This morning’s podcasts have drawn a few comments, so I thought it might be a good idea to respond generally.

Generally, there are two objections. First, some are saying we never had whipsaw financial crises before the Fed came to be.

Go back to the 19th century. Without a central bank, every last financial panic turned into a depression. Every springtime, all the money flowed out of New York to the rest of the country (to support the planting season). And every October, it all came back to New York with interest (to support the opera season). Except when it didn’t.

Second, some folks are saying the Fed has overstepped its bounds — that it is acting outside its legal mandate, which is to regulate the currency.

The Fed had at least three tasks going into this crisis. (In this, it’s unlike most central banks, which indeed are responsible only to be monetary authorities.)

The first is to act as a lender of last resort (this charter dates from the Fed’s founding). The second is to ensure the integrity of the interbank payments system (this one was added during the New Deal). The third is to maintain inflation high enough to meet full-employment targets consistent with objectives set by Congress (added in the 1977 revisions to the Federal Reserve Act).

During WW2, the Fed accepted the responsibility to fund the war by monetizing Treasury debt. It threw off this responsibility forcibly when Truman tried to extend it to cover the Korean War in 1951.

Tim Geithner’s current regulatory-reform proposals, if enacted, will give the Fed broad power to regulate any financial business. Part of the call for greater auditability of the Fed is to give Congress more control over them. In theory, this is a good idea, but the Fed intentionally operates without public debate. Ask yourself: do you really want Pelosi, Reid and Waxman to be able to do anything they want to the economy without so much as having to take a vote?