Well said but I still I'd rather not have G-men in charge of the federal reserve,

plus I'm glad at least one other person besides me has actually read the constitution

 I think I just found a new favorite president.

The fed is fine as it is, however the recent actions by the fed, as a bailout to the big investors and banks is troubling, since the best way to change people's habits is to let them get burned for their bad investements, but by bailing these jokers out after they created this downturn with the subprimes, they only give them an incentive to continue to make the same stupid investments, so the only issue I would have with the fed is the fact that the people running the show at the moment lack the guts to do their job properly. Too big to let fail, my foot, let them burn I say.

that's usually the reason anything the government does fails, there's not enough accountability for mistakes.

If you pay a private company to build your house and if collapses when you slam the door, you would demand your money back and be able to seek legal means to do this. If the government takes your money and then builds a housing project for you to live in, and then you slam the door and your house collapses and you demand your money back, the government just says "oh no, taxes makes it our money, even though you were the one who worked to earn it, so you don't get to complain about the house that we gave you"

 Well in this case its more the private industry that is refusing to be accountable for its mistakes, always running to the fed when any problem arises, government's only fault in this is its willingness to bail them out, if the fed told them no that they were on their own then we would end up with some improvements.

Its like if your screwup brother or sister comes to you all the time asking for money saying that they are going to turn themselves around but never do, eventually you're going to be an idiot if you keep giving them money, but the fed keeps doing it

So tell me about this 'un-apportioned income tax' that the IRS enforces and how it is legal under the constitution?

First, calm down everyone. Most western countries have central banks which are semi-private. From the Wiki article on central banks "In most countries the central bank is state-owned and has a minimal degree of autonomy, which allows for the possibility of government intervening in monetary policy. An "independent central bank" is one which operates under rules designed to prevent political interference; examples include the Reserve Bank of Australia, the European Central Bank, the Bank of Canada, the Banco de la República de Colombia, Central Bank of Norway and the Federal Reserve."

Notice that most countries have state central banks but Europe, Britain, Canada, Australia, and America have semi-private central banks and who has the richer economies? Japan admittedly has a state central bank but Japan is a very different country and even so the greatest bubble and longest recession was sparked by the Japanese central bank due to its close govt ties.

As for the mission of inflation vs growth different central banks will have different polices largely based on the demographics and growth prospects of their country. In the US and Europe the primary concern has been creating the growth necessary for new workers (ie young people). That means letting inflation rise which hurts older people on fixed incomes. In the 70's both America and Europe had many more young people than old people so the focus was on growth.

Now there is a divergence as the US is still having children at the replacement rate while Europe and Canada long ago fell below replacement. That means the focus in the US is still on providing growth for the much larger share of younger people despite higher inflation while Europe and Canada are switching to low inflation despite the low growth since their elderly ranks are growing rapidly and already outnumber the shrinking young population in several European countries.

The other reason central banks lean more towards growth than inflation is that the problems of growth are easier to deal with than the problems of inflation. Add to that, low inflation can lead to deflation which as Japan has learned is extremely difficult to fix.

As for bubbles, they've been happening since the beginning of capitalism and always will (go read up on the Tulip Bubble or the South Seas Bubble). The fundamental cause of a bubble is human nature not central banks. While the US has a housing bubble so too do several European countries. China currently has a massive property and stock market bubble despite a state run central bank. As mentioned the worst bubble of modern times happened in Japan despite a state controlled central bank.

Someone mentioned the gold standard but I'm not even going to respond to that except to say that anyone who thinks the gold standard is a good idea needs to learn more about economics and history. Even a cursory understanding of either would dispel any notion that the gold standard is preferable.

As for Bush's "massive" defense spending it has been really quite small rising only from 2.9% of GDP in 2000 to a peak of 4.8% in 2005 and around 4% this year. A large percentage increase but no where near large enough to affect the economy in any way. It was necessary anyways due to the running down of the military under Clinton's 8 years of "peace dividend" induced military cuts. Indeed, many military minded people such as myself consider Bush's spending still too small.

Oh and sorry to hurt the pride of the British guy who thinks the Bank of England is public but even this parochial American knew that it is a private institution. Wikipedia answers a lot of these questions and it does this one as well, "The Governor and Company of the Bank of England is private institution acting as the central bank of the United Kingdom."

From this,

Amendment 16 - Status of Income Tax Clarified. Ratified 2/3/1913.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

EDIT:  Just noticed you're from Aussieland.  To clarify, and I apolgize if you already knew this, the US Consitution can be amended so it's original rules are changed.  The unapportioned tax bit was from the original consitution but that was as aboved amended in 1913 so that it is now consitutional.

Moral hazard defined.  The problem is human nature of course.  If the Fed and politicians didn't bailout big investors it would cause short term pain (in exchange for a better longterm situation) but elections and firings happen in the shortterm.  Better to bailout now, save your job, and hope that when bigger problems come longer term you'll either be gone or can find someone else to blame.  Although in this case I'm not sure if the bailouts will cause more problems than they help.  Avoiding the deleterious impact that allowing major American banks to go under would have on an international financial system that is concerned about the stability of its biggest member may make the bailouts worthwhile.  I haven't really read up on the situation enough to have an informed opinion though.

The Wall Street Journal print edition had a great editorial a month ago or so about how the same phenomenon is hurting corporations, ie no one wants to fix long term problems because the short term pain would place their job at greater risk now than the long term problem would later.  It's popular to blame the Fed for the housing bubble but why were banks giving mortgages to people without doing credit and income checks?  Because if the loan officers and managers didn't match their competitors loan growth rates they would have been fired or at the least lost bonuses. 

 Yeah but the problem I have with the bailouts is while it may hurt in the short run to let these banks face the problem on thier own, because its unlikely they'll become insolvent, just undercapitalized, and that will force them to cutback at most, or look for outside investment, like with Abu Dhabi and citigroup, however none of the bailouts help out small investors who got burned, nor do they rectify the damage done to the consumer by the housing bubble a bubble helped along by the subprime loans issuing and the loss of equity they had in their homes, most Americans don't have the savings to make up that shortfall, instead most have large debt, this will likely cause a contraction in consumer spending, so its not like the economy will not suffer as a result of this.  

 Not only that but I question whether now is the best time to allow this, since while the debt right now is not enough to drag the economy, the fact that the past eight years have been spent twiddling thumbs instead of dealing with the looming entitlement problem and the likely drop in the stock market when the Baby boomers retire, and cash out their retirement funds, I wonder whether putting off the pain until later isn't a very bad decision, since the last thing we will need at that point is to have more economic problems to deal with when that happens.  Letting the pain happen now might help to push us in the direction of fixing these other problems before they do become a drag on the economy.