Federal Reserve Chairman Ben Bernanke, and, by extension, the Fed itself, wants to have its cake and eat it, too.
Twin bills are moving their way through Congress which could have wide-reaching effects on the powers and accountability of the US Central Bank. First, President Obama's 98-page financial-overhaul bill grants the Fed broad authority over both corporate and consumer lending. But, according to Bloomberg
, the measure would also put Congress in the position to closely monitor the Fed's lending habits as well as its decisions regarding monetary policy, limiting the independence the central bank holds so dear.
Second, Texas Congressman Ron Paul wrote a bill, which has recently gained wide support in the House of Representatives, demanding oversight and audits into secretive Fed operations. Paul argues that the Fed's irresponsibly low interest rates along with support for an inherently flawed financial system has systematically debased the US dollar and pilfered the pockets of ordinary Americans. Paul wants to abolish the Fed and let the free market determine interest rates, but it appears as a first step, he'll settle for figuring out just what central bankers are up to behind closed doors.
Bernanke, for his part, counters that he doesn't think "the American people want Congress running monetary policy."
In short, the overhaul bill, which was authored by the Treasury Department with input from the Fed, formally extends the Fed's powers into the political realm by making it something more than "the lender of last resort." Bernanke argues these powers should be granted with little or no additional oversight. Paul's bill, on the other hand, posits that the Fed gave up its independence when it stepped into fiscal policy with politically charged bailouts of firms like AIG
(AIG), Bear Stearns
(C), and Bank of America
(BAC), and as such, the American people deserve transparency in its multi-trillion-dollar lending programs.
As the economy shows signs of deteriorating less quickly, monetary-policy arguments are shifting towards how best to take back the stimulus on which the country has grown so dependent.
Credit markets are indeed thawing, but only in segments where government now plays an active role. Bank-to-bank lending has resumed, but only because regulators have made it clear they won't allow any systemically important institutions fail. The housing market is showing signs of life, but only because first-time-home-buyer tax credits, low interest rates, and White House demands to keep bank-owned homes off the market are luring buyers back to the closing table.
Meanwhile, inflation looms as the federal deficit balloons, Washington seeming to believe it has unlimited blank checks with which to repair our ailing economy. This, coupled with trillions of Fed lending programs, threatens to further weaken our already battered currency.
If the Fed wants to keep its authority to destroy, err, protect the American economy, oversight and accountability aren't unreasonable requests. The trouble, of course, is that -- assuming that oversight and accountability come from Congress -- we'll have a group of bankers who didn't see the oncoming problem making policy decisions to fix those problems that are in turn, scrutinized by a group of several hundred bureaucratic boobs who by and large don't know the difference between Libor and Fiber.
Talk about the blind leading the blind.
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