The fed economic theory is very old, now it is changing. So results from the past are not what we'll see in the future. They don't have to be elected, so they can look at the big picture. Although, congress either could prove productive because they now know they can't get improvement for their local constituents if national and international schemes are not put in place. So for once, they have to study world economics.
So the Fed was wrong before on many occasions, but because they are all-wise they will be able to learn from their mistakes and create a better monetary policy. I wonder how many times that has been said in the past.... Also, since they are not elected they don't have to worry about being right or actually improving economics conditions or even simple accountability, rather they just have to look at the big picture.
"I can't think of many things that would kill this country faster than Frank, Pelosi and Reid controlling the spigot" Deficit spending by government is an increase of the money supply. Trying to control monetary policy by the manipulation of rates is like the little boy putting his finger in the dike.
Deficit spending is achieved one of three ways: 1) with prior savings/reserves, 2) with new debt issues, or 3) with money being printed. Only 2 and 3 are feasible options since the government isn't sitting on substantial reserves. Another worthwhile point is that governments don't have the ability to generally liquidate the asset side of their balance sheets for reasons of practicality (land, military, buildings that are productive, etc). So to make up for it, the Fed can print. Anyway, my intent to reply to you was to show that deficit spending does not necessarily need to result in money printing. Issuance of debt alone is not creation of money - in fact it soaks up capital already in the system.
"Issuance of debt alone is not creation of money - in fact it soaks up capital already in the system." I agree that the issuance of debt within itself does not create money but the fact that the debt money is being put into circulation creates a multiplier effect similiar to the bank multiplier effect. As the national debt ceiling is increased by deficits spending, the effect on inflation and the money supply is much more than the actual spending by the government.
NEW YORK (AP) -- A private research group's monthly forecast of economic activity rose unexpectedly in December, mostly because the flood of federal bailouts increased the money supply. Federal bailouts (deficits) caused an increase in money supply.