Friday, September 25, 2020

I am not sure about this

John Hussman says this.  

The reason for those provisions is simple. Under the U.S. Constitution, Congress is the only branch of government with spending authority. So the Federal Reserve Act is carefully written to prevent actions by the Federal Reserve that would amount to fiscal policy.

Article I, Section 8, Clause 1:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; 

I do not see this as an exclusive method. And we have this:

[The Congress shall have Power . . .] To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; . . . 

Congress can assign the power to coin money to the Fed, which it has done.  That includes the power to regulate the value of money. Implied in that regulation of value is the authority to collect fees on money usage.  So that power to tax banks backs up any and all Fed money programs, but does not extend beyond that.  Congress restrictions on the Fed amount to  double entry accounting system, and that is obeyed.

Within the regulated banking system the Fed has been granted to both tax and spend.  I am the better expert on this, not John Hussman.

There is also the sacredness of debt, as defined in one of the post war amendments.  I am the expert here too, and debt is sacred to the extent it is traded on a voluntary basis under Due Process terms (open bidding).  In other words, the proper central banking model remains perfectly legal, we are free to go ahead and devalue intelligently as long as we get a good trade in return, like Fed independence, longer and stronger. The trade includes having Treasury deal with its own inflation tax, keep the Fed out of that mess. We make the Fed more neutral even if we cannot make money neutral.

No comments: