From the libertarian right (Ron Paul) to the left (Bernie Sanders), the Federal Reserve is facing its greatest criticism in decades. Sen. Sanders is bringing an amendment calling for regular audits of the central bank, one certain to be opposed by President Obama.
UC Berkeley economist Brad DeLong offers a thoughtful analysis on the issue. The Fed opposes the scrutiny because it might limit its latitude to manage the nation’s money supply and credit, and more broadly might bring politics into central banking in a way not seen before. DeLong worries that the Fed’s policy board is largely unqualified to deal with the economic challenges faced by the nation. Especially when Ben Bernanke is barely holding a consensus.
He writes, “That a good many of the people speaking and voting in the FOMC are the wrong people to do so did not matter (much) when the Federal Reserve was dominated by the incredibly charismatic (yes, I mean that) philosopher-central banker-princes of William McChesney Martin, Arthur Burns, Paul Volcker, and Alan Greenspan, but it matters now.”
Even under Greenspan, the Fed’s reputation has been shredded by its unwillingness to address the housing bubble, the swindles of the banksters and the growing risks to the system (e.g. AIG) when a panic still might have been avoided. The Fed abrogated its regulatory duty in favor of “the free market will correct itself.”
Once the trouble started, the Fed handed out potentially trillions in “facilities” to the big banks, as well as taking their toxic “assets” on its (our) books. These actions might have avoided a second Great Depression. But they are all IOUs on the future living standards of average Americans, and the secrecy with which they were handled raises serious questions in a Democracy.
What do you think?
Today’s Econ Haiku:
From Greece to the Gulf
The question remains the same:
How bad will it spread?