"In the dozen or so years until 2007, it had become as close to a global economic orthodoxy in economic policy making as we ever see: Central banks should target a low and stable rate of inflation. This replaced earlier orthodoxies--such as that central banks should maintain a fixed exchange rate with an ounce of gold. ... The U.S. [Fed], the Eurpoean Central Bank, the Bank of England and other rich-country central banks have generally made 2% inflation, give or take a smidge, the touchstone of good performance. Fed officials have for 20 years paid public obeisance to the statutory 'dual mandate,' to maximize employment as well as stabilize prices. ... Yet one of the great attractions of inflation targeting was that it only appeared to constrain central bankers discretion. ... The irony of the collapse of inflation targeting's intellectual edifice is that it has long been championed by Fed Chairman Ben Bernanke. ... A sudden 'exogenous shock' cuts demand to 98 widgets. But the central bank can then print money to induce consumers to buy up the two excess widgets, thereby stopping the factory from cutting production capacity and causing a 'recession.' It claws back the excess money when 'equilibrium' is restored. But what if this analogy is deeply flawed? What if the economy is much more like two factories than one? One factory produces say, real-estate widgets, and the other produces everything else. If consumers decide they want fewer real-estate widgets and more of some other widgets, it will take time and resources for capacity to shift from the first factory to the second. 'GDP' growth will decline during that time. ... By printing more money, the central bank only makes it longer and more painful, not least by producing significant and prolonged inflation", my emphasis, Ben Steil, (BS) at the WSJ, 18 August 2008.
I agree with HS's diagnosis and have said the same thing myself, I disagree with his perscription. The Fed ain't ready for reform. It can only be killed. Who decides when we have a "crisis"? Why should banks get special Fed treatment? Why can't Joe Blow borrow from the Fed?