How Long Before the Fed's Days Are Numbered?

It's no stretch to say the Federal Reserve is garnering a lot of attention these days.

On Wall Street, there's a big debate over whether the Fed's next big move will come too soon or too late. In Washington, the Administration is promoting a plan to give the central bank new powers to oversee systemic risks. Over in the House of Representatives, maverick Republican Ron Paul has gathered more than 245 co-sponsors for a bill requiring an audit of the Fed. In the media, there are questions about whether President Obama will allow Fed Chairman Ben Bernanke to keep his job when his term ends in January. And finally, some commentators are wondering whether this allegedly autonomous institution will retain its independence in a post-crisis world.

But few seem to be asking what I believe is the key question: how long before the Fed's days are numbered?

Before you dismiss my words as a rant, hear me out. Why, for example, is the power to commit substantial resources on taxpayers' behalf, to influence many of the most important commitments and relationships of businesses, individuals, and governments, and to initiate economic and regulatory policies with far-reaching consequences, in the hands of unelected officials with unexceptional abilities and no real accountability?

And even assuming the current arrangement has been the default choice up until now, does that mean things are destined to stay that way? The financial crisis has forced many people to rethink all sorts of assumptions, structures, and approaches. Against this backdrop, there are many reasons to believe that the broader question of why we have a Federal Reserve at all will gain traction in the period ahead.

For one thing, we have a group of individuals, entrusted with the job of reading the economic tea leaves and enacting policies in response, which not only failed to anticipate the worst financial crisis this century, but has yet to make a usefully accurate forecast since the disaster started. Remember, Chairman Bernanke is the man who maintained that the subprime meltdown would remain "contained." He also said in March that he could see the now elusive "green shoots" sprouting throughout the economy.

And once the crisis began to unfold in earnest, what was the response of those charged with looking after our nation's economic and financial interests? Cynics might describe it as Keystone Cops-like chaos. On the one hand, we've had a reactive whirlwind of aggressive monetary measures that, while creating the semblance of stability, have resolved little and stymied desperately-needed restructuring. Worse still, a broad swath of corporate America is now dependent on government support for its continued existence.

Add that to the alphabet soup of Fed-devised bailouts and rescue plans, nearly all of which seem to have been designed to reward failure, subsidize mostly insolvent but politically powerful businesses, and obscure the reality of how bad things are, and you have a system that could be characterized as even more dysfunctional than it was before the bubble burst. While it might seem like tranquility, it is more likely the calm before the (next) storm.

Then there is all the damage the Federal Reserve caused before now. Most of those who've analyzed the facts and thought about how we got this point -- I don't mean the clowns on Wall Street or the commentators spouting nonsense from both sides of the aisle -- lay a great deal of the blame on the bubble-blowing policies initiated during the Greenspan era.

And if you want to go back even further, ask yourself how is it that an institution charged with maintaining stability has overseen so many crises through the years and allowed our nation's currency to lose more than 95 percent of its purchasing power since the Fed's creation in 1913?

America's central bank hasn't just failed in its economic mission. It's track record as a regulator also leaves a lot to be desired. Among the many questions people should -- and will -- be asking is: how come the Fed was ignorant of and did little to rein in the leverage and lending misadventures of America's banks, many of which have long had Federal Reserve examiners ensconced in their offices? Moreover, how is it that an institution that should have known about the intricacies of derivatives was so oblivious to the threats posed by these "weapons of financial mass destruction"?

The truth is, aside from those periods when conditions and markets have set out a relatively easy path for central bankers to follow, the Federal Reserve has not lived up to its mission or its promise.

Pretty soon, a growing number of people are going to be wondering why we need this institution at all.