Our failed Congress, one of the lowest rated in history and the one rated notably lower than George Bush in the polls, is practicing political gamesmanship with the Federal Reserve. What a collective bunch of fools they are.
It seems with the Democrat party it is all about power, winning and control of government. The welfare of the nation, our economic health and vitality and the ability of everyday Americans to comfortably and securely live their lives is much farther down the Democrat priority list and is not to be considered until and unless they have complete control of the levers of power. Unfortunately at that point, as history shows, all will be lost.
The track record of Democrat politicians is clear. Here in California, the Dem party has controlled the State Legislature for decades. This state is economically, educationally, socially and, to an ever increasing degree, economically, in the dumper. Not only that, I live in a city long controlled by the Dem party that has had to declare bankruptcy to stay afloat. By the way, look for a lot more of that to happen.
What happens when Dems are in complete control is in plain sight. In the interest of fairness, the GOP did not prove to be any better when they held control on the national level.
What is the lesson here? Do not put one party in control of government power on any level. It has not worked, it does not work, it will not work. Split power between parties and let them work things out for the benefit of all. Read on about the Fed and you will most certainly get my drift.
Playing politics with the Fed
From The Economist print edition
By refusing to confirm new governors, Congress is putting the world's most important central bank at risk
SMALL, weak and vulnerable: hardly an accurate description of America's central bank. But soon it could be. The Federal Reserve is the world's most important financial institution. Just this week Ben Bernanke, its chairman, demonstrated its influence when a rare comment on the dollar's weakness sent the currency soaring (see article). Yet the Fed's standing is in a potentially parlous state, thanks to political brinkmanship by the Democrat-controlled Senate.
For more than a year, two seats on the Fed's seven-member board of governors have been empty, because the Senate has been unwilling to confirm George Bush's nominees to the job. It has also refused a new term for the Bush-appointed Randall Kroszner, who is hanging on in limbo. On May 28th Rick Mishkin, another governor, said he would depart in August. If the Senate continues to delay, the Fed's board will have only four members—fewer than at any time since at least the 1930s.
No one doubts Mr Bush's candidates are qualified. The hold-up is ideological.
Democrats want to wait until after November's election so that a new president can, as one senator put it, “remake the Fed” by appointing a clutch of new people at once. That is reckless on several counts.
In the short term, the central bank will be starved of talent and leadership at an extremely tricky time. Power in monetary policy will also shift. Like much of the American government, the central bank is an artful balance of federal and local.
The Fed's key policy rate is set by the Federal Open Market Committee. Its voting members consist of the Fed's seven governors and five presidents from the 12 regional Federal Reserve banks. If the Fed's board has only four governors, the regional presidents will be in the majority—contrary to what the Fed's founders intended. Ironically, several of the regional presidents are decidedly hawkish, so the result might be a greater focus on inflation than growth—the opposite of what many Democratic senators are likely to fret about.
The real danger, however, lies further ahead. Mr Bernanke's term as Fed chairman expires in 2010. With lots of governors to appoint at once, and the prospect of a new chairman within two years, the next president will have unprecedented power to reshape the Fed. Governors are appointed for overlapping 14-year terms precisely to avoid this concentration of power.
Independence, schmindependence
That alone is dangerous. It is doubly worrying given the Democrats' seeming insouciance about politicising the Fed. So far the senators' focus has been on consumer protection. They want governors who would have done more to stop predatory subprime lending. But, in the aftermath of the Bear Stearns rescue, the overhaul of financial regulation is likely to be far broader. Wall Street's attempts to wriggle out of that regulation have already begun (see article). The Fed will be central to ensuring that institutions implicitly backed by the state are appropriately regulated: impartiality is crucial.
But the biggest risk lies with monetary policy. Though every American politician pays lip service to the central bank's independence in interest-rate decisions, that independence is more fragile than in other rich countries. The Fed has a dual mandate—to promote full employment and price stability—and no explicit inflation target. With its fuzzier goals, America's central bank is more vulnerable than some others. A set of doveish appointments could soon dissipate the Fed's inflation-fighting credibility. Economic growth is weak and prices are rising uncomfortably fast. Central bankers face difficult decisions. It is no time for politicians to make matters worse.
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