Monday, February 01, 2010

Defending the Fed

UPDATE: Inflation's not the problem. And the 2009 Fed audit is here.

More than a century after Democrat demagogue William Jennings Bryan's "cross of gold" speech, bashing bankers remains popular. This disease is bi-partisan, as shown by the 20+ Republican and Democrat Senators who opposed Ben Bernanke's January 28th confirmation for a second term as Federal Reserve System chair. As this week's Economist observes:
[S]enators in both parties looked for a scapegoat for both the financial crisis and continuing economic hard times. One of the few things populists of both left and right agree on is that bankers have been rescued at the expense of ordinary Americans, with the Fed’s help.
Two legislators highlighted in the Economist are Representatives Alan Grayson (D-Fla) and Ron Paul (R-Tx). I'm no fan of either. And each has championed GAO audits of the Fed, proposals now embodied in Section 1000A of the pending HR 4173 -- The Wall Street Reform and Consumer Protection Act of 2009 -- which passed the House in December.

Notwithstanding the cheerleadering of blogger and commenter bobn, such notions are misguided: Conclusion: Bankers are no better, or worse, than anyone else. They aren't immune from critique. But bankers in general, and the Fed specifically, don't deserve the jibes of conspiracy theorists -- whether in service of "silver coinage" or "reform".

America has enjoyed almost three decades of relative price stability, in part thanks to the Fed. Nothing about the current recession undermines the need to preserve an independent central bank. Especially one independent of Representatives Grayson and Paul.


OBloodyHell said...

> A politically insulated central bank is more likely to be concerned with long-run objectives.?

That WAS one of the original principles behind the legislature system, too.

How do we get back to THAT?


Anonymous said...

Price stability means nothing if your purchasing power is stolen from you by the inflationary practices of the Fed.

Anonymous said...

Carl, good on you.

Carl said...

Uh, first Anony: did you look at the chart you linked? It shows "almost three decades of relative price stability," just as I said. Or do you not understand that "price stability" means the opposite of "inflationary practices"?

suek said...

Regardless...past performance is not an indicator of future success.

Are you convinced that Bernanke is unaffected by political influence? Or that he doesn't himself seek to influence politics?

What about the links between the Fed and Goldman Sachs??

Anonymous said...

But don't you worry.

Rep. Paul is anti-Israel so he only has the countries best interest in mind.

move along ... nothing to see here ...

Carl said...

Sue: Sure, but compare the inflation rate in recent years with the rate before 1983. Although perfect prediction of the future is impossible, inflation isn't the primary concern now.

And what links? Paulson, not Bernanke, worked for Goldman. Bernanke is perhaps the leading authority on the causes of the great depression--though I don't agree with all his decisions, he's the right man for the job at this time.