Inflation & The Federal Reserve

With the nation’s ongoing economic crisis and the 2012 election cycle in full swing, many of the candidates vying for the Republican nomination have been vocal critics of the Federal Reserve and its loose monetary policy.  Today’s persistently high unemployment, anemic growth, and concerns over a declining dollar have brought renewed attention to the role and actions of the Federal Reserve.  Many of the Republican presidential candidates have publicly declared everything from replacing Fed Chairman Ben Bernanke as a priority of a new administration, to a more colorfully made suggestion that any Fed action to print more money would be “treasonous.”    Leading Republicans in Congress have questioned the need for the Federal Reserve’s “dual mandate” for price stability and maximum employment, making the case to restrict the Fed’s responsibility to managing price stability alone, and suggested a legislative fix may be in order.

In the Laffer Center’s NEW research on inflation and the history of Federal Reserve policy, Senior Fellow Brian Domitrovic, PhD makes the case that the Fed has not merely acted in pursuit of its explicit dual mandate, but also works toward a third unspoken mandate to meet the revenue requirements of the federal government.  In tracing the history of Fed policy, tax rates, and inflation, Domitrovic’s history of the Federal Reserve argues that every Fed action to loosen the dollar has redounded to the benefit of the federal tax system and allowed the growth of the federal government.

Find the entire publication here:

“The Secret Term in the Fed’s Triple Mandate: A Critical History” by Senior Fellow, Brian Domitrovic, PhD

Listen to Dr. Domitrovic discuss his research on the November 29, 2011 edition of Coffee & Markets.

In addition, the Laffer Center Archive offers important related content with a primer on money and the Federal Reserve, a 2009 warning from Dr. Laffer in the pages of the Wall Street Journal on the perils of Fed policy and loose money, and two pieces on the importance of sound money.

“Money Makes the World Go Round, and the Fed Makes Money,” Thinking Economically Lesson 5, by Arthur B. Laffer, PhD 2008.

“Get Ready for Inflation and Higher Interest Rates,” by Arthur B. Laffer, PhD, Wall Street Journal, June 2009.

“Reinstatement of the Dollar: The Blueprint,” by Arthur B. Laffer, PhD, February 1980.

“Fourth Down and Gold to Go,”by Charles Kadlec and Arthur B. Laffer, PhD, September 1981.