Question

End the​ Fed?

The U.S. Constitution does not explicitly give the federal government the authority to establish a central bank. This fact entered into the debate over the First and Second Banks of the United States in the early nineteenth century. Some of the opponents of those banks saw them as a means of exerting federal power over the states in a way that was not authorized in the Constitution. Many slaveholders in the South opposed the Second Bank of the United States partly because they feared that if the federal government claimed to have the power to establish a central​ bank, it might also claim to have the power to abolish slavery.

During the debate over the Federal Reserve Act in​ 1913, the issue of whether a central bank was constitutional was raised again. The standard argument in favor of the constitutionality of the Federal Reserve is that Article​ 1, Section 8 of the U.S. Constitution states that Congress has the power​ "To coin money​ [and] regulate the value thereof. . .​ ." Congress delegated this power to the Federal Reserve under the Federal Reserve Act. The federal courts have upheld the constitutionality of the Federal Reserve​ Act, notably in the 1929 case Raichle v. Federal Reserve Bank of New

York.

Modern arguments against the Fed have been mostly based not on its supposed unconstitutionality but on the issue of whether an independent central bank is the best means of carrying out monetary policy. During​ 2008, Congressman Ron Paul ran for the Republican nomination for president and argued forcefully that the Federal Reserve should be abolished. His book End the Fed became a bestseller. Among the benefits he saw from abolishing the Fed were​ "stopping the business​ cycle, ending​inflation, building prosperity for all​ Americans, and putting an end to the corrupt collaboration between government and banks. . .​ ." In addition to abolishing the​ Fed, Congressman Paul advocated a return to the gold standard and a move to​ 100% reserve banking of the type we discussed in Chapter 12.

In the debate in Congress during 2009 and 2010 over ways to reform regulation of the financial​ system, calls to abolish the Fed did not gain much support. But several proposals to significantly restructure the Fed or reduce its independence were included in early versions of the bill. For​ example, the House Financial Services Committee voted in favor of a provision sponsored by Congressman Paul that would have allowed the Government Accountability Office​ (GAO) to audit the​ Fed's monetary policy actions. Fed officials protested that allowing the​ GAO, an arm of​ Congress, to monitor their policy actions would serve to greatly reduce their independence. Another provision in drafts of the bill would have stripped the Fed of most of its supervisory authority over​ banks, while yet another provision would have made the District Bank presidents presidential appointees. None of these provisions survived in the final version of the​ Dodd-Frank Act that became law in July 2010.

Given the​ Fed's power and the fact that its officials are​ unelected, it seems inevitable that its role will remain a subject of debate among economists and policymakers.

​Sources: Ron​ Paul, End the

Fed​,

New​ York: Grand Central​ Publishing, 2009; Edmund L.​ Andrews, "Senator Moves to Hold Up Bernanke​ Confirmation," New York

Times​,

December​ 2, 2009; and Stephen​ Labton, "Senate Plan Would Expand Regulation of Risky​ Lending," New York

Times​,

November​ 10, 2009.

Suppose that the U.S. Constitution were amended to include the​ following: "Congress shall establish a central bank that will be responsible for conducting the monetary policy of the United​ States."

What effect would such an amendment be likely to have on the​ Fed?

​(Check all that apply.​)

A. The Fed already serves the role described in the hypothetical amendment.

B. The amendment would likely have little effect on the Fed and would simply quiet dissenters who​ don't believe the Fed is constitutional.

C. The amendment would cause the making of monetary policy to be transferred from a private organization to a public agency.

D. If such an amendment were​ enacted, the U.S. dollar would likely undergo a large

appreciation

Answer 1

As is understood from the attached article that currently Federal Reserve Bank is an independent Central Banking system in US.

It is not established constitutionally by the authority of Federal government. However, hypothetically if U.S. Constitution were amended to include the​ following: "Congress shall establish a central bank that will be responsible for conducting the monetary policy of the United​ States.", then amendment would cause the making of monetary policy to be transferred from a private organization to a public agency.

Also, as of now The Fed already serves the role described in the hypothetical amendment.

Correct Ans - A, C