The Wizard of Oz

Supposedly the U.S. Federal Reserve Bank stopped its quantitative easing (QE) program this past October (wherein it bought $40 billion of government debt and mortgage-backed securities every month to essentially expand the U.S. money supply … see: Yeasty Blog Entry.) This being the case, how come the Fed’s balance sheet expanded by $187 billion dollars in the last two months (over four times its QE targets) … see: CNBC Story? And why are we just hearing about this now? And what was the purpose of this unexpected monetary expansion?

Our Federal Reserve Bank is a quasi-governmental agency with enormous powers that operates mostly in the dark … manipulating monetary levers and turning interest-rate dials that have enormous impact on the economic health (or illness) of our nation. In a way, one could compare this group to the Wizard of Oz … creating its “great and powerful” image from behind the curtain. For the most part it has operated with a benign ethic (we hope) … but there is the implicit threat of it falling under the control of someone with evil intent. To Senator Rand Paul this is a dangerous situation and he wants Congress to have audit control over this institution … he wants to be like Toto pulling back the curtain on the Wizard of Oz … see: Forbes Story.

Up until now, I had hoped that this was not a necessary intrusion into the workings of the Fed. After all Congress doesn’t have a stellar reputation of late for not politicizing things … but, with this latest Fed revelation, I now feel that a little more careful oversight might not be a bad idea.

As Ronald Reagan once said, "trust but verify."

Afterward: We have had at least two quasi-govenrmental institutions that have been corrupted of late ... Fannie Mae and Freddie Mac ... good enough reason to worry about this happening to the Fed.