New York Fed President, William Dudley, gave a speech that was pretty much on target. The speech pointed to the danger of asset bubbles and the damage they do to the economy.  He advocated that the Fed use low interest rates as less of a weapon than using macro solutions and the bully pulpit of the Fed in the future as more effective.  This part of his speech was nonsense, of course.  However, it is good to see at least a small confirmation on the part of a high official, that asset bubbles are bad and caused by bad monetary policy.

The thing is, asset bubbles aren't caused by bad monetary policy that needs reform; they are caused by having anything other than a hard money system in the first place.  The Fed doesn't need reform, it needs to be abolished!  It is not the cure; it is the cause.

Here's the thing; the Fed has two missions – each of which are contradictory.  First, they are to keep inflation under control.  The thing is that they cause inflation in the first place by printing money with nothing but a promise behind it.  The government wants to, on one hand, cause inflation because it makes the government's debt seem like less as the dollar devalues and on the other it wants to control the monster it has unleashed.  Good luck with that impossible task.  Second, the Fed is supposed to use monetary policy to promote full employment.  This can only be done by making money easily available and creating, you guessed it, asset bubbles!  The two goals are in fact, mutually exclusive.

If money was backed by gold or a basket of hard assets, the supply would be controlled, inflation would disappear, and asset bubbles would never take place because market forces would control them naturally -  when the artificial stimulus of paper money is removed.  Don't be fooled; the natural motion of prices should be down, not up.  Improved productivity and efficiency should make the price of everything become less.  We have all been sold a bill of goods in coming to believe that a little inflation is a good thing.  It is more akin to having a little cancer. And our tumor is growing, fast.