Ben Bernanke

Understanding Federal Reserve Policy: It's Politics, Not Economics


So says economist Arnold Kling:

Rather than try to come up with an economic theory to explain Fed policy, I would suggest a more cynical approach. The goal has been to transfer wealth to banks and to the holders of mortgage securities. The thinking is that those constituents are more important to the economy than taxpayers….The Fed has changed from a central bank to a piggy bank. Any economist who tries to interpret Fed policy from the standpoint of economic theory is playing a fool's game.

My November 2009 Reason magazine feature on the anti-Fed political movement.

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  1. Thank god we protected the Fed’s independence by reappointing Bennay.

  2. The objective is also (as always seems to be the case) is to punish the responsible and reward the irresponsible – all through the population.

    Who is hurt most by the feds interest rate policy?

    Savers and investors. The responsible people who have lived within their means and didn’t take out unaffordable mortages that they couldn’t handle (or understand).

    Who is benefitting. Irresponsible people across the board – from bankers to irresponsible borrowers who levereged themselves to the hilt on mortgage loans.

    Not only is fed policy bailing them out but the administration’s continued attempts to prop up the real estate market via blank check subsidies to Fannie Mae and Freddie Mac (and FHA policies as well)continues to do so as well.

    I continue to get pissed off at the rationale that it is in “all our interest’s” to keep propping up all these people.

    Those who fail need to fail – and not be insulated from the consequences of their failure. The responsible people are still getting a stick in the eye from this government at all levels.

    It most certainly has NOT been in their interest that these policies have been pursued.

    1. When they punish savers and reward the leveraged investors in failed projects they gradually destroy the ethics of society. When things get bad enough they can push through new laws, regulations and programs that would have been unmentionable in earlier times.

      “Never let a crisis go to waste.”

  3. Gilbert Martin,
    Perhaps you misunderstand….it really is in “all OUR interest’s”.

  4. Cynical isn’t the right word. Realistic is. Virtually nothing government does is “above” or “beyond” politics. Understand that, and you can leave this place, Grasshopper.

    1. I got no place else to go!

      1. Mayo, I want your D.O.R.

  5. This person is obviously not an economist, since every economist from both sides of the political spectrum agrees that what Tim, Ben, Michelle, and I are doing is the right thing to do.

  6. I’m shocked and distubed by the suggestion that the instincts of the former wall street bankers running the federal reserve would be to support policy that helps wall street bankers.

    1. It would only make sense if they were planning to return to Wall Street after their stint at the Fed, but that can’t be right.

      Its a mystery.

      1. Let me be clear. We have closed the revolving door that existed between Wall Street and the White House during the past administration, by prohibiting top officials of Wall Street firms from getting jobs in my administration, unless I give them special permission.

  7. Thank you, Brian, for exorcizing that bit about “President Palin” from your Kling quote.

  8. Of course wealth is transfered from the prudent to the imprudent. It can’t very well go the other direction, can it?

  9. I wish that the Whitehouse was cleaned from Wall Street lobbists. Why are they spending 20-30% more on “bribing” politics?

  10. What a scoop ! You just learn me that world is ruled by politics ;p Seriously, when this world would go down, I will not cry…

    Manchester 2010

  11. Feds monetary policy and their interpretation of it is an insult to our intelligence. They even had the guts to claim job market is unaffected by the policy. There are lots of job opportunities but workers can’t find appropriate jobs and employers can’t find suitable workers, oh come on who are they trying to fool? Playing around with words, are they? It is pretty much clear that they haven’t given a second thought about taxpayers and savers. I for once couldn’t agree less, it is all politics!

  12. Soon or later, there will be change. They can’t play with money like that forever.

    scrabble help

  13. But the money was not backed by gold or silver and its value depreciated quickly. …. Aldrich believed a central banking system with no political involvement was …. Monetary policy of the Federal Reserve System is based partially on the …… The Federal Reserve also promoted economic recovery through sharp

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