Bernanke’s Right. Auditing the Fed Is a Bad Idea.
For my money, here’s the quote of the day:
“You’re basically saying the Congress should run monetary policy. I always like to say, if you love the way they’re managing fiscal policy let them run monetary policy.”
–Ben Bernanke, explaining why he opposes Rand Paul’s “Audit the Fed” bill.
Bernanke has a point. Those of us of a certain age remember a time when the president and Congress would routinely try to publicly influence Fed policy–the practice was called “jawboning the Fed”—and the result was, well, the 1970s. The Fed chairman leading up to that time, Arthur Burns, apparently became so gun-shy by the verbal abuse he was taking that many people believed he didn’t keep interest rates as high as they needed to be to hold back inflation. Whether he was as gun-shy as supposed, the perception took hold that the Fed had lost a measure of independence—and thus its credibility as guardian of the currency. It wasn’t until Paul Volcker boosted short rates to the 20% that inflation was finally broken and the Fed’s credibility restored.
You’ll have your own opinion of Ben Bernanke’s legacy at the Fed, his role in TARP and the QEs in particular, and of Janet Yellen’s low-rates-forever policy, for that matter. But it’s hard to imagine how the situation would be improved if Congress were given an opportunity—even an indirect one–to meddle with interest rates, as well. Not everyone in Congress is, ahem, a Rand Paul-style hard-money type.
Ben Bernanke is right. If you think Congress would be good at monetary policy look at how it run’s fiscal policy.
What do you think? Let me know!
8 Responses to “Bernanke’s Right. Auditing the Fed Is a Bad Idea.”
I usually agree with you but do not at all here. The White House (Obama) has appointed all of the FRB board of governors. They are running the FRB. How is that any better than what you are suggesting that Congress will effectively be running the FRB?
Tom, I completely agree. What politician doesn’t want low rates? With politicians in charge (or an FRB under significant pressure from the elected officials) it’s unlikely that the hard measures to counter unhealthy trends and developments in our affairs could occur. The “vision” of the Congress at the inception of the Federal Reserve more than a hundred years ago was a politically independent central banking system. It’s worked pretty well.
Rates have been quite low for well over a decade now without Congressional oversight, much less control, of the Fed, wouldn’t you say? Political independence is a fantastic concept, when it involves power-seeking humans. Good luck with that…
I am surprised (disappointed) that you bought the “Bernank” line. Since when is “auditing a business” the same thing as “running a business”?
Congress created the beast, along with Presidential approval. I think it only fair that they ask what the heck the beast is doing and the beast should be required to explain that to Congress.
You are right to suggest there will be a wide range of views on this matter, but I don’t see that the current process of deferring to the beast, as knowing all, is working well for us.
Read the Bernanke book – a little dull in places but worth a read – i think (from memory) he also pointed out that it was already audited in the true sense of the word – published accounts etcetera…a congressional “audit” is a little different i think…
this is the exact quote from the book FYI: “I exaggerate only slightly when I tell audiences that, if they are impressed with Congress’s management of the federal budget, they should support audit-the-Fed legislation to give Congress the responsibility for making monetary policy as well.”
Another quote from the book: “If we acted, nobody would thank us. But if we did not act, who would? Making politically unpopular decisions for the long-run benefit of the country is the reason the Fed exists as a politically independent central bank. It was created for precisely this purpose: to do what must be done—what others cannot or will not do.”
Abolish the Fed is the right answer.
Free markets are literally impossible with top down manipulation of money, whether it’s by a group of academics and bureaucrats controlled by Wall Street or the buffoons who’ve figured out how to buy enough votes with OPM to stay at the trough in Congress.
Completely agree. And I think the ‘audit the fed’ movement is a way to try to do that (even though we all know it won’t work as the powers that be will avoid it at all costs).
I prefer that congress figure out how to do the current job we hired them to do before we let the inmates run thru the asylum unguarded. Does anyone truly believe it would an audit vs a giant political side-show??
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