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Saturday, November 28, 2009

Bernanke Pleads for More Fed Power

Fed Chairman Ben Bernanke took his case for expanded Fed power to the people with an Op Ed.

The chairman of the Federal Reserve is concerned that congressional efforts at financial reform could weaken the central bank's ability to handle future crises and may politicize monetary policy.

Fed Chairman Ben S. Bernanke made the comments in an Op-Ed piece to appear in Sunday's Washington Post, five days before the Senate Banking committee holds a hearing on his nomination for a second term. His current four-year term expires Jan. 31.

Bernanke wrote the nation is challenged to design a financial oversight system that will "embody the lessons of the past two years and provide a robust framework for preventing future crises and the economic damage they cause."

It's now a standard M.O. for the Fed, and/or its backers, to scream "politicizing monetary policy" whenever anyone dares to question it, it's power, or worse tries to lessen its power. It's become the monetary policy version of the race card. That's what they did when confronted with the Ron Paul challenge of auditing the Fed.

The Congress, however, purposefully--and for good reason--excluded from the scope of potential GAO reviews some highly sensitive areas, notably monetary policy deliberations and operations, including open market and discount window operations. In doing so, the Congress carefully balanced the need for public accountability with the strong public policy benefits that flow from maintaining an appropriate degree of independence for the central bank in the making and execution of monetary policy. Financial markets, in particular, likely would see a grant of review authority in these areas to the GAO as a serious weakening of monetary policy independence. Because GAO reviews may be initiated at the request of members of Congress, reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions. A perceived loss of monetary policy independence could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability. We will continue to work with the Congress to provide the information it needs to oversee our activities effectively, yet in a way that does not compromise monetary policy independence.

This is becoming a mantra for the Fed. Any time, anyone challenges it on anything, they are "politicizing monetary policy". No one really understands monetary policy and so they surely don't want to be accused of "politicizing" it. What some, like me for instance, call scrutiny and checks on near absolute power, the fed calls "politicizing monetary policy".

I say beware of anyone that makes political cliches. Trotting out the race cad is a political cliche and so too is the cliche of "politicizing monetary policy".

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