Economics

The Independent Ben Bernanke

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One of the main arguments Ben Bernanke and his apologists have used against moves such as Ron Paul's "audit the Fed" bill is that getting Congress too close to influencing or effecting Fed policy will damage its much-vaunted political independence. Donald Boudreaux of George Mason University asks: What are you talking about, Benny?

I had to down an extra mug of coffee this morning to be certain that I read your op-ed in today's Washington Post correctly.  Sure enough, you claim to be worried about a recent House-committee vote to, as you say, "repeal a 1978 provision that was intended to protect monetary policy from short-term political influence."

Ummm….  What guided Fed "policy" over the past couple of years if not short-term political influence?

Working hand-in-glove with the political branches, you now have the Fed performing activities – such as direct lending to what, in an April 2009 speech, you called "ultimate borrowers and major investors" – that are utterly outside of the Fed's traditional role.

As my colleague and celebrated monetary historian Larry White wrote earlier this year, "The Fed's new activities deserve to be called a bailout program because they seek to channel credit selectively at below-market interest rates, or purchase assets at above-market prices, in hopes of rescuing, or enhancing profits for, favored sets of financial institutions.  The Fed's new lending facilities are not parts of a central bank's traditional 'lender of last resort' role."

Sorry, Mr. Bernanke, any independence that the Fed might have once had from "short-term political influence" has already been trampled to death – chiefly by you.

The Fed's clear role as handmaiden to administration policy in the crisis is also discussed in my November Reason magazine feature on the movement to curb (or end) the Fed.

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  1. That’s what I’ve been saying.

    WSJ has an editorial saying “No more ben” too.

  2. It seems to be practically impossible to have a central bank that is politically independent. But is it theoretically impossible?

    Is there some big blueprint that could conceivably be drawn that would allow for a central bank that is actually independent? If so, would anybody want that?

    1. It seems to have managed to stay indepedent for a while, but that began to break down in the last decade or so.

      The temptation to use it to manipulate the economy for political gain is too great, and that turns out to have disastrous long term consequences.

    2. The independence is from the executive branch; there is no explicit FED independence from the legislative branch.

      1. Indeed, I recall back in the early 1980s Congress passed a bill which would have forced the inflation-whipping Volcker Fed to lower interest rates. They were unable to override Reagan’s veto, however.

  3. Didn’t Friedman say the “central bank” should be a computer program designed to link the money supply to GDP growth?

  4. I am not sure it is a matter of independence in this case. Obama was convinced that the financial institution crisis would derail his agenda and presidentcy. Bernanke wanted to bail out his buddies and overvalues their contribution to soceity. This has lead to a short term alliance.

    If the ecomony recovers we will see if they are still so close on policy positions.

  5. Blubbering Ben should try his act @ the comedy store.

  6. How could he have acted MORE politically? He had effective zero percent interest rates. Was he supposed to pay ‘carry charges’ for banks to TAKE the money off his hands?

    Literally, they could hardly have done worse.

    1. You know if you follow what all these guys actually say about each other, they really do believe, or pretend to believe, that they are great patriots and national heroes acting in the best interest of the country.

      My hunch is that they are sincere in that belief. They just do not conceive that any economy or activity or even civilization could exist outside of their purview.

  7. independence = secrecy
    liberalism = socialism
    freedom = slavery

    1. Wow, Orwellian. Do the following also apply?

      libertarianism=what everyone wants until they get into power

  8. Call your Senators now and ask them to co-sponsor Senate Bill 604 – Federal Reserve Sunshine Act of 2009: http://www.auditthefed.com/?mode=actionpage

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