Last week, the Chairman of the Federal Reserve Ben S. Bernanke, in a speech at the Cato Institute, unveiled his plan to demystify and democratize the Fed. As though talking to a faculty meeting, Bernanke announced his plans to dramatically increase the Fed’s “transparency,” and in effect, downgrade his own influence and office to promote the collective view of his Fed colleagues.
The changes will take effect this week and “will provide more frequent forecasts of Fed officials’ views on the direction of the economy – four times a year instead of two – and extend the forecast horizon to three years from two.” The new disclosures, he said, “will help households and businesses better understand and anticipate how our policy decisions respond to incoming information, and will enhance our accountability for the decisions we make.”
Over four decades as a journalist, I have been an attentive Fed-watcher and have known well Arthur Burns, Paul Volcker and Alan Greenspan. I don’t know Bernanke personally but he and his twelve colleagues on the policymaking Federal Open Market Committee (FOMC), all of whom are Ph.D. economists and former Fed staffers, are getting into the deepest political-financial waters I’ve seen since the 1930s. And none of these bright academics has ever shown the survival instincts to swim with the world’s fiercest man-eating financial sharks, who could make literally tens of billions in short-selling transactions, tearing apart the vulnerable U.S. currency.
Point of Order, Mr. Bernanke
The U.S. government’s central bank, the Federal Reserve System, decides
whether to increase or decrease our nation’s supply of money and
credit. The bank eases policy if it is concerned about economic growth
slowing and tightens policy if it is worried about inflation
escalating.
Congress has given the Fed a dual non-specific mandate: to achieve maximum employment and maintain price stability. Congress receives testimony regularly from the Chairman of the Federal Reserve’s Washington – based board, but mostly Congress leaves the Fed alone on auto-pilot; So does the White House. The Federal Reserve Chairman is the second most powerful office in Washington and, therefore, the world.
What would you say, Mr. Chairman, if the President of the United States announced that from this day forward, he was going to reorganize and redefine the structure of the Presidency and that he and his cabinet would make all policy decisions jointly?
The Federal Reserve is independent of politics, yet by law it makes the most politically consequential decisions about our economy – and the global economy, too. The entire world uses the U.S. dollar in trade and finance. Such essential commodities as oil, coal, iron and copper are bought and sold in dollars. The health of the dollar affects everybody and everything.
Mr. Chairman, depersonalizing the responsibilities of the Federal Reserve Chairman and turning the Board into a consensus-driven “club” has some dangerous repercussions for our country and the world.
Think about it, Mr. Chairman
Congress has given the Fed a dual non-specific mandate: to achieve maximum employment and maintain price stability. Congress receives testimony regularly from the Chairman of the Federal Reserve’s Washington – based board, but mostly Congress leaves the Fed alone on auto-pilot; So does the White House. The Federal Reserve Chairman is the second most powerful office in Washington and, therefore, the world.
What would you say, Mr. Chairman, if the President of the United States announced that from this day forward, he was going to reorganize and redefine the structure of the Presidency and that he and his cabinet would make all policy decisions jointly?
The Federal Reserve is independent of politics, yet by law it makes the most politically consequential decisions about our economy – and the global economy, too. The entire world uses the U.S. dollar in trade and finance. Such essential commodities as oil, coal, iron and copper are bought and sold in dollars. The health of the dollar affects everybody and everything.
Mr. Chairman, depersonalizing the responsibilities of the Federal Reserve Chairman and turning the Board into a consensus-driven “club” has some dangerous repercussions for our country and the world.
Think about it, Mr. Chairman
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Comments
You're wrong Whalen, the Fed needs to get out in front of the markets and state it's policies for the medium term. Otherwise Fed actions will be driven by the markets expectations of Fed actions. This is what has happened before the last 2 Fed rate reductions.
Those PhDs at the Fed want to make their own decisions based on the fundamentals and not be forced into taking sub-optimal actions by other players.
By the way Whalen, just how old were you when saw those "deepest political-financial waters" in the 1930s?
Posted by: Greg | November 20, 2007 5:39 PM
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