McClatchy DC: Accountability Needed at FedSubmitted by northstar on Wed, 08/05/2009 - 11:39
The lobbyists are hard at work trying to stop the audit. Their points and commentary counterpoints.
Nearly 200 economists, mostly academics, have signed a petition urging Congress and the executive branch "to reaffirm their support for and defend the independence of the Federal Reserve System as a foundation of U.S. economic stability."
In defending the Fed against those now challenging the secrecy of its undertakings and, in some cases, its very existence, these economists offer three arguments.
First, "central bank independence has been shown to be essential for controlling inflation."
Recall, however, that for more than a century before the Fed's establishment in 1913, the purchasing power of the dollar fluctuated around an approximately horizontal trend line. Despite inflations and deflations usually associated with the wartime issuance of fiat money and the postwar return to specie-backed currency, the dollar more or less retained its exchange value against goods and services over the long run. Since the Fed's establishment, however, the dollar has lost more than 95 percent of its purchasing power. Is this horrible record what these economists consider "controlling inflation"? If so, they have placed the performance bar much too low.
Second, say the petitioning economists, "lender of last resort decisions should not be politicized."
But what are we to call the Fed's decisions during the past year to dole out trillions in loans, credit lines, guarantees, asset exchanges and so forth to big Wall Street firms? Were all those big investment banks that were permitted to transform themselves instantaneously into depository institutions, thereby gaining access to various forms of Treasury and Fed support, selected and accommodated on purely disinterested grounds? Or may we be permitted to conjecture that institutions such as Goldman Sachs and Morgan Stanley enjoy a tad more political coziness with the government in general and the Fed in particular than you and I and an additional 300 million Americans do?