Posted on 02/17/2015 9:35:15 PM PST by entropy12
Rand Paul traveled to Des Moines, Iowa, recently and delivered a sure-fire applause line. “Anybody here want to audit the Fed?” the Kentucky senator asked. “Anybody feel that the Fed’s out to get us?” He followed it up with an op-ed comparing the Federal Reserve to Lehman Brothers and calling it essentially bankrupt. The bash-the-Fed routine, perfected by Paul’s father, former Texas congressman Ron Paul, is political gold with libertarian voters suspicious of all federal authority, especially a central bank with a $4.5 trillion balance sheet.
(Excerpt) Read more at politico.com ...
Well the Fed is a creation of Congress so your premise is wrong. What they don’t want, and what no one should want, is for politicians to exercise direct influence over the monetary policy of the Fed. What you will get in that case is constant inflation.
The only reason that Paul Volcker was able to stamp out the inflation of the ‘70s is because he was insulated from political pressure. Ronald Reagan respected the independence of the Fed and allowed Volcker to choke off bank credit completely which was extremely unpopular. Interest rates went through the roof and a President with less spine than Reagan would have fired Volcker before the cure was complete.
If you give politicians control over monetary policy you will get chronic inflation and eventually hyperinflation. They will always vote for easy money just like an addict will vote for more heroin.
“Since FED can single handedly keep “too big to fail” banks solvent by creating money “out of thin air”
The Fed gets the bank’s bond holdings in exchange for the money the Fed creates. It takes a non-liquid asset from the bank and gives the bank cash.
And “too big to fail” is politician talk, something a Treasury Secretary with a Wall Street background would say because he wants to use his influence to protect his friends. The Fed staff is more than willing to close down a badly run bank and divide its assets among healthy banks. Political pressure can interfere with their ability to do their job.
Considering the kind of people elected to Congress these days, then yeah.
House reps get elected EVERY 2 Years. Those are as close we get, to what people represent. I am sure if Rand Paul gets elected president (very unlikely), we will get the people a more direct say on how FED should operate. I don’t buy your point that FED is a creation of congress. That was many many decades ago. Totally different world now.
Every House of Representative is elected by the PEOPLE every 2 years. It does not really matter if they are good or bad in your opinion, what matters is that the HOUSE is as close as we can get to what PEOPLE WANT.
I agree with auditing the Fed.
However, Paul getting elected president is about 1:50 in my mind.
Every Fed bank is audited once a year by an outside auditor. How many more do you want? This is addition to being subject to oversight by the GAO and the Federal Reserve Office of Inspector General.
And given the bang-up job they've done everywhere else then why on earth would I want them in day-to-day control of the financial system?
“he Fed centralizes economic control in the hands of a few. That’s the very definition of centralized economy.”
It doesn’t centralize economic control. It does centralize monetary policy. And if the Fed makes a poor decision it will have system wide effects, that’s true. But systemic problems existed before there was a Fed, private banks were always affected by what other banks were doing.
I’m quite familiar with Friedman and Schwartz. I’ve read their huge ‘A Monetary History of the United States’ with it’s long and excellent chapter “The Great Contraction”.
The quote you cite is a bit misleading because Friedman and Schwartz were commenting on the Fed’s failure to act in 1930 rather than some inherent problem caused by the Fed’s mere existence.
Benjamin Strong, head of the New York Fed, died on the eve of the Depression. He had dominated Fed policy and with him now gone the Fed staff was unsure of what policy to follow. When banks began to fail they stood aside and let events play out. In that sense the Fed was part of the problem, because of their failure to act rather than something they did. You’ll find Friedman saying that in “The Great Contraction”.
In the pre-Fed era like 1907 banks would simply refuse to give customers their money in the face of a panic. That’s the restriction of payments you refer to. They also issued “clearinghouse certificates”, a kind of emergency fiat money they invented during a crisis. Both restriction and clearinghouse certs were highly questionable in terms of being legal. Clearinghouse certs were arguably counterfeit.
Bankers like JP Morgan were well aware of their options in time of crisis but they also wanted them to be legal. Morgan, the largest of them all, also believed that the US economy had grown too large for private banks to be able to backstop the banking system. It wasn’t their job, it diverted their resources, and they were aware that central banks were performing this function in Europe. The push for a central bank came from bankers themselves, although there was also a strong populist current for it that came from the supporters of William Jennings Bryan.
The original structure of the Fed gave the Treasury Department two seats on the Board of Governors. So there was more direct government oversight than now. I’ve forgotten why the Treasury removed itself from the Board but it’s always possible to return to a similar structure.
If you want hyperinflation the best way to get it is to give politicians control of monetary policy.
That happened in Europe whenever they went down that road. It’s why we have an independent Fed. Even with nominal independence they are still subjected to political pressure.
Churchill once said that democracy was the worst form of government except for all the others. A similar case could be made for the Fed. Is it pure capitalism? No. Is it free market? No. But if serves a necessary function in keeping the financial industry moving along and managing the monetary policy of this country. And for all the Feds warts and drawbacks it is better than the alternative of no regulation, no financial support, and Congress having a say in the country's monetary policy.
” I don’t buy your point that FED is a creation of congress. That was many many decades ago. Totally different world now”
It doesn’t matter if you buy it or not. It happens to be the law. Some of the laws we use were enacted by Congress in 1790. I wasn’t aware that our laws included a “sell by” date.
And I would add that the power is not centralized in the hands of a few. It is held by 12 regional banks, each with its own board of directors drawn from local business leaders. Every part of the country and every industry has a say in how monetary policy is impacting their region and their business. Fed decisions are not made in a vacuum. They are made based on input from the private sector.
“Churchill once said that democracy was the worst form of government except for all the others. A similar case could be made for the Fed”
That’s my view as well, but then I’m prone to seeing the world as part of fallen nature. Some of my libertarian acquaintances seem to believe Paradise is possible if only we would adopt the economic system of their dreams. The Fed is the snake in their Garden.
The House of Representatives have done a bang up job of blocking Obama and Reid in their radical left wing policies since GOP gained majority in the House.
I trust them 100 times more than the ex-executives from Goldman Sachs to manage the country’s finances.
Why is the FED so afraid to have congressional oversight? What are they hiding?
Congressional oversight does NOT mean congress will run the monetary policy. All it will do is they can critique it based on what the voters want.
I hope Rand Paul becomes the next president just to expose the FED, even though I do not like much of his libertarian agenda.
“Why is the FED so afraid to have congressional oversight? What are they hiding? Congressional oversight does NOT mean congress will run the monetary policy. All it will do is they can critique it based on what the voters want.”
They aren’t hiding anything. I can’t think of any other institution that provides a weekly report of their operations like the Fed provides.
Of course it would result in Congress pressuring the Fed on monetary policy. You’re very naive to believe otherwise.
Voters always want easy money and giving Congress influence over monetary policy is a recipe for permanent inflation.
The easy part is handing out cheap money. The hard part is taking the punch bowl away when the party is roaring. It took a lot of courage for Ronald Reagan to back Paul Volcker when he took interest rates to nearly 20%. Congressmen will be hounded by businessmen in their district when rates soar and if they can threaten the Fed they will.
Giving politicians a vote on monetary policy has been tried in other countries and it always ends badly. There is no reason to ignore the lessons to be learned from the experience of others.
If central banks are a good idea, one might ask why the world seems poised on the brink of economic catastrophe. The EU, Japan, China, the U.S. all operate like financial addicts panicking at the thought of not getting their next hit of a borrowed fix. Is this debt addiction sustainable? Can an addict remain high forever?
Oh yeah?
I trust them 100 times more than the ex-executives from Goldman Sachs to manage the country’s finances.
Not sure what you mean by that. Former Goldman Sachs execs aren't running the Fed.
The Fed is audited by the Office of Management and Budget and reports on Fed activities are provided to Congress.
Congressional oversight does NOT mean congress will run the monetary policy. All it will do is they can critique it based on what the voters want.
And what do the voters want the Fed to do differently?
I hope Rand Paul becomes the next president just to expose the FED, even though I do not like much of his libertarian agenda.
Fed employees are not quaking in their boots at that possibility.
May be not 1:50.
I would say about 1:25.
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