st