THE REAL FED SWEEPSTAKES—POLICY NOT PERSONALITIES

8/29/13

Guessing who the appoint as the next chairman of the FED will be either Janet Yellen or Larry Summers. Summers with intellectual prowess and invaluable experience, not to mention (but they always do) his connections with Obama’s closest advisers on economic and financial matters.
Even as the president emphasizes wealth inequality as the defining problems for a nation unable to regain its economic footing and start growing again despite four years of unprecedented fiscal and monetary stimulus. 7/24 at Knox College Obama says “when middle class families have less to spend, businesses have fewer customers,” these unstable bubbles are the result of excessive money creation by the FED, he was expounding on growing wealth inequality, reduced returns on savings accounts an made it possible for Wall Street investors to reap huge capital gains form stock market increases. In the loose money/tight credit environment that has been in effect since Obama came to power., gains hedge funds and major corporations enjoy access to near-zero cost financing, while small business borrowers are turned away or charged punitive interest rates. To describe the impact of government policies on prosperity, does the work “monetary” show up? Nope!
The money policies engineered under Bernanke, have been the chief factor in disbursing unequal financial rewards. Stock market fueled by the fed’s serial programs of quantitative easing. The wealthiest 1% of Americans own 52% of all directly owned publicly traded stocks in the US, the top 5% own 82% of directly held stocks.
Explain to the American people that the fed’s cash injections to the economy through monthly purchases of $85 billion in Treasury Bonds and mortgage-backed =securities dwarf by a dozen times over the amount of a year of the sequester, some $85 billion in total—which obama described last week as a meat cleaver. The president roundly condemned our “winner-take all economy where a few do better and better while everybody else just treads water”
The fact that the Board of Governors of the federal reserve system is a federal agency whose seven members are appointed by the president and confirmed by the senate. Too bad we can’t choose someone with the same qualities that should characterize management of the money supply; someone wonderfully boring, predictable and reliable.
For those of us who thinks the fed extraordinary interventions are dong more harm that good—distorting market signals and misallocation capital tot the detriment of productive economic activity—is that both Yellen and Summers would continue with the dovish policies of pumping in excess liquidity in the vain hope of reducing unemployment. They both embrace the notion that monetary illusion can induce real economic gains; they both accept the broadest mandate for the fed to justify its dominance in determining economic outcomes.
Federal reserve is attempting to do too much, taking on “responsibilities that it cannot reasonably meet with the appropriately limited power provided.” Volcker criticized the idea that monetary policy should be directed toward achieving both price stability and full employment.
If the dems appoint Yellen because of their concerns about Summers having favored banking deregulation be drawn to the man behind the eponymous “Volcher Rule” that would prevent banks from engaging in speculative trading for their own accounts using depositors money? Instead of engaging in feverish whisper campaigns to slide favored appointees into the worlds’ most powerful financial position, what we should be discussing is whether the feds outsized role in determining the price and availability of credit is beneficial to economic performance.
And when obama claims that “we’re cleared away the rubble form the financial crisis and begun to lay a new foundation for stronger, more durable economic growth”. let’s challenge him with a fundamental question: how can you lay a foundation for stronger, more durable economic growth without first laying a foundation for sound money?

Source—weekly standard, judy shelton

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