The collapse in stock markets around the world might not guarantee a recession — but it certainly suggests that one is lurking. So for whom dast one suppose the American voter is more likely to pull the lever? The dour Democrat who is ready to raise taxes, regulate the economy, and debase the dollar? Or the sunny tribune of tax-cuts, deregulation, and his celebrated sidekick, who have been extolling the virtues of a — oops — weak dollar? 

No doubt there are those who are going to blame the Federal Reserve. Wall Street traders certainly profess to be looking to America’s central bank for help — whether by, say, calling an emergency Open Market Committee meeting to weigh an interest rate cut, or by slowing the pace of its balance sheet drawdown. Such appeals overlook how the Fed’s own errors have, to a degree, led to the troubles coming to a head today. 

Feature the jobs numbers, released Friday, that preceded the global sell-off. The report of weak hiring, and a jump in unemployment, “raised fear,” the Associated Press said, that the Fed “has pressed the brakes on the economy by too much for too long through high interest rates in hopes of stifling inflation.” Panicked traders, the AP said, “are wondering if the damage has been so severe” that a rate cut needs to come before the Fed’s next scheduled meeting. 

Barring that, one analyst observed, the Fed “could respond by stopping” its effort to shrink its balance sheet. That’s a reference to the assets the Fed acquired, starting with Ben Bernanke, under the guise of Quantitative Easing. It was meant to boost the economy after the 2008 financial meltdown. That balance sheet now stands at more than $7 trillion. It would be a “symbolic action that they’re not blind to what’s going on,” the analyst told the AP.

More than “symbolic action” is needed, though, to address the fiscal and monetary overhang under which America finds itself, in no small part as a result of Fed policies. Today’s interest rates, after all, might not prove necessary had the Fed not held rates artificially low for years to stimulate the economy. Or, if the Fed hadn’t stood idly by while President Biden’s overspending program triggered an inflation spiral that the Fed waved away as “transitory.”

Yet some 14 years later, the Fed has indeed ratcheted up interest rates, to levels not seen since 2007, and behold, inflation is still running some 50 percent above the Fed’s target rate. Rates could come down. Increasingly, though, the Fed’s own balance sheet — and the central bank’s inability to get it back down to its historic level of less than $1 trillion — is seen as a factor making it harder to bring down inflation.

That’s the insight of a former Fed board member, Kevin Warsh, who sees the central bank’s balance sheet as a root cause of today’s inflation. Mr. Bernanke’s easing, Mr. Warsh observes, paved the way for “a fundamental, persistent and I fear permanent change” in how the Fed works. The problem, as he explains, is that while it’s easy for the Fed to rack up assets, it has proven reluctant to part with them — despite its avowed intention to do so.

Our own view, in any event, is not for the Fed to get more involved in managing the economy but less. It is a moment to remember that none of the monetary powers of the United States government were granted in the Constitution to the Federal Reserve. The blasted bank didn’t even exist. No, all of the monetary powers granted in the Constitution are granted to the Congress, which is — in our view — where reform has to begin.

We have long since given up on the idea of the Democrats entering the fray for monetary reform. So what will the Republicans do? The Biden dollar at the moment wouldn’t fetch a 2,400th of an ounce of gold. It’s within a whisker of being the weakest dollar since the Continental. If Congress is to restore a convertible, stable dollar, though, it’s going to need leadership on this head. Our sense is that the voters are not dumb and are looking for leadership.