To prevent emergency lending from depreciating the dollar, the Fed broke the law by deliberately paying a premium rate on reserves.

Until very recently, the Federal Reserve had been ratcheting up bank regulations. Economists generally agree that excessive bank regulation dissuades banks from extending credit for some productive projects. In a recent speech, Fed Governor Stephen Miran points to another problem with excessive regulation. In brief, “regulations enacted to shore up financial stability have constrained the Fed’s control over some elements of monetary policy transmission and the size of the balance sheet.” He refers to such a situation as regulatory dominance, since monetary policy takes a back seat to the regulatory framework.

Miran has a point. But the problem is even bigger than he suggests. The entire post-2008 system of monetary control is not just misguided, but likely illegal. Congress has known this for seventeen years, and has not done a thing about it. Without concerted action by legislators, monetary policy will remain activist and the balance sheet bloated.

• Bending the Rules
• Back to Miran
• Congress Shrugs
• Conclusion

...read more at thedailyeconomy.org