Power & Market

The Fed's Doomsday Book

Kudos to Emre Kuvvet for acquiring the Fed’s mythical “Doomsday Book” by FOIA request and sharing it. Emre published a short article on it in the WSJ today, and he has a longer article coming in the Spring 2024 issue of the Independent Review.

It’s “an internal document used to guide the Federal Reserve’s actions during emergencies.” It is mainly filled with legal agreements and other documentation the Fed can use to justify its actions. It is not a guide for monetary policy, but for defending the Fed’s authority when it does brand new things in crises.

Kuvvet summarizes the Doomsday Book this way:

The document reveals a fascinating history of diverging perspectives on the Federal Reserve’s emergency powers. Instead of adhering strictly to clear legislative boundaries to justify its actions during financial crises, the central bank appears to ground many of its decisions in the New York Fed’s belief in the Fed’s discretionary authority. It relies on precedent for many of its actions, without explicit congressional authorization in some instances.

This approach implies that establishing clear legislative boundaries for the Fed might be a futile endeavor because the central bank—or at least the legal team at its dominant member bank—apparently believes it can rely on precedent to justify virtually any emergency action.

Kuvvet notes that there have been multiple instances in which the legal teams at the NY Fed and the Board of Governors have disagreed on what the Fed and its Reserve Banks can do.

Here are some highlights from my quick reading of the document:

  • It’s incomplete. Some sections were withheld under Exemption 6 of the FOIA, which "permits the government to withhold all information about individuals in 'personnel and medical files and similar files' when the disclosure of such information 'would constitute a clearly unwarranted invasion of personal privacy.'"
  • The anonymous author of the Doomsday Book says that “the powers of a Federal Reserve Bank are far greater than is commonly supposed." (p. 33 of the pdf)
  • When the Board and the Reserve Banks discussed what kinds of assets can be used in Open Market Operations, the Board ultimately allowed the Reserve Banks to buy and sell anything as long as it isn’t “precluded or conditioned by Section 14” of the Federal Reserve Act.
  • The document explains how many Fed actions were not questioned when they were first implemented (like the unprecedented actions in 2008 and 2009), but they were codified by later laws like Dodd-Frank. This means that the Fed isn’t certain of its authority when it does new things in crises, but it knows that the actions won’t be challenged.
  • A memo written by someone who had not passed the bar describes a “legislative reenactment doctrine,” in which “Congressional tinkering” is a mere “ratification of the administrative interpretation.” This means that the Fed acts and then just assumes that later laws retroactively approve of whatever the Fed did during the crisis.
  • The Doomsday Book author expresses concern about the Fed’s authority to deal with “property outside the scope of UCC Article 9,” especially “things like Small Business Administration-backed collateral that is routinely accepted at the Discount Window.” When I checked the most recent release of the Federal Reserve’s balance sheet, I found that the Fed continues to hold such assets.
  • The Doomsday Book records all of the changes to the document, with some rationale given for the edits. Many of these changes say something to the effect of “we didn’t know if the Fed had the authority to do this when we did it, but now that Dodd-Frank has been passed, it gives us all the justification we need.” Here’s an example:

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Doomsday Book - Dodd-Frank

The Doomsday Book confirms what many Austrians and libertarians have said about the nature of government in crises. The size and scope of the Fed is stretched, even beyond its own known boundaries, and then it never returns to its pre-crisis state. The precedents are set in an ad hoc way and then codified ex post. We’re left with a Leviathan.

Read Emre Kuvvet’s full WSJ article here.

Image source: Alex Schaefer. Used with permission.

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