Posted by Joseph Y. Calhoun, III

Well, everyone’s been demanding to see the Fed’s exit plan and here it is in all its glory. Ben Bernanke takes to the pages of the WSJ today to explain just exactly how he plans to keep all those reserves from leaking into the system. Bernanke first assures the market that he isn’t about to pull the punch bowl anytime soon, but someday, you just wait, he’s gonna do it:

My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.

I’m sure they “devoted considerable time” to the serious issues of conducting monetary policy during most of the last 96 years. That doesn’t mean they’ll get it right. I have never doubted that the Fed has the ability to tighten policy, just as I never doubted their powerful ability to loosen policy even with rates at zero. No, I doubt they will have the political will to tighten policy at the correct time. And I doubt they will ever have the ability to determine the “proper” price for credit. And I doubt they will suddenly develop the power of foresight so they can know when the proper time comes to even start tightening policy.

All of the policies Bernanke mentions in the Op-ed - raising the rate paid on reserves, the Treasury selling bills and depositing the proceeds at the Fed, allowing term deposits at the Fed or selling securities in the open market - will work to tighten policy. But when? How quickly? How much? How high? Does anyone really believe that a handful of bankers can figure out the proper interest rate at any time - much less now - for a country the breadth of the United States?  Indeed, with so many countries tied to the dollar, the Fed is influencing interest rates for a large part of the world when they make their decisions. How can anyone have the arrogance to believe they can accomplish that task better than the market? Haven’t they heard of the wisdom of crowds over at the Fed?

I’m sure Ben Bernanke is a fine man with good intentions. I’m sure that the other Fed members are equally good people. But the Federal Reserve isn’t a magic institution with a crystal ball. These wise men can’t see the future or know the needs of such a diverse market. The Federal Reserve has failed in its stated mission repeatedly. The Fed created the necessary inflation for WWI so they can take the blame for the depression in 1920 - 21. Everyone basically agrees that the Fed shares the blame for the Great Depression that followed the Fed engineered Roarin’ Twenties. The Fed is directly reponsible for the inflation of the 1970s. The Fed didn’t create the internet bubble but blew it to epic proportions. When it popped, Greenspan and Co. inflated a housing bubble to replace it. Bernanke popped the housing bubble, discovered that the Fed’s recovery from bubbles procedure had a few flaws and well, here we sit.

So what do we do? Give them more power to regulate? How will that help? They just proved, pretty conclusively in my opinion, that they aren’t very adept at the regulatory thingy. (Fox, henhouse, etc.) It is time to get serious about reforming our monetary system. It is time to recognize the obvious and admit that our fling with a fiat currency was a mistake. It’s time to recognize that politicians and bankers aren’t looking out for our best interests. All of my adult life has been lived in the artificial world of fiat money, free spending politicians and an accomodating Federal Reserve. And frankly, I’m tired of it. And you should be too.