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Loading...Federal Reserve Independence Under Threat
Readers of this website have a healthy skepticism of government. They see that well-heeled special interests assert too much power in Congress. Our representatives in Washington should devote themselves to the public interest, but too often appear to serve lobbyists and work for campaign contributions, instead. This view is held by Democrats and Republicans alike, one of few shared beliefs.
Unfortunately, this bipartisan, anti-government nexus has led to legislation to audit the Federal Reserve, the powerful financial stewards of the economy.
This is likely a bad idea and one that suckers good activist public energy down the wrong path. The reason that the Federal Reserve is unelected and insulated from political manipulation is that its powers would be very tempting to misuse for political gain. If Congress or the President could, for example, force the Federal Reserve to lower interest rates and stimulate the economy when unemployment goes up, they would do so. However, the Federal Reserve manages long-term monetary policy to obtain stability and growth in light of concerns over inflation, exchange rates, and productivity. This may include inflicting a certain amount of household suffering on the American economy to fight inflation or deal with crises where sacrifice today insures wealth and stability tomorrow. If politicians could interfere, this would never happen.
The audit legislation responds to anguish about the failure of the government to regulate financial activity and risk in the lead-up to the current crisis. It also channels anger over the solutions to the crisis that the Fed has created.
Those who are against corporate greed and excessive wealth could better use the tax code to force corporations to pay their fair share. Moreover, the proper response to failures of deregulation is increased regulation forcing private institutions to have higher capital reserves, lower leverage ratios and more significant safeguards and oversight than existed since Clinton-era deregulation. No one is claiming that government got it all right. But remember, it was political and financial interests that led to the current crisis. And note that politicians have proposed everything from doing nothing to nearly twice the stimulus that was passed in response to the crisis.
The Federal Reserve is made up of professional economists and financial experts fulfilling a public service. It is not immune to mistakes, but the Federal Reserve has, with specific limited exceptions, maintained a healthy independence from political authority.
Sacrificing that independence when the Fed makes mistakes or when we don’t like its decisions — which is what this legislation is really about — is not the answer. Once the Federal Reserve is damaged, political and financial interests will use the Fed to serve current political goals at the expense of the long term financial health of the nation.
We know what that scenario looks like in practice because we have the example of Congress. Congress never cuts expenses because our representatives are beholden for their jobs to special interests served by that government spending. One of the great examples of cost-cutting in government was done by the Base-Closings Commission, an independent panel appointed for the purpose of solving a problem that congress could not otherwise solve.
What we need is more fiscal responsibility, not less.
Read more: congress, economics, federal reserve, finance, financial reform, politics
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Recent Comments from Causes
And to go off topic for a minute, Happy Towel Day everyone. Don't Panic!
When was the last time you said, I know you are but what am I? Or everybody I know has a big but?
thanks for the article.. :)
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31 comments
+ add your ownCurrently we are again changing generations in corporate leadership. While we are only at the start, the next 15 years will be the most interesting. So I have been told, the forgotten generation will disseminate everything the baby boomers created. The corruption, will be replaced with personal accountability. This will be the case in all corporations including government. I see this happening when the Supreme Court corrects the error of the past court that gave corporations rights, but no responsibilities under the 14th Amendment.
Credit Card Machine
lmao if there was audit do you really think they would make the truth public
yea I did not think so
it meant to enslave government people and there nation's
what we have is is the worlds biggest counter fitters money basid on a debt system that is made to hide the fact it is fiat money funny money no value other then what people give it
and it is being used aganst you
you should give it back to the slave runners the same one's that wage war to make other nations hate us wile they blow are building's up with us inside it then news brod cast it and point the finger at people that had nothing to do with it
Ethics and the lack of them appear to be what is in question. In the day when industry was ruled by the greatest generation, their word was a bond. As Baby Boomers took control, the goal became more of collecting wealth, then caring about the survival of the corporation. The Captains of Industry appear to be more detached from the reputations of their corporations. While this could be the results of playing to much Monopoly as children, it also could be the result of CEOs being changed like underwear. The third possibility, could just be the simple fact, that the decisions they make are not in front of them. They do not see or know their employees. Choices they make can be halfway around the world. The bottom line is the only line they care about. How it is achieved, is not their concern. After all they pay someone else to do that. So long as the stock climbs, and the dividends increase, that is all that matters.
Currently we are again changing generations in corporate leadership. While we are only at the start, the next 15 years will be the most interesting. So I have been told, the forgotten generation will disseminate everything the baby boomers created. The corruption, will be replaced with personal accountability. This will be the case in all corporations including government. I see this happening when the Supreme Court corrects the error of the past court that gave corporations rights, but no responsibilities under the 14th Amendment.
Marc,
I think we are dealing with a double edge sword. One of which there is no safe answer. First, I think we will agree that no corporation can be trusted to regulate themselves. It is my opinion that this includes the Federal Government, since in fact it also is a corporation. This is the case in all governments in the US, since this was the concept established with the founding of the colonies.
You believe that 12 corporations from one industry, are more suited to control their industry, then an elected body. If we were talking about any other entity, where the Board of Directors, (EB), could make decisions that benefit another enitity for which they also sit on the EB, There would be screams everywhere of Conflict of Interest,(COI). The fact is, the SEC does have such laws, the fact that they choose not to use them, is a different matter. As for the concept of blind trusts, let me point out, that members of Congress do the same thing, but still manage to vote on legislation that some how benefits the corporations that they own or work for. So in reality, there will always be some form of COI. If I am not mistaken, it was your statement, that this very same Board, had Congress change the law during the Clinton Administration that led to are current melt down. While the Board members may have changed, the corporations that appointed them have not. There in lies the problem. Both systems are prone for corruption. The main issue in my concern, is accountability.
Terry,
I see the concern you have, but my concern remains. We have two powerful groups of people with control over how government and business operates: the members of the federal reserve and the members of congress. Which of these people are allowed to receive money from financial institutions. Which of them are allowed to be influenced by the money they receive from financial institutions. Imagine a elected congressional representative who recieves $250,000 in support from Bank of SoandSo. This money helps them retain their job making good money every year. The money comes legally through the Dem or Rep party apparatus, not in a suitcase, but this is how they keep there jobs. Now the federal reserve also has a tight connection to the industry it supervises, but at least the members sever ties to the institutions within their supervisory control unless they are specifically representing the financial industry in their role on the fed.
Recently a member of the Fed, Stephen Friedman resigned after his institution, Goldman Sachs, was unexpectedly forced to become a bank. Concern over conflict of interest led to his leaving and people were right to raise questions, once the conflict occurred. But in Congress serving constituents, rather than the greater good, is not a conflict, it's part of the job.
Marc - Jim S is correct here. The problem with the Federal Reserve is that the 13 member board only one person that is placed by the administration and approved by the Senate. Aside from the chair, the other 12 members are directly from the banking industry that the reserve is suppose to regulate. As with all committees, the chair only votes to break a tie. Since the chair is also from the industry, collusion is not only possible, it is highly probable. If all branches of government worked like this, we would have no OSHA, the DOL would rubber stamp every accident as operator error, DOT would find the same thing for the FAA and the NRA. Who would regulate food and meds, the industry, please. How about the communications Corps. like AT&T and Comcast running the FCC. The fact is the list is end less. Corporate America can not govern itself, such responsibility lends itself to corruption. If the Federal Reserve has acted only in the best interest of the nation, then they should be able to survive the audit and pass with flying colors. As well it also should be mentioned, that if they stole, cheated or what have you and did not cover there butts well enough, then they should be removed for being to stupid to be in charge of governing so much money. While I admit that the government can not be trusted either, At least the government can be changed every 2 years, while these clowns hold their positions for a lifetime, effecting every person on the planet, with no elections.
Thanks for the links Steve
Here are a couple of interesting links:
1. http://market-ticker.org/archives/1687-The-Last-Word-On-Bernanke-FAIL.html ......This one in interesting because it shows that the Fed has exceeded it's mandate by illegal actions. Also remember the Federal Reserve is PROHIBITED from purchasing any assets except GOVERNMENT debt.
2. Comment on the Federal Reserve's actions being unconstitutional. http://globaleconomicanalysis.blogspot.com/2009/11/hussman-accuses-fed-and-treasury-of.html
3. Jim Bunning in the Senate today with Fed Head Bernanke. http://globaleconomicanalysis.blogspot.com/
Well said Shannon.
It is so exciting and a relief to read these comments, to know that people are not being fooled. People are seeking the facts and understanding the situation. If you want to start to understand the power and control of the Feds over this country go to their web-site, http://www.federalreserve.gov/aboutthefed/mission.htm
This is just their Mission Statement: The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Today, the Federal Reserve's duties fall into four general areas:
• Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
• Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
• Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.
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