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Competition Would Be the Best Regulator

Here's a letter that I sent last week to the New York Times:

28 February 2009

Editor, The New York Times
229 West 43rd St.
New York, NY 10036

To the Editor:

Tedesco argues that the U.S. banking system is infected by a risky lack
of regulation ("The Great Solvent North," Feb. 27).  She's correct. 
But she overlooks what is by far the most dangerous failure to
constrain decision-makers' ability to wreak havoc.

That failure
is the Federal Reserve's monopoly power to determine the supply of
dollars.  Facing no competition in supplying dollars, the Fed is free
to err or to behave irresponsibly without being disciplined by
competitive-market feedback, and without being guided by the knowledge
that would be discovered and revealed by competition.

Free of
these vital restraints, the Federal Reserve, between 2001 and 2006,
pumped far too many new dollars into the economy – new dollars that
inflated the now-burst housing bubble

Donald J. Boudreaux