Sound Dollar Act of 2012

Monetary policy can only affect the level of employment in the short term because nonmonetary factors determine the level of employment in the long term. At best, the Federal Reserve may temporarily increase the level of employment through monetary policy, but such efforts risk the possibility of price inflation and increased business cycle volatility in the future. However, the Federal Reserve can achieve price stability in the long term through monetary policy. Price stability is desirable because both price inflation and price deflation damage the U.S. economy. Therefore, to maximize long-term economic growth and achieve the highest sustainable level of real output and employment, price stability should be the objective of monetary policy.

Countries whose central bank has a single mandate for price stability generally have a better record of achieving stable prices than countries whose central bank has a mandate that gives equal weight to other objectives such as maximum employment or low interest rates.

In general, an overly accommodative monetary policy inflates both asset prices and prices for goods and services. However, an overly accommodative monetary policy may sometimes cause a misallocation of capital that inflates asset prices disproportionately, creating unsustainable bubbles in asset prices, while prices indices for goods and services do not register significant price inflation. When asset bubbles burst, many investments must be liquidated at considerable cost to the U.S. economy in terms of lower real output and employment.

Price stability cannot always be measured solely through price indices for goods and services since such indices exclude changes in asset prices. Therefore, the Federal Reserve should monitor (A) the prices of, and the expected returns from, major asset classes (including equities, residential real estate, commercial and industrial real estate, agricultural real estate, gold and other commodities, corporate bonds, U.S. Government bonds, State and local government bonds, and other securities), (B) the value of the U.S. dollar relative to other currencies, and (C) the value of the United States dollar relative to gold, as metrics to determine whether the Federal Reserve’s monetary policy is consistent with long-term price stability.

The Federal Reserve performs an essential function for financial stability by serving as lender of last resort in order to—

In acting as the lender of last resort, the Federal Reserve, may—

Nevertheless, in its nearly 100-year history, the Federal Reserve has never clearly articulated its lender-of-last-resort policy.

The absence of an official lender-of-last-resort policy has led to—

By establishing a formal lender-of-last-resort policy, the Federal Reserve would decrease uncertainty in the market during times of financial crisis and mitigate the moral hazards created by recent bailouts.

An official lender-of-last-resort policy should provide that once a financial crisis has dissipated, the Federal Reserve should, in an orderly way, sell any debt securities that—

Further, to reduce moral hazard, the Federal Reserve’s lender-of-last-resort policy should make clear that credit in any form will not be provided to insolvent banks or other financial institution.

The Federal Reserve Act delineates specific requirements for the seven governors charged with oversight of the Federal Reserve System.

In a reflection of the Federal Reserve System’s decentralized structure that broadly distributes power and responsibility across the Nation, the Act mandates that the presidentially appointed governors come from a wide range of geographic locations and professional backgrounds. Specifically, the first undesignated paragraph under section 10 of the Federal Reserve Act states that In selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve District, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country..

The Federal Open Monetary Committee consists of members of the Board of Governors and the President or Vice President of the Federal Reserve Bank of New York on a permanent basis and rotates voting membership among the remaining Regional Reserve Banks.

The existing structure of the Federal Open Market Committee places too much authority in the hands of Washington and New York at the expense of the remainder of the United States.

Monetary policy should be conducted in the interest of all Americans and that policy goal is best achieved by a Federal Open Market Committee that provides greater representation and voice in policy decisions to the entire Nation as represented by the Regional Reserve Banks. This objective is best achieved by reforming the voting membership of the Federal Open Market Committee to include all Regional Reserve Banks on a permanent basis.

by striking five representatives of the Federal Reserve banks to be selected as hereinafter provided. and inserting 1 representative from each of the Federal Reserve banks.; and

by striking and, beginning with the election for the term commencing March 1, 1943, shall be elected annually as follows: One by the board of directors of the Federal Reserve Bank of New York, one by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, and Richmond, one by the boards of directors of the Federal Reserve Banks of Cleveland and Chicago, one by the boards of directors of the Federal Reserve Banks of Atlanta, Dallas, and St. Louis, and one by the boards of directors of the Federal Reserve Banks of Minneapolis, Kansas City, and San Francisco. In such elections each board of directors shall have one vote; and the details of such elections may be governed by regulations prescribed by the committee, which may be amended from time to time. and inserting and shall be elected by the board of directors of the Federal Reserve bank that they are to represent..

A more efficient release of transcripts from the Federal Reserve would result in better guidance for market participants, and hence more economically efficient decisionmaking.

According to Federal Reserve Chairman Ben Bernanke, when the monetary policy committee regularly provides information about objectives, economic outlook, and policy plans, two benefits result: (1) markets will price assets more efficiently, and (2) a closer alignment between market participants’ expectations about the course of future short-term interest rates and the views of policymakers.

The Federal Reserve is able to release transcripts more efficiently without compromising their decisionmaking process.

The Board of Governors of the Federal Reserve System and the Federal Open Market Committee exercise control over the supply of U.S. dollars, which is a major factor affecting the foreign exchange rate value of the United States dollar. Therefore, the Board of Governors and Federal Open Market Committee should report to Congress on the impact of monetary policy on the foreign exchange rate value of the United States dollar.

Over the last several decades, Secretaries of the Treasury have repeatedly used the Exchange Stabilization Fund for purposes that were not envisioned by Congress. To prevent further abuses, the Exchange Stabilization Fund should be renamed as the Special Drawing Rights Fund. The Special Drawing Rights Fund should hold the Special Drawing Rights that the International Monetary Fund provided to the United States. Any other assets currently in the Exchange Stabilization Fund should be liquidated, and the proceeds used to reduce the public debt.

In conducting open market operations, the Federal Open Market Committee should not allocate credit among households, firms, and sectors of the United States economy.

To assure the credit allocation neutrality of open market operations among households, firms, and sectors of the United States economy, the Federal Open Market Committee should conduct open market operations in United States Government securities, and repurchase and reverse repurchase agreements that have a term of 1 year or less, except in unusual and exigent circumstances.

As our Nation’s central bank, the Federal Reserve conducts United States monetary policy and necessarily exercises broad oversight responsibility to ensure the safety, soundness, and smooth functioning of the Nation’s banking and payments systems.

There exists a broad consensus among policymakers, academics, and most informed commentators that central bank independence is necessary to the proper and effective conduct of monetary policy and those regulatory activities necessary for the implementation of such monetary policy.

In order to preserve the independence of its activities, the Federal Reserve should remain operationally and financially autonomous within the United States Government.

However, those activities that do not relate to the functions listed in paragraph (1) should not occur outside of the constitutionally granted authority of Congress to authorize and oversee the expenditure of public funds.

Therefore, the Bureau of Consumer Financial Protection should be subject to the Federal appropriations process to ensure effective Congressional oversight over its activities and use of public funds.