By Hunter Lewis – AgainstCronyCapitalism.com –
This will put a useful spotlight on three poor Fed nominations as well as a good bill that is being ignored.
Senator Rand Paul (R-KY) has sent a letter to Senate Majority Leader Harry Reid (D-NV) threatening to put a hold on three Federal Reserve board nominees if his proposed Federal Reserve Transparency Act is not brought to a vote with the nominations.
Harry Reid will complain bitterly that Paul is obstructing the business of the Senate and that the Fed needs a full complement of members to operate efficiently. He won’t mention that he himself held and effectively killed George W. Bush’s last three Fed nominees in the hope that a Democrat would capture the White House and get control of the Fed almost immediately. That worked out to Reid’s satisfaction. All the Fed members at present have been nominated by Obama.
Senator Paul will get a little more attention for his bill but not be able to force it to a Senate floor vote. That’s too bad. We need more transparency at the Fed.
At present, the Fed operates in almost complete secrecy. We know that it is now the largest owner of US debt, all bought with newly created money, but there are many unanswered questions about how this sleight of hand is done. We know that it rescued foreign as well as US banks during and after the 2008 Crash, and is paying billions in subsidies to foreign banks today, but which banks and what amounts we do not know.
We know that Belgium reportedly bought $100 billion of US government securities during the two months leading up to the March 2014 Fed release on foreign holdings kept in its custody. Since Russia was believed to be selling large amounts of our treasuries at the time, and since Belgium’s reported purchases were almost as large as the entire Belgian GDP, observers naturally wondered if the Fed itself was buying the securities with newly created money while hiding behind Belgium’s name. Perhaps Belgium cooperates because of our continuing rescue of European banks.
All this is of course complete speculation. Nobody knows. Rand Paul’s bill would change that.
Harry Reid will ignore Paul’s threat. We won’t get the bill, and we will get the three new Fed members, which is the exact opposite of what we should wish.
But who are these people and why is the press paying so little attention to their appointment? I expressed my reservations about them when they were approved by the Senate Finance Committee in March:
The first and most important of them is Stanley Fischer, aged 70, nominee for vice chairman as well as a regular member. The most curious thing about Fischer’s resume is that, having been born in Zambia, and naturalized as an American in 1976, he accepted Israeli citizenship in 2005 in order to become head of Israel’s central bank. Today he holds dual citizenship. Prior to living in Israel, he worked as a vice chairman of Citigroup from 2002-2005, the years leading to the bank’s bail-out, and prior to that was deputy director of the International Monetary Fund, chief economist of the World Bank, and professor at MIT, where he taught Ben Bernanke among others. Somewhere along the way, he acquired a personal fortune of between $14 and $56mm.
We are thus to understand that President Obama, having searched the entire length and breadth of our land, could find nobody better than a 70 year old with Wall Street and International Monetary Fund baggage who had most recently worked for a foreign government.
The second nominee after Fischer is Lael Brainard, who has recently worked at the Treasury as an undersecretary. Ms. Brainard told senators, in true Alice in Wonderland style, that the Fed should protect “the savings of retirees.” She did not bother to explain how refusing to allow interest to be paid on savings, or seeking to foster inflation higher than interest would protect retirees.
The final nominee, Jerome Powell, would be a reappointment. Although not a PhD economist and nominally a Republican from the George H. W. Bush administration, he fits the Obama mold in other ways, notably by being from Wall Street, and by being willing to keep quiet and go along. His most daring moment came when he called the Fed’s money creation machine under Bernanke and now under Janet Yellen “innovative and unconventional” and added that “likely benefits may be accompanied by costs and risks.” He has been a reliable vote for Bernanke and likely will be for the Yellen/Fischer regime as well.
Senator Corker (R-TN) waxed enthusiastic about this group of three, saying “I’m impressed,” and leading bond manager Mohamed El-Erian describes them as a “dream team” together with Yellen.
This does indeed seem to be a “dream team” for Wall Street, for corporations boosting profits to record levels with the help of government deficits, for other special interests feeding off the stimulus trough, and for government employees. For everyone else, it just promises more and eventually even worse economic misery.
Rand Paul has the right idea: audit the Fed and don’t appoint these people. His father Ron Paul, who originated the audit the Fed bill, has an even better idea: abolish the Fed entirely.