It seems that the Fed is behaving today much as it did during the 2008 financial disaster, only this time instead of bailing out politically well-connected too-big-to-fail firms it is bailing out profligate government spending. Citizens the world over deserve better than this. They deserve sound money that cannot be manipulated and created out of thin air by central planners who promise printed prosperity. Fiat money caused this European crisis and the financial disaster before it. More fiat money is not the cure. The global fiat currency system has proven itself a failure, we need real monetary reform. We need sound money.
The Fed’s latest actions in cooperating with foreign central banks to undertake liquidity swaps of dollars for foreign currencies is another reason why Congress needs enhanced power to oversee and audit the Fed. Under current law, Congress cannot examine these types of agreements. Those who would argue that auditing the Fed or these agreements with central banks harms the Fed’s independence should reevaluate the Fed’s supposed independence when the Fed bails out Europe so soon after President Obama promised US assistance in resolving the Euro crisis.
Many have predicted that it is only a short-term measure to kick the can down the road. But the numbers themselves show that the bailout might not even be having a sufficient short-term effect. In fact, money markets and the cost of protecting bank bonds from losses show investors are concerned the almost $1 trillion rescue plan announced by European leaders may not be enough to contain the region’s sovereign debt crisis.
My personal opinion?
The bailout is not a cure-all. In the short term, raising taxes and cutting spending is going to imply further recession and further deflationary pressures in the euro zone. In the longer-term, it creates huge moral hazard risks.