The Federal Reserve has been having a tough year politically in Washington. A really tough year, the kind of year where they actually have to prove that they are doing something worthwhile for the USA, and not only for that ever important elect, the bankers, all bankers from Wall Street princes and Main Street barons.
What with Bernanke - Greenspan using monetarist economic theory to guide policy, to manage bubbles that ultimately rewarded the forces of 'globalization,' leading to this country's rapidly declining industrial base, decreasing wages (unless you happen to be a prince or a baron), but an ever growing stock market. These great seers of technocratic babbling were 100% behind financial innovations like sub-prime lending, ARMs, securitization, and financial derivatives. All those new-fangled financial innovations that require a sucker or a million suckers for someone to 'win.'
Things like this might make even a slightly informed citizen to get behind Ron Paul's legislation to audit the Fed, so we can actually find out, we great and generous taxpayers are on the hook for regarding the 'toxic' debts off-loaded (from the likes of Citibank and Goldman Sachs) to the Fed through one of their many alphabet soup facilities (ie TALF) or special-purpose vehicles (off balance sheet shenanigans pioneered by ENRON). But the Fed governors are beginning to whine (actually they are threatening, but what do I know, eh.)
From Bloomberg
Kansas City Fed president Thomas Hoenig is circulating a book titled "The Balance of Power: The Political Fight for an Independent Central Bank." Charles Plosser of Philadelphia said on Sept. 29, "we must preserve" the Fed’s structure. . . .
The danger is that Congress, by altering the selection process, may gain enough influence over monetary policy to thwart Fed efforts to tighten credit in coming years and keep prices from surging.
See the Federal Reserve's mandate from inception has been price stability and full employment. Neither of which it has been any good at. Though Greenspan et al. (that being the Fed governors) would like to take credit for the 1990s, monetary policy was one bit of a more coordinated economic policy run by the Clinton administration. Clinton kissed Greenspan's ass to get Greenspan to do what was necessary to get the economy to hum (like lower interest rates to a few points above the rate of inflation). Interestingly, the economy began to overheat in those last couple of years, when President Clinton was worrying about the fallout from his peccadilloes rather than the fallout from 'globalization'. Greenspan et al. would like to ignore the tech stock bubble, the tech stock crash, the real estate bubble, the real estate crash, and the economic and structural issues behind these bubbles.
The Fed prioritizes price stability over full employment, mainly because they have tools to deal with prices, like interest rates, and no tools to deal with employment. But in their almost 100 year existence, they've never gone to Congress asking for tools to deal with employment either. Hell, the will argue that an U1 unemployment rate of 4% or less should be considered full employment. The point is, employment is a lagging indicator, and they believe if the push the levers just right, then everything will be okay. Where I come from, at best, we call this pretension, at worst, foolish stupidity. But hey, lets hear what else the Fed governors have to say about the grave threat to their independence.
"If Congress interferes with the Fed’s ability to do what has to be done, it could have major negative effects on the economy through its impact on inflation," said former Fed Governor Lyle Gramley, 82. The threat to central bank autonomy "looks to be the worst that I can recall in my lifetime."
U.S. stocks, bonds and the dollar would collapse if investors perceive Congress violating the independence of the policy-setting Federal Open Market Committee, said Former Fed Governor Laurence Meyer, now vice chairman of Macroeconomic Advisers LLC.
So do you understand that America, do you!? You fuck with the Fed, then you can kiss your fucking economy goodbye. This is the gangster message hidden under the technocratic and CNBC verbiage. If the Fed lost its independence, or some of it like it did in the 1930s (since it did such a bang up job in stopping the Great Depression), then our country will become a financial pariah, the markets will fall, the sky will fall, god will burn down Denver and turn Philadelphia into a swamp -- oh wait, I'm getting my prognosticators of bullshit mixed up.
See the Fed doesn't want to lose independence, or change the structure on how bank presidents are chosen, because then the Wall Street banks and large regional banks might lose some of that undemocratic power that a very stupid Congress in 1913 conferred upon them. These threats are BS precisely because many of these large banks have no where else to put their money, especially if they are getting TARP, or taking advantage of TALF.
The one thing that this financial crisis, hopefully, has taught all of us about economists and the wizards of Wall Street, is that they are like the Wizard of Oz, that is, frauds through and through, who prey upon our magical thinking as a species, to aggregate power to themselves. This is aided by the fact that our culture uses the paper fetish called 'money,' to give us the magical ability to be consumers of fresh Chilean grapes and sweatshop-made Chinese clothes, etc. Our feelings of well-being and security our tied up with this fetish, and it is a fetish that the high priests of Wall St. and the evangelists of Madison Ave., say is the most important thing in our lives.
The economy is a complex system that can not be managed by tweaking an interest rate every six weeks or so. This is intellectual pretension of Friedmann-monetarist economics, that somehow the economy is ultimately a linear or static system (when view from space or the moon), when in fact it is a non-linear dynamic system, complex, and not subject to long-term prediction.
The priestly class of economists that infect our government will hopefully have their influence dissipate. The idea that economics can be a pure science, one with bedrock principles (ie the law of supply and demand, something labeled a law without much actual evidence that it is true, and more recent research calls even this axiom of economics into question) is utter BS. Even pure sciences address their bedrock principles, as in Einstein's theory of relativity updated Newton's law of gravity. But not in economics. Economics is wedded to the ideology of business and to management. Economics is the scientific dressage of power in our technical age. It denatures and makes bloodless the process of economic development, even though many lives were lost and many tears shed to get humanity to this point in Western civilization, a history we ignore everytime we buy our cheap goods. It is the ideologies of power that these Fed governors will try and protect, with some assists from Wall St., most likely.
Edited: to fix a cut and paste error and to reformulate unclear sentences