Economists Warn Fed Independence at Risk - DFWstangs Forums
 
LinkBack Thread Tools Display Modes
post #1 of 2 (permalink) Old 07-15-2009, 02:43 PM Thread Starter
Time Served
 
Join Date: Oct 2008
Location: Close To Red River
Posts: 181
Economists Warn Fed Independence at Risk

It sounds like a lot of people in very powerful possessions are finally waking up to the fact that the Fed answers to NO ONE. But Obama is proposing to broaden the Fed's responsibilities to oversee the stability of the financial system and to monitor financial institutions whose failure would threaten it. I think he wants them to keep their eye on our business. What do you think?

http://finance.yahoo.com/banking-bud...&asset=&ccode=

Economists Warn Fed Independence at Risk

More than 175 prominent economists warned that politicians' attacks on the Federal Reserve are putting "the independence of U.S. monetary policy…at risk," and urged Congress to back off lest it undermine the Fed's ability to manage the economy and thwart inflation.

The 185-word petition, initiated by a band of academic economists, reflects growing unease among professors, former Fed officials and some investors that the vehemence of the criticism from Congress of the Fed's handling of the financial crisis suggests a readiness in Congress to weaken the freedom the Fed has to move interest rates as it sees fit.

Congress has sharpened criticism of the Fed's actions, specifically Chairman Ben Bernanke's handling of Bank of America Corp.'s hesitation late last year to complete its purchase of Merrill Lynch and unusual Fed loans to American International Group Inc.

The move to publicly defend the Fed's role reflects growing unease among academic economists, former Fed officials and some investors that the vehemence of the criticism from Congress of the Fed's handling of the financial crisis suggests a readiness in Congress to weaken the freedom the Fed has to move interest rates as it sees fit.

"This was triggered by two concerns," said Anil Kashyap, a University of Chicago finance economist who was among the initiators of the petition. "The interactions with Congress are becoming increasingly hostile. Competent monetary policy needs to be forward looking. So at some point the Fed is going to have to act to tighten policy before the economy is booming. If that gets stopped for political reasons it would be a disaster and just the perception that it might be stopped could be costly."

Arguing, as economists commonly do, that the independence of the central bank is "essential for controlling inflation," the petition urges Congress not to interfere when the Fed decides to raise short-term interest rates or reverse its purchases of Treasury debt and mortgage-backed securities, which will tend to push up longer-term interest rates.

"Sooner or later, the Fed will have to scale back its current unprecedented monetary accommodation," the statement said. "When the Federal Reserve judges it's time to begin tightening monetary conditions, it must be allowed to do so without interference," the economists said.

The economists' statement also raised the possibility that proposals to reshape the Fed or alter its current governance could erode confidence in its ability to thwart inflation.

"Calls to alter the structure or personnel selection of the Federal Reserve System easily could backfire by raising inflation expectations and borrowing costs and dimming prospects for recovery," it said.

Among other things, some members of Congress have proposed to extend the powers of the General Accounting Office, the investigative arm of Congress, to audit Fed monetary policy, and others have questioned the legitimacy of the governance of the 12 regional Federal Reserve banks, which are overseen by private-sector boards of directors, the majority of whom are chosen by local commercial banks.

The petition, which is still circulating, has been signed by three winners of the Nobel Prize in economics—Daniel McFadden, Robert Merton and Eric Maskin—and five former presidents of the American Economics Association as well as the current president, Angus Deaton of Princeton University and the president-elect, Robert Hall of Stanford University. The president of the American Finance Association, Darrell Duffie of Stanford, and four of his predecessors also have signed, as have two former Fed governors, Laurence Meyer and Frederic Mishkin, and a former president of the Federal Reserve Bank of San Francisco, Robert Parry.

President Barack Obama is proposing to broaden the Fed's responsibilities to oversee the stability of the financial system and to monitor financial institutions whose failure would threaten it. Some analysts fear this would dilute the Fed's focus on keeping prices stable.

"If Federal Reserve is given new responsibilities," the economists said, "every effort must be made to avoid compromising its ability to manage monetary policy as it sees fit.

We don’t need to restore the American Dream; we need to wake up from it.

When the rich run out of money, it’s over.

Smile it makes people wonder what you are up to.
Miss D is offline  
Sponsored Links
Advertisement
 
post #2 of 2 (permalink) Old 07-15-2009, 03:04 PM
Bullet Sponge
 
forever_frost's Avatar
 
Join Date: Feb 2007
Location: Cooper, Tx
Posts: 3,142
Every time we give power to the government, we should add a check to it. The Fed has none
forever_frost is offline  
Sponsored Links
Advertisement
 
Reply

Bookmarks

Quick Reply
Message:
Options

Register Now



In order to be able to post messages on the DFWstangs Forums forums, you must first register.
Please enter your desired user name, your email address and other required details in the form below.

User Name:
Password
Please enter a password for your user account. Note that passwords are case-sensitive.

Password:


Confirm Password:
Email Address
Please enter a valid email address for yourself.

Email Address:
OR

Log-in










Thread Tools
Show Printable Version Show Printable Version
Email this Page Email this Page
Display Modes
Linear Mode Linear Mode



Posting Rules  
You may post new threads
You may post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On
Trackbacks are On
Pingbacks are On
Refbacks are On

 
For the best viewing experience please update your browser to Google Chrome