Did the Republicans Force Bernanke’s Hand?

To what extent is Fed responding to political pressures? Of course, Federal Reserve officials like to believe they are above the fray, and vehemently deny political considerations play a role in their decision-making process. They must be above the fray, otherwise the cherished independence would be broken. I know this is what I am supposed to believe. Doesn’t every Fed watcher? Yet I can’t help but think that it would be naive to believe that any institution in Washington is above the politics. It is simply not that kind of town. The degree that you have the illusion of independence depends upon your ability to have a substantial block of fiscal policymakers that believe you are doing your job. Not “your job” as you define it, but as they define it, whether or not their definition makes any sense. Such is Washington. Which brings to Pedra da Costa’s Reuters piece this morning: Increasing political encroachment on the Fed, particularly from the Republican Party, could threaten the central bank’s hard-won independence and undermine confidence in nearly 100-year old institution. That was pervasive sentiment among economists gathered at Fed’s annual monetary policy symposium in Jackson Hole, Wyoming. Against the dramatic backdrop of Grand Teton mountain, many said a closely-contested presidential race has turned the monetary authority into a political football. It has always been feared that political independence would be threatened from the left, with the ultimate result of hyperinflation. Not so anymore: “I do fear for it a bit if the election comes out that way, especially if some of more radical voices, that happen to be Republican voices nowadays, get reelected,” said Alan Blinder, Princeton economics professor and a former Fed vice chairman, adding that historically opposition to U.S. central bank had come predominately from the left. “There’s a lot of hostility,” said Blinder, who was appointed to Fed by former president Clinton. Of course, some believe that political pressure is already having an impact: For some observers, that pressure is already affecting Fed’s behavior, preventing it from pushing aggressively for stronger economic growth following sharp blowback received back in 2010, when policymakers announced their last large scale bond purchase program. If in fact this is true, then Federal Reserve Chairman Ben Bernanke made a disastrous tactical error. By not responding even more aggressively, as he now appears to be headed, he opened the Fed up to additional attacks because monetary policy looked ineffective at supporting the economy. As they say, best defense is a good offense. If the economy looked to be returning to pre-recession path of nominal GDP, Fed’s detractors from both left and the right would have less ammunition for criticizing monetary policymakers (…..)

Link: http://economistsview.typepad.com/timduy/2012/09/did-the-republicans-force-bernankes-hand.html


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Consultor Internacional

One Response to Did the Republicans Force Bernanke’s Hand?

  1. America has two national budgets, one official, one unofficial. The official budget is public record and hotly debated: Money comes in as taxes and goes out as jet fighters, DEA agents, wheat subsidies and Medicare, plus pensions and bennies for that great untamed socialist menace called a unionized public-sector workforce that Republicans are always complaining about. According to popular legend, we’re broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year’s retirees from the IRS, the SEC and the Department of Energy. Most Americans know about that budget. What they don’t know is that there is another budget of roughly equal heft, traditionally maintained in complete secrecy. After the financial crash of 2008, it grew to monstrous dimensions, as the government attempted to unfreeze the credit markets by handing out trillions to banks and hedge funds. And thanks to a whole galaxy of obscure, acronym-laden bailout programs, it eventually rivaled the “official” budget in size — a huge roaring river of cash flowing out of the Federal Reserve to destinations neither chosen by the president nor reviewed by Congress, but instead handed out by fiat by unelected Fed officials using a seemingly nonsensical and apparently unknowable methodology. Now, following an act of Congress that has forced the Fed to open its books from the bailout era, this unofficial budget is for the first time becoming at least partially a matter of public record (…..) As America girds itself for another round of lunatic political infighting over which barely-respirating social program or urgently necessary federal agency must have their budgets permanently sacrificed to the cause of billionaires being able to keep their third boats in the water, it’s important to point out just how scarce money isn’t in certain corners of the public-spending universe. In the coming months, when you watch Republican congressional stooges play out the desperate comedy of solving America’s deficit problems by making fewer photocopies of proposed bills, or by taking an ax to budgetary shrubberies like NPR or the SEC, remember Christy Mack and her fancy new carriage house. There is no belt-tightening on the other side of the tracks. Just a free lunch that never ends.



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