Mounting politically-motivated threats of interference from the Republican Party on the Federal Reserve endangers the central bank’s independence and undermines confidence in the nearly century-year old institution that represents the last hurdle to another Great Depression.
Having witnessed over the last 30+ years the Republican Party’s methodical roll-back of safeguards erected after the Great Depression, Republicans are now going after the independent Federal Reserve System as the last defense against the power-grab taking place by the wealthiest individuals in the country.
One after another weak, lazy or privileged puppet Republican President has fallen prey to the skillful manipulation taking place behind the scenes.
That is not just my opinion. That was the consensus opinion among economists gathered at the Fed’s annual monetary policy symposium in Jackson Hole, Wyoming. Much fear that a closely-contested presidential race that has turned the monetary authority into a political football that could spell its ultimate demise and the completion of the take-over of the financial, political, and judicial sectors in America. There can be no doubt as to the true reason that trillions of dollars remain offshore by America’s wealthiest individuals and corporate entities.
They have poured millions, if not billions into the hi-jacking of America, from attempts at voter suppression, to the enabling of buying elections via the SCOTUS ruling on Citizens United, to now attempting to neuter the independence of the Federal Reserve System. If the Republican Party, that has been completely taken hostage and become puppets to the wealthiest individuals in the country, take over the Congress, they will also be able to take over SCOTUS, with two liberal-leaning justices retiring, and the Executive Branch; leaving them no obstacles to eradicate all safety nets for Americans and become irrevocably entrenched to enact whatever self-serving, anti-capitalist, anti-democracy agenda they see fit.
We have seen the beginnings in Michigan where appointed “officials” can take over entire municipalities with virtually no reporting of this atrocity to democracy. We have seen attempts to suppress the votes of Democrats in states with Republican Governors and legislatures. And we now are witnessing the beginnings of the dismantling of our independent Federal Reserve system.
When Bankers Run Scared
“I do fear for it a bit if the election comes out that way, especially if some of the more radical voices, that happen to be Republican voices nowadays, get reelected,” said Alan Blinder, Princeton economics professor and a former Fed vice chairman.
“There’s a lot of hostility,” said Blinder, who was appointed to the Fed by former president Bill Clinton.
The focus of conversation at the symposium was whether or not Fed Chairman Ben Bernanke and his colleagues would deliver another round of monetary stimulus. But many participants voiced concern about the heated political rhetoric aimed at the Fed when probed on the issue on the sidelines of the meeting. Concern included a bill that would audit the manner of monetary policy that is gaining increasing traction among more radical Republicans.
Despite Mr. Bernanke’s almost constant pleading for Republican obstructionism to come to an end and to make good-faith efforts to compromise and take the necessary steps to stimulate demand in order to put an end to the deep and fragile economic conditions in the U.S., the GOP continues to focus on voter suppression, the removal of women’s reproductive rights, blaming the current administration for financial woes that the GOP themselves caused.
Republican presidential nominee Mitt Romney has said the Fed should be audited and that he would not reappoint Bernanke, despite the fact that Bernanke is a Republican who was originally picked for the job by George W. Bush. In spite of the Romney proclamation, he has pledged to respect central bank independence.
The Fed, of course, is already subject to regular audits, but Congressman Ron Paul’s bill would remove an exemption for monetary policy deliberations.
That pressure is already affecting the Fed’s behavior, according to leading economists, preventing it from pushing more assertively for stronger economic growth following the sharp blowback received back in 2010, when policymakers announced their last large scale bond purchase program.
An Oasis of Sanity in a Desert of Fools
Ironically, the complete political gridlock that characterizes U.S. fiscal policy that has gone completely off the rails in Washington has left the Fed in the tricky position of being “the only game in town.”President Obama has depleted his arsenal of anti-recession weapons unless the Republicans in Congress comes to their senses. There’s been no proof that they are willing to do so.
Both the Fed and the independent Congressional Budget Office have said an ominous “fiscal cliff” of spending cuts and expiring tax breaks at the end of this year could force a fragile economy back into a new recession.
In response to the financial crisis and deep recession of 2007-2009, the Fed cut interest rates to effectively zero and bought some $2.3 trillion in government bonds and mortgage debt to keep borrowing costs down and encourage investment. But with the lack of demand that is the result of inadequate stimulus following GWB’s crash, even with a borrowing cost of zero, businesses have been hoarding money and waiting for the money storm to pass.
Bernanke has spent an inordinate amount of time lately publicizing the advantage of recent Fed policies, arguing they prevented a much deeper slump and helped put unemployment on a downward path.
But many Republicans in Washington have vehemently disagreed, rebuking the central bank for increasing the threat of high inflation in the future despite being few signs of significant upward price pressures.
“Central banks are under a lot of scrutiny right now,” said Karen Dynan, a former Fed economist now at Brookings Institution. “It’s partly because they are using these unconventional measures that people don’t really understand and don’t really trust.”
Romney’s choice of Paul Ryan, a zealous Fed critic who supports “sound money” like his wealthy running mate appeared to increase the likelihood for a Romney administration to clamp down the role of the Fed dramatically.
Fed officials including Bernanke have warned many times that monetary policy alone cannot rescue the economy, and yet there is little hope of any change in Washington’s long-running confrontation over fiscal policy.
Politicians Should Relinquish the Notion That They Understand Macroeconomics
Historically, the view of political intervention in monetary affairs boiled down to fears that, if politicians with short-term perspectives had their way, they would always have central bankers crank up the printing presses in order to juice up growth, leading, in extreme cases, to hyperinflation.
In the current case, however, opposition has emerged against a proactive central bank that has been forced to widen its range of policy tools in a zero interest rate environment.
Susan Collins, professor of economics at the University of Michigan’s Gerald R. Ford School of Public Policy, stressed the dangers of political meddling in monetary policy of either political point of view.
“Compromising that (independence), maybe not immediately but over the medium- to longer-term, would have some really unfortunate consequences,” said Collins.
These could include a loss of market confidence that defiantly pushes borrowing costs higher and taint the central bank’s integrity.
“I absolutely hope that some wiser council would prevail should that issue come to the fore,” added Collins.