Friday 23 September 2011
The headline above is not what GOP congressional leaders actually said to Federal Reserve Board Chairman Ben Bernanke, but they might just as well have used that precise language in the letter CNBC reports they sent to the Fed. According to CNBC, the letter instructed the Fed "to refrain from further 'intervention' in the economy.
In other words, now that the GOP has made it all but impossible for fiscal policy to be used to improve they economy, they want to make sure that the only other tool the government has at its disposal -- monetary policy -- isn't used either.
Why take on the Fed? The Republicans have some direct control over fiscal policy because they can either refuse to consider a proposal in the House where they are in the majority or can filibuster legislation in the Senate where they are in the minority. Because the Fed is an independent agency, the GOP can only do what they did today in the letter by threatening to bring down the wrath of god if it dares take any action to get the economy moving.
If you're surprised by this you haven't been reading CG&G. I first posted back in August 2010 that Bernanke had "painted a big bulls eye on the Federal Reserve" when he spoke at the annual conference in Jackson, Wyoming, about the Fed providing additional stimulus if the economy needs it. My exact words were:
It’s not at all clear, however, whether Bernanke realizes that the same political pressure that has brought fiscal policy to a standstill in Washington is very likely to be applied to the Fed if it decides to move forward. With Republican policymakers seeing economic hardship as the path to election glory this November, there is every reason to expect that the GOP will be equally as opposed to any actions taken by the Federal Reserve that would make the economy better, and that Republicans will openly and virulently criticize the Fed for even thinking about it. The criticism is likely to come both before any action is taken to try to stop it from happening and afterwards to make the Fed think twice about doing more.
Three months later, I referred back to that exact post when a number of GOP economists and political strategists began to criticize the Fed exactly as predicted.
Today's letter is far worse than anything that happened last November. This warning is directly from the Republican congressional leadership instead of just outside economists and strategists, and the letter is almost sinister and ominous in its tone. The treat that terrible things will come to those who help the economy when the GOP is not in charge of the White House sounds very real.
My question: If Rick Perry -- one of the wanna-be GOP candidates for president -- says that Bernanke's actions to date have been treasonous, what do you call today's Republican demand that the federal agency with the legal responsibility and the potential power to help GDP grow and unemployment to fall not do anything to help the American economy?
BS is the mildest term I can think of for this situation.
+++++++++++
GOP Leaders Warn Bernanke About Further Fed Action
Reuters | 20 Sep 2011 |CNBC
Top Congressional Republicans Tuesday took the unusual step of telling the Federal Reserve to refrain from further "intervention'' in the economy on the eve of a policy decision by the U.S. central bank.
The group, which included the top two Republicans in both houses of Congress, said the Fed's policies have been ineffective at supporting economic expansion and boosting employment.
"It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate,'' the group said in a letter to Fed Chairman Ben Bernanke.
The letter was signed by House Speaker John Boehner, Majority Leader Eric Cantor, Senate Minority Leader Mitch McConnell and Senate Minority Whip Jon Kyl.
It was a rare direct recommendation from Capitol Hill on monetary policy, which is supposed to be conducted free of political pressure.
The Fed said it had received the letter, which was made public by Republican leaders, but had no further comment.
With economic prospects fading dramatically after a damaging U.S. debt downgrade in August and an escalation of European financial turmoil, the Fed has made clear it is intent on taking further steps to lift growth.
Fed officials argue that, while growth remains anemic, its unconventional monetary support have at least forestalled a prolonged period of damaging deflation.
Officials at the central bank differ on how best to address the economy's woes, analysts expect Bernanke to muster a consensus behind a plan to rebalance the Fed's portfolio to push down longer-term interest rates.
Officials hope that by weighting the central bank's bond holdings more heavily toward longer-term debt they can spur mortgage refinancings and push investors into stocks or corporate bonds and away from safe-haven Treasuries.
But with interest rates already effectively at zero and unemployment still above 9 percent, Republicans said the risks of unorthodox policy were too great.
"We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy," the letter said.
Republican leaders were deeply critical of the Fed's move late last year to make additional bond purchases, and blocked a nominee to the Fed's board earlier this year. The nominee, Peter Diamond, had voiced support for the Fed's easy-money policies.
Indeed, the Fed has become a political campaign issue ahead of next year's presidential elections, with Mitt Romney from Massachusetts saying he would not reappoint Bernanke and Texas Republican Rick Perry calling the Fed chief's actions "treasonous."
"If this guy prints more money between now and the election, I don't know what y'all will do to him in Iowa, but we would treat him pretty ugly down in Texas," Perry told supporters in Iowa last month.
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