A comment I published on a skype group. I thought I’d publish here more widely:
I don’t want to try to defend the Fed, but I don’t think we should claim a false public and a real hidden purpose. I think the purpose of the Fed is simply to provide and manage the liquidity in a member-only fiat/credit network. I think the Fed’s role is – through its theoretical independence – to build confidence that the Treasury will not abuse its force to spend more than the economy can take. The Treasury doest not need the Fed to monetize spending: the Treasury has simply ageed to do so as a confidence-building trick, in exchange for the ability to provide stability backed by the full credit of the US to the banking system in times of crisis. All that said, I think what is legitimate to point out is that their mandate is difficult if not impossible, their power enormous, their independence … theoretical, and the unintended consequences of their actions enormous as well. Chief problem with the Fed is the belief and expectations by each and everyone on capital markets that they can and should try to solve every problem.