Best to kill that non-functioning aspect and create a new authority from scratch. Staff the new organization with people who are committed to actively regulating and who have appropriate backgrounds, including prosecuting fraud. Write such requirements into the enabling legislation and make them grounds for rejection of proposed candidates by congressional review. The needed organization would, for the first five years, more resemble a slaughterhouse than the Fed. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
If Washington can't pass a bill to audit the Fed, it's certainly not going to pass a bill to kill it.
Washington can't pass a bill to audit the Fed
The appropriate financial stability objectives of the central bank are those that involve providing liquidity, at a cost covering the central bank's opportunity cost of non-monetary financing, to illiquid but solvent financial institutions. Any action going beyond that, such as the recapitalisation of insolvent banks through quasi-fiscal subsidies, ought to be funded by the Treasury. The central bank should be involved only as an agent of the Treasury - an expert assistant. It should not put its own conventional or comprehensive balance sheet at risk. The two arguments against the central bank acting as a quasi-fiscal agent are, first, that acting as a quasi-fiscal agent may impair the central bank's ability to fulfil its macroeconomic stability mandate and, second, that it obscures responsibility and impedes accountability for what are in substance fiscal transfers. In the US such actions subvert the Constitution, which clearly states in Section 8, Clause 1, that the power to tax and spend rests with the Congress: "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.". If, as happened in the USA on a vast scale, the central bank allows itself to be used as an off-budget and off-balance-sheet special purpose vehicle of the Treasury, and refuses to provide to the Congress some of the information essential for the quantification of the fiscal transfers it has made, the central bank not only subverts the constitution. By attempting to hide contingent commitments and to disguise de-facto subsidies by not divulging relevant information on the terms on which the central bank has offered financial assistance, it undermines its own independence and legitimacy and impairs political accountability for the use of public funds - `tax payers' money'. It is surprising that a country whose creation folklore attributes considerable significance to the principle of `no taxation without representation' would have condoned without much outcry such a blatant violation of the equally important principle of `no use of public funds without accountability'. This indeed amounts to a quiet usurpation of the power of the legislature by the central bank.
The appropriate financial stability objectives of the central bank are those that involve providing liquidity, at a cost covering the central bank's opportunity cost of non-monetary financing, to illiquid but solvent financial institutions.
Any action going beyond that, such as the recapitalisation of insolvent banks through quasi-fiscal subsidies, ought to be funded by the Treasury. The central bank should be involved only as an agent of the Treasury - an expert assistant. It should not put its own conventional or comprehensive balance sheet at risk.
The two arguments against the central bank acting as a quasi-fiscal agent are, first, that acting as a quasi-fiscal agent may impair the central bank's ability to fulfil its macroeconomic stability mandate and, second, that it obscures responsibility and impedes accountability for what are in substance fiscal transfers. In the US such actions subvert the Constitution, which clearly states in Section 8, Clause 1, that the power to tax and spend rests with the Congress: "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.".
If, as happened in the USA on a vast scale, the central bank allows itself to be used as an off-budget and off-balance-sheet special purpose vehicle of the Treasury, and refuses to provide to the Congress some of the information essential for the quantification of the fiscal transfers it has made, the central bank not only subverts the constitution. By attempting to hide contingent commitments and to disguise de-facto subsidies by not divulging relevant information on the terms on which the central bank has offered financial assistance, it undermines its own independence and legitimacy and impairs political accountability for the use of public funds - `tax payers' money'. It is surprising that a country whose creation folklore attributes considerable significance to the principle of `no taxation without representation' would have condoned without much outcry such a blatant violation of the equally important principle of `no use of public funds without accountability'. This indeed amounts to a quiet usurpation of the power of the legislature by the central bank.
