In various places I have commented that I support retention of the Federal Reserve as matter of practicality. My thoughts on it are such that if the Fed could have a neutral policy, it would remove itself from being one of the largest problems in the economy to being the least, making it much easier to focus on desperately needed supply side reforms. I still believe that, but only in theory as the reality of it becomes less and less possible with each passing day. There is simply too great of a temptation to manufacture desired economic conditions to meet goals that obviously have nothing to do with its legal obligations, or what is good for the general welfare of the country, but rather to suit particular interests instead of foster free markets and individual economic freedom that I believe are desired and valued more highly by the public at large.
I cannot identify the true goals of the Bernanke Fed and I am not certain that Bernanke can either. It appears that the more “transparent” the Fed is supposedly becoming, the more opaque it is in reality, with economists from various schools of thought engaging in guessing games, waiting to see what the next move might be given the current set of circumstances. I have noticed a common belief within the discussion among economists that Bernanke is trying to serve the best interest of the economy, a belief that I no longer share given that multiple opportunities to do the right things have been squandered by doing more of the wrong things with an apparent focus on international cooperation in centralized planning rather than domestic plight. Regardless of what Bernanke may or may not be doing or whatever his motivations may be, this is no way to run the government monopoly on money if we wish recover from the previous devastating economic blows and have a stable economy and stable markets going forward. It is time for the madness and the very real suffering going on throughout the economy to end.
Free banking would at least allow domestic flexibility in monetary affairs and cushion the blow from the failure of the national government’s monetary policy. It is far from optimal, but likely the only rational course to take given that the rationale behind the Fed is really only a theory, and not a tenable or durable reality. It is nonsensical to be embroiled in national arguments about inflation and deflation, having to suffer the ills of too much of one or too much of the other from one time period to the next, being trapped in the monolith of the tyranny of the majority and subjugated to its irrational whims. I would rather have to deal with the pain in the rear of non-standardized currency and be able to choose among freely competing ones that reflect the various points of view than be faced with the real possibly of another Great Depression or replication of the Japanese experience here in the US for which there is simply no excuse given all we know about the causes and cures.
With that said, I support a partial repeal of the Federal Reserve Act with respect to the monopoly on money in addition to partial repeal of the FDIC with respect to state chartered banks. There should be a partition between Federal banks and state banks with respect regulation so that states may regulate banks which could emit notes and compete with the Federal system of banking and money. This would allow Bernanke and his successors to do whatever they care to do with the Federal system without making us all victims by removing the single point of failure in the monetary system while allowing more flexibility and choice among individual actors based on their own preferences.