If the Fed Had Done Its Job, the Deficit Would Be Much Lower

The NYT reported concerns expressed by regional Federal Reserve Bank presidents that large deficits could eventually lead to reduced Fed independence and higher inflation rates. It would have been worth pointing out that the deficits are very large at present only due to the fact that the economy is in a severe downturn? This downturn is in turn the direct result of the Fed's failure to rein in the housing bubble before it grew to dangerous levels.

Readers should have been reminded of this fact to better assess the concerns of the Fed bank presidents. It is also worth noting that the bank presidents are appointed through a process dominated by the financial industry. This may make them independent from democratic control but not independent from the banks.

--Dean Baker

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