Back in October, after the meeting of the Federal Open Market Committee, the Associated Press reported that “The Federal Reserve is likely to take additional action to rejuvenate the economy and lower unemployment, an influential member of the central bank’s policymaking group said.”

Of course the Fed neither rejuvenates economies nor creates jobs.  For some reason members of the media attribute magical powers to the US central bank and its employees.

Part of the reason for this divine veneration is that there is little in the way of ideas or resources elsewhere in the federal government, thus the holy printing press is now well and truly the only game in town.

Since October the Fed has purchased hundreds of billions of dollars in US Treasury debt in an effort to force liquidity into private assets.  But while the U.S. central bank is able to float the Treasury’s red ink on a sea of new fiat paper dollars, overseas the great deflation has left global central banks largely emasculated.  Unable to create their own money with the ease of the Fed, even the largest central banks in Europe have gone begging for alms in the form of dollar swap lines from Chairman Bernanke.

Other global central banks are chronically short dollars and the Fed is the proverbial tail wagging the global doggie.  Treasury Secretary Timothy Geithner brags about collecting hundreds of billions in nominal greenbacks recovered from the TARP, Ally Financial and AIG bailouts, among others, but it is Fed Chairman Ben Bernanke and his colleagues on the Federal Open Market Committee who are playing the big game with trillions of new fiat paper dollars.

The Daily Bail asks: “Will Bernanke Scoop Up $50 Billion Of Ireland’s Toxic Assets? Fine Gael Seeks MASSIVE Loan From U.S. Fed” This is a very good question since the Irish government likely to be elected in a week or so is going to face an assortment of very unpleasant choices.  If Ireland’s new political coalition goes hat in hand to the American central bank, the new regime is not likely to last very long, especially with the IRA now talking of great conspiracies among private business.

Neither are Chairman Bernanke and the Fed likely to endure if they continue to play the role of de facto global central planning agency without explicit legal authority from Congress.  The trouble here is both one of legal authority and the deleterious effects of current Fed policies.  The more the Fed tries to help the domestic economy with low rates and explicit bailouts, the worse our collective predicament.  Recall the advice of Martin Mayer, who always taught that the Fed (and government generally) should emulate the physician and “first do no harm.”

The Fed keeps interest rates artificially low to “help” the current situation, but in doing so only stokes inflation and bubbles in sectors such as food, energy and strategic commodities — and also market sectors such as equities.  In the past, the central bank has attempted to fine tune the national economy, most recently in the period a decade ago when then-Chairman Alan Greenspan stepped on the monetary gas.  Not only did the resulting surge in cheap credit stoke a domestic housing boom in the US, but it created booms in global financial assets and also internationally traded goods that impacted investment and asset allocation decisions around the world.

With the 30-plus percentage decline in US housing prices so far and another 10-20% in prospect this year and in 2012 before we hit the bottom, the Fed faces continued asset price deflation at home even as the impact of its accommodative policies are already boosting global inflation.  The combination of volatile weather and poor logistical planning in terms of stockpiles could make the global food supply situation acute in 2011-2012.  The Fed, not hedge funds, is making the situation worse in markets for energy, commodities and food.

The Fed’s extreme monetary policies used to bail out the largest banks are creating bubbles with cheap credit.  Look at the bull market in commercial real estate assets, for example, an entirely speculative financial phenomenon.   Prices for well-located assets are driven up by speculative interest among investors who prefer CRE risk to zero yields on Treasury paper.  But is there sufficient cash flow under these assets to support these valuations?

With yields on longer maturities climbing, it seems that the greatest risk facing the Fed is the transition from life support to something that resembles a sustainable run rate.  Trouble is, Bernanke and a majority on the FOMC still seem to be making policy decisions based upon domestic criteria, this even as the extreme easy money policies of the Greenspan/Bernanke era have already achieved the implicit policy goal of asset price reflation.  It’s all relative, you understand.  When an election-focused White House calls for economic recovery, Bernanke, like Greenspan before him, dutifully steps on the gas, seemingly heedless of the risks.

Of course, classical reflationists argue that the Fed is doing precisely the right thing by using low interest rates to force liquidity into private assets.  One reader of my work rebukes those who argue for monetary restraint and invokes Irving Fisher in his famous 1931 “Econometrica” article.  By lowering rates on Treasury bonds below where they might otherwise be, he argues, Bernanke “is likely to push investors into corporate bonds and lower spreads–which, in the end, are the ONLY real engines of growth in the financial markets.”

The trouble with this argument, like the neo-Keynesian corollary about the use of debt to fund fiscal stimulus, is that expedients such as low interest rates and deficit spending are meant to stimulate economic growth on the margins, not to replace private sector demand and economic activity that does not exist.  Bernanke and his fellow travelers on the FOMC, it seems, have entirely embraced the world view of Paul Krugman and Robert Reich, and echoed among the inflationati in the EU led by Martin Wolf, that new monetary emissions are an apt replacement for fiscal spending.

The problem with living in a world where relativity is the operative standard is that there is no truth in an objective sense.  Political survival, not civil society, is the first priority, so members of the FOMC will say and do anything to get through the day, no matter how internally inconsistent or reckless.  Until Bernanke and the FOMC start to recognize that their well-intentioned efforts to help the domestic US economy are creating the precursor for future global economic collapse, we cannot truly bring the Fed under effective public control and begin the process of national restructuring in America.