24

FEDERAL RESERVEPaul WinfreeMoney is the essential unit of measure for the voluntary exchanges that
constitute the market economy. Stable money allows people to work
freely, helps businesses grow, facilitates investment, supports saving
for retirement, and ultimately provides for economic growth. The federal government has long made policy regarding the nation’s money on behalf of the people
through their elected representatives in Congress.1 Over time, however, Congresshas delegated that responsibility first to the Department of the Treasury and now
to the quasi-public Federal Reserve System.
The Federal Reserve was created by Congress in 1913 when most Americans lived
in rural areas and the largest industry was agriculture. The impetus was a series offinancial crises caused both by irresponsible banks and other financial institutions thatoverextended credit and by poor regulations. The architects of the Federal Reserve
believed that a quasi-public clearinghouse acting as lender of last resort would reduce
financial instability and end severe recessions. However, the Great Depression of the
1930s was needlessly prolonged in part because of the Federal Reserve’s inept management of the money supply. More recessions followed in the post–World War II years.
In the decades since the Federal Reserve was created, there has been a downturn roughly every five years. This monetary dysfunction is related in part to theimpossibility of fine-tuning the money supply in real time, as well as to the moral
hazard inherent in a political system that has demonstrated a history of bailingout private firms when they engage in excess speculation.
Public control of money creation through the Federal Reserve System has
another major problem: Government can abuse this authority for its own advantage— 731 —

Mandate for Leadership: The Conservative Promiseby printing money to finance its operations. This necessitated the original Federal
Reserve’s decentralization and political independence. Not long after the central
bank’s creation, however, monetary decision-making power was transferred awayfrom regional member banks and consolidated in the Board of Governors.
The Federal Reserve’s independence is presumably supported by its mandate
to maintain stable prices. Yet central bank independence is challenged in two additional ways. First, like any other public institution, the Federal Reserve responds tothe potential for political oversight when faced with challenges.2 Consequently, its
independence in conducting monetary policy is more assured when the economy isexperiencing sustained growth and when there is low unemployment and price stability—but less so in a crisis.3 Additionally, political pressure has led the Federal Reserve
to use its power to regulate banks as a way to promote politically favorable initiatives
including those aligned with environmental, social, and governance (ESG) objectives.4
Even formal grants of power by Congress have not markedly improved Federal
Reserve actions. Congress gave the Federal Reserve greater regulatory authority
over banks after the stock market crash of 1929. During the Great Depression, theFederal Reserve was given the power to set reserve requirements on banks and to
regulate loans for the purchase of securities. During the stagflation of the 1970s,
Congress expanded the Federal Reserve’s mandate to include “maximum employment, stable prices, and moderate long-term interest rates.”5 In the wake of the2008 global financial crisis, the Federal Reserve’s banking and financial regulatory
authorities were broadened even further. The Great Recession also led to innovations by the central bank such as additional large-scale asset purchases.
Together, these expansions have created significant risks associated with “too big
to fail” financial institutions and have facilitated government debt creation.6 Collectively, such developments have eroded the Federal Reserve’s economic neutrality.
In essence, because of its vastly expanded discretionary powers with respect
to monetary and regulatory policy, the Fed lacks both operational effectivenessand political independence. To protect the Federal Reserve’s independence andto improve monetary policy outcomes, Congress should limit its mandate to thesole objective of stable money.
This chapter provides a number of options aimed at achieving these goals alongwith the costs and benefits of each policy recommendation. These recommended
reforms are divided into two parts: broad institutional changes and changes involving the Federal Reserve’s management of the money supply.
BROAD RECOMMENDATIONSlEliminate the “dual mandate.” The Federal Reserve was originallycreated to “furnish an elastic currency” and rediscount commercial paper
so that the supply of credit could increase along with the demand for money— 732 —

2025 Presidential Transition Project

and bank credit. In the 1970s, the Federal Reserve’s mission was amended
to maintain macroeconomic stability following the abandonment of thegold standard.7 This included making the Federal Reserve responsible formaintaining full employment, stable prices, and long-term interest rates.
Supporters of this more expansive mandate claim that monetary policy
is needed to help the economy avoid or escape recessions. Hence, even if
there is a built-in bias toward inflation, that bias is worth it to avoid thepain of economic stagnation. This accommodationist view is wrong. In fact,that same easy money causes the clustering of failures that can lead to arecession. In other words, the dual mandate may inadvertently contributeto recessions rather than fixing them.
A far less harmful alternative is to focus the Federal Reserve on protecting
the dollar and restraining inflation. This can mitigate economic turmoil,
perhaps in conjunction with government spending. Fiscal policy can be
more effective if it is timely, targeted, and temporary.8 An example from the
COVID-19 pandemic is the Paycheck Protection Program, which sustained
businesses far more effectively than near-zero interest rates, which mainly
aided asset markets and housing prices. It is also worth noting that the
problem of the dual mandate may worsen with new pressure on the Federal
Reserve to include environmental or redistributionist “equity” goals in its
policymaking, which will likely enable additional federal spending.9lLimit the Federal Reserve’s lender-of-last-resort function. To protect
banks that over lend during easy money episodes, the Federal Reserve
was assigned a “lender of last resort” (LOLR) function. This amounts
to a standing bailout offer and encourages banks and nonbank financial
institutions to engage in reckless lending or even speculation that both
exacerbates the boom-and-bust cycle and can lead to financial crises such as
those of 199210 and 200811 with ensuing bailouts.
This function should be limited so that banks and other financial
institutions behave more prudently, returning to their traditional role asconservative lenders rather than taking risks that are too large and lead tostill another taxpayer bailout. Such a reform should be given plenty of leadtime so that banks can self-correct lending practices without disrupting afinancial system that has grown accustomed to such activities.

lWind down the Federal Reserve’s balance sheet. Until the 2008 crisis,
the Federal Reserve never held more than $1 trillion in assets, bought largely— 733 —

Mandate for Leadership: The Conservative Promise

to influence monetary policy.12 Since then, these assets have exploded, andthe Federal Reserve now owns nearly $9 trillion of mainly federal debt($5.5 trillion)13 and mortgage-backed securities ($2.6 trillion).14 There iscurrently no government oversight of the types of assets that the Federal
Reserve purchases.
These purchases have two main effects: They encourage federal deficits
and support politically favored markets, which include housing and evencorporate debt. Over half of COVID-era deficits were monetized in this way
by the Federal Reserve’s purchase of Treasuries, and housing costs were
driven to historic highs by the Federal Reserve’s purchase of mortgage
securities. Together, this policy subsidizes government debt, starving
business borrowing, while rewarding those who buy homes and certain
corporations at the expense of the wider public.
Federal Reserve balance sheet purchases should be limited by Congress,
and the Federal Reserve’s existing balance sheet should be wound down as
quickly as is prudent to levels similar to what existed historically before the2008 global financial crisis.15
lLimit future balance sheet expansions to U.S. Treasuries. The Federal
Reserve should be prohibited from picking winners and losers amongasset classes. Above all, this means limiting Federal Reserve interventionsin the mortgage-backed securities market. It also means eliminating Fedinterventions in corporate and municipal debt markets.
Restricting the Fed’s open market operations to Treasuries has strong
economic support. The goal of monetary policy is to provide markets
with needed liquidity without inducing resource misallocations caused
by interfering with relative prices, including rates of return to securities.
However, Fed intervention in longer-term government debt, mortgagebacked securities, and corporate and municipal debt can distort thepricing process. This more closely resembles credit allocation thanliquidity provision.
The Fed’s mortgage-related activities are a paradigmatic case of whatmonetary policy should not do. Consider the effects of monetary policy on
the housing market. Between February 2020 and August 2022, home prices
increased 42 percent.16 Residential property prices in the United States
adjusted for inflation are now 5.8 percent above the prior all-time record
levels of 2006.17 The home-price-to-median-income ratio is now 7.68, far— 734 —

2025 Presidential Transition Project

above the prior record high of 7.0 set in 2005.18 The mortgage-payment-toincome ratio hit 43.3 percent in August 2022—breaking the highs of the priorhousing bubble in 2008.19 Mortgage payment on a median-priced home (witha 20 percent down payment) jumped to $2,408 in the autumn of 2022 vs.
$1,404 just one year earlier as home prices continued to rise even as mortgage
rates more than doubled. Renters have not been spared: Median apartment
rental costs have jumped more than 24 percent since the start of 2021.20
Numerous cities experienced rent increases well in excess of 30 percent.
A primary driver of higher costs during the past three years has been theFederal Reserve’s purchases of mortgage-backed securities (MBS). Since
March 2020, the Federal Reserve has driven down mortgage interest rates
and fueled a rise in housing costs by purchasing $1.3 trillion of MBSs from
Fannie Mae, Freddie Mac, and Ginnie Mae. The $2.7 trillion now owned by
the Federal Reserve is nearly double the levels of March 2020. The flood of
capital from the Federal Reserve into MBSs increased the amount of capital
available for real estate purchases while lower interest rates on mortgage
borrowing—driven down in part by the Federal Reserve’s MBS purchases—
induced and enabled borrowers to take on even larger loans.21 The Federal
Reserve should be precluded from any future purchases of MBSs and shouldwind down its holdings either by selling off the assets or by allowing them tomature without replacement.
lStop paying interest on excess reserves. Under this policy, also started
during the 2008 financial crisis, the Federal Reserve effectively prints
money and then “borrows” it back from banks rather than those banks’lending money to the public. This amounts to a transfer to Wall Street atthe expense of the American public and has driven such excess reserves
to $3.1 trillion, up seventyfold since 2007.22 The Federal Reserve should
immediately end this practice and either sell off its balance sheet or simply
stop paying interest so that banks instead lend the money. Congress should
bring back the pre-2008 system, founded on open-market operations. This
minimizes the Fed’s power to engage in preferential credit allocation.

MONETARY RULE REFORM OPTIONS

While the above recommendations would reduce Federal Reserve manipulationand subsidies, none would limit the inflationary and recessionary cycles caused by
the Federal Reserve. For that, major reform of the Federal Reserve’s core activityof manipulating interest rates and money would be needed.
A core problem with government control of monetary policy is its exposure
to two unavoidable political pressures: pressure to print money to subsidize— 735 —

Mandate for Leadership: The Conservative Promise

government deficits and pressure to print money to boost the economy artificially
until the next election. Because both will always exist with self-interested politicians, the only permanent remedy is to take the monetary steering wheel out of
the Federal Reserve’s hands and return it to the people.
This could be done by abolishing the federal role in money altogether, allowing
the use of commodity money, or embracing a strict monetary-policy rule to ward
off political meddling. Of course, neither free banking nor a allowing commodity-backed money is currently being discussed, so we have formulated a menu ofreforms. Each option involves trade-offs between how effectively it restrains theFederal Reserve and how difficult each policy would be to implement, both politically for Congress and economically in terms of disruption to existing financial
institutions. We present these options in decreasing order of effectiveness against
inflation and boom-and-bust recessionary cycles.
Free Banking. In free banking, neither interest rates nor the supply of money
is controlled by the government. The Federal Reserve is effectively abolished, andthe Department of the Treasury largely limits itself to handling the government’s
money. Regions of the U.S. actually had a similar system, known as the “Suffolk
System,” from 1824 until the 1850s, and it minimized both inflation and economic
disruption while allowing lending to flourish.23
Under free banking, banks typically issue liabilities (for example, checking
accounts) denominated in dollars and backed by a valuable commodity. In the
19th century, this backing was commonly gold coins: Each dollar, for example, wasdefined as about 1/20 of an ounce of gold, redeemable on demand at the issuingbank. Today, we might expect most banks to back with gold, although some might
prefer to back their notes with another currency or even by equities or other assets
such as real estate. Competition would determine the right mix of assets in banks’
portfolios as backing for their liabilities.
As in the Suffolk System, competition keeps banks from overprinting or lending
irresponsibly. This is because any bank that issues more paper than it has assets
available would be subject to competitor banks’ presenting its notes for redemption. In the extreme, an overissuing bank could be liable to a bank run. Recklessbanks’ competitors have good incentives to police risk closely lest their own holdings of competitor dollars become worthless.24
In this way, free banking leads to stable and sound currencies and strong financial systems because customers will avoid the riskier issuers, driving them outof the market. As a result of this stability and lack of inflation inherent in fully
backed currencies, free banking could dramatically strengthen and increase both
the dominant role of America’s financial industry and the use of the U.S. dollar
as the global currency of choice.25 In fact, under free banking, the norm is for the
dollar’s purchasing power to rise gently over time, reflecting gains in economic
productivity. This “supply-side deflation” does not cause economic busts. In fact,— 736 —

2025 Presidential Transition Projectby ensuring that cash earns a positive (inflation-adjusted) rate of return, it can prevent households and businesses from holding inefficiently small money balances.
Further benefits of free banking include dramatic reduction of economic cycles,
an end to indirect financing of federal spending, removal of the “lender of lastresort” permanent bailout function of central banks, and promotion of currencycompetition.26 This allows Americans many more ways to protect their savings.
Because free banking implies that financial services and banking would be governed by general business laws against, for example, fraud or misrepresentation,
crony regulatory burdens that hurt customers would be dramatically eased, andinnovation would be encouraged.
Potential downsides of free banking stem from its greatest benefit: It has massive political hurdles to clear. Economic theory predicts and economic history
confirms that free banking is both stable and productive, but it is radically different
from the system we have now. Transitioning to free banking would require political authorities, including Congress and the President, to coordinate on multiple
reforms simultaneously. Getting any of them wrong could imbalance an otherwisefunctional system. Ironically, it is the very strength of a true free banking systemthat makes transitioning to one so difficult.
Commodity-Backed Money. For most of U.S. history, the dollar was defined interms of both gold and silver. The problem was that when the legal price differedfrom the market price, the artificially undervalued currency would disappear fromcirculation. There were times, for instance, when this mechanism put the U.S. on
a de facto silver standard. However, as a result, inflation was limited.
Given this track record, restoring a gold standard retains some appeal amongmonetary reformers who do not wish to go so far as abolishing the Federal Reserve.
Both the 2012 and 2016 GOP platforms urged the establishment of a commission to consider the feasibility of a return to the gold standard,27 and in October
2022, Representative Alexander Mooney (R–WV) introduced a bill to restore thegold standard.28
In economic effect, commodity-backing the dollar differs from free banking inthat the government (via the Fed) maintains both regulatory and bailout functions.
However, manipulation of money and credit is limited because new dollars are notcostless to the federal government: They must be backed by some hard asset likegold. Compared to free banking, then, the benefits of commodity-backed money
are reduced, but transition disruptions are also smaller.
The process of commodity backing is very straightforward: Treasury could
set the price of a dollar at today’s market price of $2,000 per ounce of gold. Thismeans that each Federal Reserve note could be redeemed at the Federal Reserveand exchanged for 1/2000 ounce of gold—about $80, for example, for a gold coin theweight of a dime. Private bank liabilities would be redeemable upon their issuers.
Banks could send those traded-in dollars to the Treasury for gold to replenish their— 737 —

Mandate for Leadership: The Conservative Promisevaults. This creates a powerful self-policing mechanism: If the federal government creates dollars too quickly, more people will doubt the peg and turn in theirgold to banks, which then will turn in their gold and drain the government’s gold.
This forces governments to rein in spending and inflation lest their gold reserves
become depleted.
One concern raised against commodity backing is that there is not enough goldin the federal government for all the dollars in existence. This is solved by making
sure that the initial peg on gold is correct. Also, in reality, a very small number ofusers trade for gold as long as they believe the government will stick to the pricepeg. The mere fact that people could exchange dollars for gold is what acts as theenforcer. After all, if one is confident that a dollar will still be worth 1/2000 ounceof gold in a year, it is much easier to walk about with paper dollars and use credit
cards than it is to mail tiny $80 coins. People would redeem en masse only if theyfeared the government would not be able control itself, for which the only solution
is for the government to control itself.
Beyond full backing, alternate paths to gold backing might involve gold-convertible Treasury instruments29 or allowing a parallel gold standard to operate
temporarily alongside the current fiat dollar.30 These could ease adoption while
minimizing disruption, but they should be temporary so that we can quickly enjoy
the benefits of gold’s ability to police government spending. In addition, Congress
could simply allow individuals to use commodity-backed money without fully
replacing the current system.
Among downsides to a commodity standard, there is no guarantee that the government will stick to the price peg. Also, allowing a commodity standard to operate
along with a fiat dollar opens both up for a speculative attack. Another downside isthat even under a commodity standard, the Federal Reserve can still influence theeconomy via interest rate or other interventions. Therefore, at best, a commodity
standard is not a full solution to returning to free banking. We have good reasons
to worry that central banks and the gold standard are fundamentally incompatible—as the disastrous experience of the Western nations on their “managed gold
standards” between World War I and World War II showed.
K-Percent Rule. Under this rule, proposed by Milton Friedman in 1960,31 theFederal Reserve would create money at a fixed rate—say 3 percent per year. By
offering the inflation benefits of gold without the potential disruption to the financial system, a K-Percent Rule could be a more politically viable alternative to gold.
The principal flaw is that unlike commodities, a K-Percent Rule is not fixedby physical costs: It could change according to political pressures or random
economic fluctuations. Importantly, financial innovation could destabilize themarket’s demand for liquidity, as happened with changes in consumer credit patterns in the 1970s. When this happens, a given K-Percent Rule that previously
delivered stability could become destabilizing. In addition, monetary policy when

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2025 Presidential Transition ProjectFriedman proposed the K-Percent Rule was very different from monetary policy
today. Adopting a K-Percent Rule would require considering what transitions needto take place.
Inflation-Targeting Rules. Inflation targeting is the current de facto Federal
Reserve rule.32 Under inflation targeting, the Federal Reserve chooses a target inflation rate—essentially the highest it thinks the public will accept—and then tries
to engineer the money supply to achieve that goal. Chairman Jerome Powell andothers before him have used 2 percent as their target inflation rate, although someare now floating 3 percent or 4 percent.33 The result can be boom-and-bust cycles
of inflation and recession driven by disruptive policy manipulations both because
the Federal Reserve is liable to political pressure and because making economic
predictions is very difficult if not impossible.
Inflation and Growth–Targeting Rules. Inflation and growth targeting is a
popular proposal for reforming the Federal Reserve. Two of the most prominent
versions of inflation and growth targeting are a Taylor Rule and Nominal GDP(NGDP) Targeting. Both offer similar costs and benefits.
Economists generally believe that the economy’s long-term real growth trend
is determined by non-monetary factors. The Fed’s job is to minimize fluctuations
around that trend nominal growth rate. Speculative booms and destructive busts
caused by swings in total spending should be avoided. NGDP targeting stabilizes
total nominal spending directly. The Taylor Rule does so indirectly, operating
through the federal funds rate.
NGDP targeting keeps total nominal spending growth on a steady path. If thedemand for money (liquidity) rises, the Fed meets it by increasing the money
supply; if the demand for money falls, the Fed responds by reducing the money
supply. This minimizes the effects of demand shocks on the economy. For example,
if the long-run growth rate of the U.S. economy is 3 percent and the Fed has a 5 percent NGDP growth target, it expands the money supply enough to boost nominal
income by 5 percent each year, which translates into 3 percent real growth and 2
percent inflation. How much money must be created each year depends on how
fast money demand is growing.
The Taylor Rule works similarly. It says the Fed should raise its policy rate
when inflation and real output growth are above trend and lower its policy rate
when inflation and real output growth are below trend. Whereas NGDP targeting
focuses directly on stable demand as an outcome, the Taylor Rule focuses on the
Fed’s more reliable policy levers.
The problem with both rules is the knowledge burden they place on central
bankers. These rules state that the Fed should neutralize demand shocks but
not respond to supply shocks, which means that it should “see through” demand
shocks by tolerating higher (or lower) inflation. In theory, this has much to recommend it. In practice, it can be very difficult to distinguish between demand-side— 739 —

Mandate for Leadership: The Conservative Promise

destabilization and supply-side destabilization in real time. There also are politicalconsiderations: Fed officials may not be willing to curb unjustified economic booms
and all too willing to suppress necessary economic restructuring following a bust.
Either rule likely outperforms a strict inflation target and greatly outperforms
the Fed’s current pseudo-inflation target. While NGDP targeting and the Taylor
Rule have much to commend them, they might be harder to explain and justify tothe public. Inflation targeting has an intelligibility advantage: Voters know what
it means to stabilize the dollar’s purchasing power. Capable elected officials must
persuade the public that the advantages of NGDP targeting and the Taylor Rule,especially in terms of supporting labor markets, outweigh the disadvantages.
MINIMUM EFFECTIVE REFORMS

Because Washington operates on two-year election cycles, any monetary reformmust take account of disruption to financial markets and the economy at large.
Free banking and commodity-backed money offer economic benefits by limiting
government manipulation, inflation, and recessionary cycles while dramaticallyreducing federal deficits, but given potential disruption to the financial system, a
K-Percent Rule may be a more feasible option. The other rules discussed (inflation targeting, NGDP targeting, and the Taylor Rule) are more complicated but
also more flexible. While their economic benefits are significant, public opinion
expressed through the lawmaking process in the Constitution should ultimately
determine the monetary-institutional order in a free society.
The minimum of effective reforms includes the following:
l

l

l

l

Eliminate “full employment” from the Fed’s mandate, requiring it tofocus on price stability alone.
Have elected officials compel the Fed to specify its target range for
inflation and inform the public of a concrete intended growth path.
There should be no more “flexible average inflation targeting,” whichamounts to ex post justification for bad policy.
Focus any regulatory activities on maintaining bank capital
adequacy. Elected officials must clamp down on the Fed’s incorporation ofenvironmental, social, and governance factors into its mandate, including by
amending its financial stability mandate.
Curb the Fed’s excessive last-resort lending practices. These practices
are directly responsible for “too big to fail” and the institutionalization of
moral hazard in our financial system.

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2025 Presidential Transition ProjectllAppoint a commission to explore the mission of the Federal Reserve,alternatives to the Federal Reserve system, and the nation’s financial
regulatory apparatus.
Prevent the institution of a central bank digital currency (CBDC). A
CBDC would provide unprecedented surveillance and potential control offinancial transactions without providing added benefits available throughexisting technologies.34

AUTHOR’S NOTE: The preparation of this chapter was a collective enterprise of individuals involved in the2025 Presidential Transition Project. All contributors to this chapter are listed at the front of this volume, but
Alexander Salter, Judy Shelton, and Peter St Onge, deserve special mention. The chapter reflects input from all thecontributors, however, no views expressed herein should be attributed to any specific individual.

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Mandate for Leadership: The Conservative Promise
ENDNOTES

1.
2.

3.

4.

5.
6.
7.

8.
9.

10.

11.

12.

13.
14.
15.
16.

17.
18.

U.S. Constitution, Article 1, Section 8, https://www.law.cornell.edu/constitution (accessed January 23, 2023).
For example, Alexander Salter and Daniel Smith (2019) show that Federal Reserve Chairs become morefavorable toward monetary discretion once they are confirmed compared to previous stances. Alexander
William Salter and Daniel J. Smith, “Political Economists or Political Economists? The Role of PoliticalEnvironments in the Formation of Fed Policy Under Burns, Greenspan, and Bernanke,” Quarterly Review of
Economics and Finance, Vol. 71 (February 2019), pp. 1–13.
Sarah Binder, “The Federal Reserve as a ‘Political’ Institution,” American Academy of Arts and Sciences
Bulletin, Vol. LXIX, No. 3 (Spring 2016), pp. 47–49, https://www.amacad.org/sites/default/files/bulletin/
downloads/bulletin_Spring2016.pdf (accessed January 23, 2023). See also Charles L. Weise, “Political
Pressures on Monetary Policy During the US Great Inflation,” American Economic Journal: Macroeconomics,
Vol. 4, No. 2 (April 2012), pp. 33–64, https://www.haverford.edu/sites/default/files/Department/Economics/
Weise_Political_Pressures_on%20Monetary_Policy.pdf (accessed January 23, 2023).
The Federal Reserve’s financial stability mandate is poorly defined. The Fed has taken advantage of thestatutory vagueness and proceeded as if it has the authority to engage in these activities, although it is highly
questionable whether this is permissible.
12 U.S.C. § 225a, https://www.law.cornell.edu/uscode/text/12/225a (accessed January 23, 2023).
See Peter J. Boettke, Alexander William Salter, and Daniel J. Smith, Money and the Rule of Law: Generality
and Predictability in Monetary Institutions (Cambridge, UK: Cambridge University Press, 2021).
George Selgin, William D. Lastrapes, and Lawrence H. White, “Has the Fed Been a Failure?” Journal of
Macroeconomics, Vol. 34, No. 3 (September 2012), pp. 569–596, https://www.sciencedirect.com/science/
article/abs/pii/S0164070412000304 (accessed January 24, 2023).
This includes federal programs that automatically provide for adjustments as the economy contracts (forexample, unemployment insurance or the Supplemental Nutrition Assistance Program).
Mark Segal, “Fed to Launch Climate Risk Resilience Tests with Big Banks,” ESG Today, September 30,
2022, https://www.esgtoday.com/fed-to-launch-climate-risk-resilience-tests-with-big-banks/ (accessed
January 23, 2023).
Kenneth J. Robinson, “Savings and Loan Crisis 1980–1989,” Federal Reserve Bank of St. Louis, Federal Reserve
History, November 22, 2013, https://www.federalreservehistory.org/essays/savings-and-loan-crisis (accessed
January 23, 2023).
Russell Roberts, “Gambling with Other People’s Money: How Perverted Incentives Caused the Financial Crisis,”
Mercatus Center at George Mason University, May 2010, https://www.mercatus.org/system/files/RUSS-final.
pdf (accessed January 24, 2023).
Board of Governors of the Federal Reserve System, Credit and Liquidity Programs Balance Sheet Data
Series, 2007–2022, https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm (accessed
January 24, 2023).
Board of Governors of the Federal Reserve System, U.S. Treasury Securities Data Series (TREAST), 2004–2022,
https://fred.stlouisfed.org/series/TREAST (accessed January 24, 2023).
Board of Governors of the Federal Reserve System, Mortgage-Backed Securities Data Series (WSHOMCB),
2004–2022, https://fred.stlouisfed.org/series/WSHOMCB (accessed January 24, 2023).
Board of Governors of the Federal Reserve System, Total Assets (Less Eliminations from Consolidation) Data
Series (WALCL), 2004–2022, https://fred.stlouisfed.org/series/WALCL (accessed January 24, 2023).
Federal Reserve Bank of St. Louis, “S&P Dow Jones Indices LLC, S&P/Case–Shiller U.S. National Home Price Index(CSUSHPINSA),” https://fred.stlouisfed.org/series/CSUSHPINSA (accessed January 24, 2023). The Case–Shiller
Home Price Index tracks home prices given a constant level of quality. See S&P Dow Jones Indices, “Real Estate:
S&P CoreLogic Case–Shiller Home Price Indices,” https://www.spglobal.com/spdji/en/index-family/indicators/spcorelogic-case-shiller/sp-corelogic-case-shiller-composite/#overview (accessed January 24, 2023).
Federal Reserve Bank of St. Louis, “Real Residential Property Prices for United States (QUSR628BIS),” https://fred.stlouisfed.org/series/QUSR368BIS (accessed January 24, 2023).
Longterm Trends, “Home Price to Income Ratio (US & UK): Home Price to Median Household Income
Ratio (US),” https://www.longtermtrends.net/home-price-median-annual-income-ratio/ (accessed
January 24, 2023).

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2025 Presidential Transition Project
19. Federal Reserve Bank of Atlanta, “Metro Area Home Ownership Affordability Monitor (HOAM) Index,”
October 2022, https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownershipaffordability-monitor.aspx (accessed January 24, 2023).
20. Apartment List Research Team, “Apartment List National Rent Report,” January 4, 2023, https://www.
apartmentlist.com/research/national-rent-data (accessed January 24, 2023).
21. Primary drivers of rising real estate prices nationally also include government subsidies and government
guarantees through government-sponsored enterprises (GSEs)—namely, Fannie Mae and Freddie Mac. “Theunpriced implicit guarantee, which reduced interest rates for mortgage borrowers, helped cause more of theeconomy’s capital to be invested in housing than might otherwise have been the case.” Congressional Budget
Office, “Transitioning to Alternative Structures for Housing Finance: An Update,” August 2018, p. 7, https://www.cbo.gov/system/files/2018-08/54218-GSEupdate.pdf (accessed January 24, 2023).
22. Board of Governors of the Federal Reserve System, Reserves of Depository Institutions Data Series(TOTRESNS), 1960–2022, https://fred.stlouisfed.org/series/TOTRESNS (accessed January 24, 2023).
23. George A. Selgin, The Theory of Free Banking: Money Supply Under Competitive Note Issue (Totowa, NJ:
Rowman & Littlefield, 1998). See also Alexander William Salter and Andrew T. Young, “A Theory of SelfEnforcing Monetary Constitutions with Reference to the Suffolk System, 1825–1858,” Journal of Economic
Behavior & Organization, Vol. 156 (December 2018), pp 13–22.
24. Reforms should also strengthen the incentives of bank depositors (customers) and bank shareholders(owners) to monitor bank portfolios. Deposit insurance undermines the former, as even President Franklin
Roosevelt recognized. Bailouts and last-resort lending undermine the latter.
25. Under the current system, banks are supplying the U.S. dollars. Legislation would been needed that includes amechanism for supplying the correct number of U.S. dollars along with their own notes.
26. F. A. Hayek, Denationalization of Money: An Analysis of the Theory and Current Practice of Concurrent
Currencies (London, UK: Institute of Economic Affairs, 1976).
27. Kate Davidson, “GOP Platform Includes Proposal to Study Return to Gold Standard,” The Wall Street Journal,
July 20, 2016, https://www.wsj.com/articles/gop-platform-includes-proposal-to-study-return-to-goldstandard-1469047214?mod=article_inline (accessed January 24, 2023).
28. H.R. 9157, To Define the Dollar as a Fixed Weight of Gold, and for Other Purposes (Gold Standard Restoration
Act), 117th Congress, introduced October 7, 2022, https://www.congress.gov/117/bills/hr9157/BILLS-117hr9157ih.
pdf (accessed January 24, 2023).
29. Judy Shelton, “Gold and Government,” Cato Journal, Vol. 32, No. 2 (Spring/Summer 2012), pp. 333–347,
https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2012/7/v32n2-9.pdf?mod=article_inline(accessed January 24, 2023).
30. Lawrence H. White, “Making the Transition to a New Gold Standard,” Cato Journal, Vol. 32, No. 2 (Spring/
Summer 2012), pp. 411–421, https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2012/7/v32n214.pdf (accessed January 24, 2023).
31. Juha Kilponen and Kai Leitemo, “Model Uncertainty and Delegation: A Case for Friedman’s k-Percent Money
Growth Rule?” Journal of Money, Credit and Banking, Vol. 40, No. 2/3 (March–April 2008), pp. 547–556.
32. Adam Shapiro and Daniel J. Wilson, “The Evolution of the FOMC’s Explicit Inflation Target,” Federal Reserve
Bank of San Francisco, FRBSF Economic Letter No. 2019–12, April 15, 2019, https://www.frbsf.org/wp-content/
uploads/sites/4/el2019-12.pdf (accessed January 24, 2023).
33. WSJ Pro, “Research Says a 3% Fed Inflation Target Could Boost Job Market,” The Wall Street Journal, August
18, 2021, https://www.wsj.com/articles/research-says-a-3-fed-inflation-target-could-boost-job-market11629308829#:~:text=Research%20Says%20a%203%25%20Fed%20Inflation%20Target%20Could%20Boost%20Job%20Market,-Aug.&text=Two%20former%20high%2Dlevel%20Federal,help%20bolster%20
the%20job%20market (accessed January 24, 2023). See also Oliver Blanchard, “It Is Time to Revisit the 2%
Inflation Target,” Financial Times, November 28, 2022, https://www.ft.com/content/02c8a9ac-b71d-4cef-a6ffcac120d25588 (accessed January 24, 2023).
34. Alexander William Salter, “CBDC in the USA: Not Now, Not Ever,” American Institute for Economic
Research, December, 13, 2022, https://www.aier.org/article/cbdc-in-the-usa-not-now-not-ever/ (accessed
February 1, 2022).

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