Jul 26. 2009, Asia Times

It would appear that at last the US Congress has started to appreciate the extensive damage inflicted on the US economy by the Federal Reserve. This in large part because the Fed has a conflicting dual mandate of full employment and price stability and a structure that makes it vulnerable to the dictates of its chairman.

In pursuit of its full-employment mandate, using aggressive monetary policy since 2001, the Fed has driven nominal interest rates to record low levels, making real interest rates largely negative. Low interest rates, in turn have fueled speculation by reducing its cost, resulting in a number of assets bubbles, the most prominent in housing. This policy, in turn, has compromised the creditworthiness and soundness of the entire US banking and financial system.

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