This excerpt discusses the Federal Reserve’s role in managing the U.S. money supply and its evolving mandate over time. It argues that monetary policy has been mismanaged, leading to economic instability, recessions, and moral hazards in the financial system. Over time, Congress has expanded the Federal Reserve’s powers, making it more involved in financial regulation and broader economic policy beyond its original purpose.

The text critiques the Federal Reserve's dual mandate, arguing that focusing on economic growth alongside price stability contributes to financial crises rather than preventing them. It also points out that political pressures have influenced monetary policy, reducing the institution’s independence. The expansion of the Federal Reserve’s role, especially following crises like the Great Depression and the 2008 financial crash, has increased the risk of government overreach and financial institution bailouts. To address these concerns, the text recommends reforms including eliminating the dual mandate, restricting the Federal Reserve’s lender-of-last-resort function, and reducing its balance sheet size. These changes aim to restore its original purpose—ensuring stable money—while reducing financial instability and political influence over monetary policy.

This section expands on the critiques of the Federal Reserve, arguing that its monetary policies, including large-scale asset purchases, have contributed to economic imbalances and inflationary pressures. The text suggests that Federal Reserve interventions have subsidized government debt and distorted financial markets, particularly the housing sector. It proposes several reforms to counteract these effects:

1. Reduce the Federal Reserve's balance sheet – Limit asset purchases to prevent federal deficits and inflation.

2. Restrict future balance sheet expansions to U.S. Treasuries – Prevent the Fed from influencing asset markets by purchasing mortgage-backed or corporate securities.

3. End purchases of mortgage-backed securities (MBS) – These purchases have contributed to excessive housing costs and encouraged speculation.

4. Stop paying interest on excess reserves – This practice incentivizes banks to hold reserves rather than lending to the public, increasing financial concentration.

5. Implement monetary rule reforms – Reduce inflationary cycles and economic instability by constraining government monetary policy.

The text also introduces more radical ideas, such as free banking, which would remove government control over money supply and let financial institutions issue currency backed by commodities like gold. The argument is that competition among banks would create stability and limit inflation more effectively than government monetary policy.