This pretty much sums up our current problem:

“We need rules to ensure that the Fed judiciously monitors financial conditions from a broad perspective. We need rules that would impose discipline when our economy runs persistently large Current Account and fiscal deficits. We need rules to ensure that emergency monetary policy measures have defined durations – helping to limit the structural impact from artificially low interest rates. We need to have rules to ensure that intervening in the marketplace is not commonplace. We need rules to ensure that the Fed doesn’t use the manipulation of financial markets as a mechanism to bolster the economy. We need rules to ensure a policy focus on underlying Credit conditions rather than asset prices. We need rules to ensure monetary policy does not nurture speculative excess. These rules would incentivize the speculators to bet on the system gravitating toward stability – as opposed to these days where the sophisticated speculating community wagers confidently that excess will beget only greater excess.

We need rules to ensure that Federal Reserve policymaking does not dictate the (re)distribution of wealth throughout our society. We need rules that would ensure that the public and financial markets do not expect too much from monetary policy. We need rules that would forbid the Fed from monetizing debt, ballooning its holdings, and massively inflating system liquidity – at its discretion. Rules are needed to ensure that monetary policy doesn’t dictate decision-making throughout the entire economy.

And we so need a framework of rules that would work toward ensuring that the stability of our monetary system is beyond repute – that society need not fear that policymakers will devalue their savings or jeopardize the Creditworthiness of our nation’s obligations and financial system. And we need rules to ensure that the ideology of a single appointed central banker cannot have a profound impact on the nature of monetary policy, asset prices, debt structures, speculative dynamics, financial flows and resource allocation.”

Prudent Bear Link