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Anti Federalist
01-23-2011, 07:37 PM
Written by, you guessed it, Chairman of the Houston branch office of the Dallas Fed.

The money quote:


"Secrecy" is, of course, the match that lights the fires of populist dissent, and the Fed is trying many new strategies that increase transparency without exposing sober, deliberate long-term decisions to the daily vicissitudes of politics. Monetary policy, like judicial processes and military operations, should have some firewall or distance from the daily news cycle for obvious reasons

In other words, "STFU and GTFO, mundane, we're running this show, and don't really give a fuck what you think about it!"

Hands off the fed
Eliminating U.S. ability to conduct monetary policy is a very bad idea

http://www.chron.com/disp/story.mpl/editorial/outlook/7392982.html

By PAUL HOBBY
HOUSTON CHRONICLE
Jan. 22, 2011, 4:14PM

Earlier this month, Richard Fisher, president and chief executive of our regional Federal Reserve Bank, made a fiery speech in New York defending the Federal Reserve. Fisher is eloquent in his belief that monetary policy and fiscal policy are siblings that can, at times, cover for each other, complement each other, or point at each other in a dangerous game to divert public attention from the federal deficit.

Defense of our central bank is imperative just now because the House Financial Services Subcommittee, which provides congressional oversight of the Federal Reserve System, has a new chair — U.S. Rep. Ron Paul, R-Lake Jackson. Paul is a frequent critic who has published a book titled End the Fed. Almost certainly, Paul will seek to make a fundamental inquiry into whether the United States will retain the ability to conduct monetary policy at all. That debate is welcome so long as reason, rather than demagoguery, dictates its terms. Allow me a bold statement as the debate begins in earnest: No one who studies the global economic issues today would forfeit this nation's ability to conduct monetary policy through a central bank.

Paul follows in a proud tradition of Texas congressmen who are openly distrustful of the Federal Reserve. Rep. Henry B. Gonzales, D-San Antonio, and Wright Patman, D-Texarkana, also were vocally suspicious of an institution they came to see as very powerful and opaque in its operations. This healthy skepticism towards any centralized, mysterious form of authority is innately Texan, and I absolutely understand the basic impulse. The Federal Reserve System has been described as "the most powerful thing you know nothing about," and there is some truth in that cliché. But to abolish the central banking function - and therefore eliminate our nation's ability to conduct monetary policy - simply because it is not well-understood would be a serious mistake.

Part of the problem in this public debate is that few of us have much personal experience with, or perspective on, monetary policy. It is simply not a visible part of most people's daily lives. But even the most ardent critics of the Federal Reserve will concede that monetary policy invisibly affects us all. So it may be helpful to review some definitions and context.

The federal government basically does two things with money. First, it taxes and spends and borrows money through the Treasury, in a manner dictated by Congress and administered by the executive branch. This is fiscal policy. Second, the federal government manages liquidity in the economy and sets the cost of short-term funds for banks. This is monetary policy, and it is administered by our nation's central bank, the Federal Reserve. Similar to the central banks of most developed nations, "the Fed" lends (rather than spends) money to accomplish its monetary policy goals. Unlike many other central banks, our Fed has twin policy goals of price stability and full employment. These goals, and the structure of the Fed itself, are dictated by Congress.

As we engage in this important conversation, some recent history and some national history provide relevant markers.

The near-death experience of the private financial system in the fall of 2008 spawned a fire drill in the public-sector financial mechanisms that even now seems remarkable. Responding to the crisis on the fiscal side, Congress - already comfortable with deficit spending - agreed to do much more of it. On the monetary side, however, the Federal Reserve System's ordinary patterns of very mundane, secured lending activities within the regulated banking system were clearly insufficient given the scale of the problem. Under the duress of volatile events, the Fed had to resort to extraordinary measures well beyond its ordinary scope, such as direct aid to the nonbank financial sector, providing liquidity to foreign central banks, and taking a primary role in money markets and mortgage markets, to name a few. The elephant danced, growing its balance sheet from roughly $900 billion to $2.2 trillion in a matter of months. Simultaneous with these events, many criticized the Fed as a primary cause of the panic, having failed to regulate effectively or by keeping money too cheap for too long and thereby fueling a housing bubble.

History will judge these events in the fullness of time. With the benefit of some hindsight, however, it seems the strategies employed by then Secretary of the Treasury Henry Paulson and Chairman of the Federal Reserve Ben Bernanke were successful, and the extraordinary measures taken by the Fed are now expected to earn a profit for U.S. taxpayers. To imagine this series of events retrospectively without the existence of a central bank is quite difficult. Only the Fed could have waved a wand and calmed the water in roiled, interconnected markets that swooned towards a full–on contagion. Because the dollar is a fiat currency, confidence is the only backstop, and aggressive monetary policy provided that confidence at a decisive moment. So our U.S. dollar remains the global reserve currency of choice for the world. Using monetary policy, we bought a little time to rectify our fiscal dilemma. Whether the whole experience has given us the political will to stop deficit spending and de-leverage the public accounts (now that private accounts have been significantly de-leveraged) remains to be seen.

Looking back further in our nation's history, we should remember that Congress has abolished the central banking function twice before, only to reinstate it. So three different times we have decided that a central bank represents an important weapon in the global economy. One recurring reason is that any return to a gold standard (which would outsource U.S. money supply decisions to offshore gold mining concerns) is simply inconsistent with maintaining the world's reserve currency - an advantage we must retain. Here and now, as we manage out of our perilous federal deficit, we know that austerity and growth-oriented economic policies must be primary in the mix. To be growth-friendly we have various nonmonetary tools at our disposal: tax simplification, accelerated depreciation, labor policy, trade policy and certain types of infrastructure, for example. But access to capital and a reasonable cost of credit are also essential to growth. In view of that, why would we forfeit the ability to manage our currency?

"Secrecy" is, of course, the match that lights the fires of populist dissent, and the Fed is trying many new strategies that increase transparency without exposing sober, deliberate long-term decisions to the daily vicissitudes of politics. Monetary policy, like judicial processes and military operations, should have some firewall or distance from the daily news cycle for obvious reasons. We can find that balance if we try.

If we were to abolish the construct the current Federal Reserve represents, there are several certain outcomes. Most immediately, Congress would have to replace the many billions of dollars that the Fed generates for the public till (those activities generated $78 billion turned over to the Treasury last year). Medium term, the world would have to decide whether the dollar is still worthy of global confidence. It could go either way, because this is a relative equation - other nations could make even worse decisions. But understand that we would be relegated to observer status in that deliberation. Finally, we would need to start considering the structure for the fourth central bank, because history would repeat predictably. The simple reality is that there are more reasons for our nation to have a monetary function than to not have it.

The righting of our national accounts will require discipline, luck and - above all else - growth. How we achieve private sector expansion is the critical issue that policymakers must face. Growth-friendly policies will necessarily include a wide array of tools: labor/immigration policy, health care policy, tax code simplification, expedited regulatory processes, etc. At this moment especially then, it would seem very strange to deprive ourselves of the powerful tool that a central bank provides when access to capital and the price of capital are clearly essential to that growth. When the sensitive variables are jobs and new private investment, preoccupation with the monetary function is a sign to the world that we aren't able to face our fiscal dilemma - preferring a resort to scapegoating instead. Like Dallas Fed President Fisher, I believe that any extended political diversion created around monetary policy in order to obscure the real fiscal-policy overspending problem would constitute tragic error.

Hobby is chairman of the Houston Branch of the Federal Reserve Bank of Dallas, but speaks solely on his own behalf and does not purport to represent the Federal Reserve in these statements.

sailingaway
01-23-2011, 08:05 PM
Meh. He reports to Ron, now.
;)

satchelmcqueen
01-23-2011, 09:47 PM
Meh. He reports to Ron, now.
;)

lol!!!!

Anti Federalist
01-23-2011, 09:59 PM
Meh. He reports to Ron, now.
;)

LOLLOL

Hope Paul Hobby and the Bernak hear this in their sleep:


http://www.youtube.com/watch?v=1ytCEuuW2_A

Inkblots
01-23-2011, 10:58 PM
To be growth-friendly we have various nonmonetary tools at our disposal: tax simplification, accelerated depreciation, labor policy, trade policy and certain types of infrastructure, for example.

The Fed has fought capital depreciation with all its might at every turn. The only 'accelerated depreciation' the Fed wants to see is that of the dollar itself.

libertybrewcity
01-24-2011, 04:28 AM
Hobby is chairman of the Houston Branch of the Federal Reserve Bank of Dallas, but speaks solely on his own behalf and does not purport to represent the Federal Reserve in these statements.

A little job security, eh?

Tal
01-24-2011, 08:49 AM
Ok the first part of the article gives me a picture in my head of Ron Paul wearing a strawhat while chewing a strain of corn thingy (dont know the english word for it) and going ''dat central bank be mighty bad, I dont trust what dem fancy bankers be doin''.
Basicly the author of that article is trying to make Ron Paul appear as an uneducated hillbilly from Texas criticizing things he doesnt understand (and it does so very well I think, im sure plenty of plebs will be reaffirmed in their beliefs that Ron is a nut by this piece).

He then goes on to paint the Fed as being some sort of broad sword that the US can use to defeat all its enemies in the world, and relinquishing this sword would just be madness!!! Who wants to be defenseless???

The rest of the article is just a long line of economic fallacies that made me gnash my teeth while I was reading it.


History will judge these events in the fullness of time.

It will indeed and it wont be in favor of central banking.

Bern
01-24-2011, 09:31 AM
Written by, you guessed it, head of the Fed Bank in Dallas.
...
Hobby is chairman of the Houston Branch of the Federal Reserve Bank of Dallas, ...

The President of the Dallas Fed is Richard Fisher. This guy is the head of a branch.


... So three different times we have decided that a central bank represents an important weapon in the global economy. ...

We? lol


... One recurring reason is that any return to a gold standard (which would outsource U.S. money supply decisions to offshore gold mining concerns) is simply inconsistent with maintaining the world's reserve currency - an advantage we must retain. ...

The G20 is already planning for a dissolution of the dollar's role in that capacity. We can try and cling to a failing dollar and watch as wealth evaporates, or we can choose competing currencies and let people have some chance of preserving whatever wealth they have left.

CableNewsJunkie
01-24-2011, 10:00 AM
The founders of the Federal Reserve System, when meeting secretly on Jekyll Island in 1910, could never have foreseen the creation of the Internet and other modern technologies which would allow for a much more streamlined, decentralized, self-regulating banking system.

Time to 'flip the script' guys.

Anti Federalist
01-24-2011, 01:31 PM
The President of the Dallas Fed is Richard Fisher. This guy is the head of a branch.

Thanks for pointing that out.

OP corrected.

Bern
01-25-2011, 08:53 AM
Is This the Best the Fed Can Do in Its Defense? (http://www.economicpolicyjournal.com/2011/01/is-this-best-fed-can-do.html)