Empowered GOP may have fun kicking Bernanke around

November 3, 2010

The newly empowered U.S. Republican Party may have fun kicking Ben Bernanke, the Federal Reserve chairman, around. Whether or not the party ends with control of the Senate, it will find budget cutting difficult and often unpopular. However as several regional Fed bank presidents — along with many Republicans — support tighter money it’s easy to see a GOP Congress making sport of harassing the central bank chairman.

With the White House still Democratic for at least the next two years, a new Republican majority in the House of Representatives may have difficulty scoring concrete achievements on the economic front.

The party generally agrees on tightening fiscal policy, but increasing taxes may be economically counterproductive and would certainly infuriate the Republican voting base. Cutting spending, conversely, is likely to be generally opposed by President Barack Obama, who has the power of veto over any appropriations bills that do not meet his objectives.

Monetary policy is a different matter. Bernanke is not up for re-nomination until January 2014, though 30 Senators voted against his second term in January. However, he is required under the Full Employment Act of 1978 to make twice-yearly appearances before Congress.

In addition, the Fed reports to Congress on a number of matters; there have been seven such reports in the last year, for example. In addition, both chambers of Congress have subpoena power, so there are ample opportunities for harassment of the Fed if Congress wishes to exercise them.

Moreover, within the Republican caucus, there is a small but increasingly vocal minority that wishes to abolish the Fed, a much larger faction that wishes for either a fixed monetary peg such as a gold standard or for the Fed to be “Volckerized” by statute and prevented from excessive monetary expansion.

Other Republicans simply believe, as do regional Fed presidents Thomas Hoenig, Charles Plosser and Jeffrey Lacker, that interest rates are currently too low and should be raised above the inflation rate. Since a high proportion of Republican voters share these concerns, a growing campaign by Congress to end Bernanke’s easy-money policy seems likely.

Whether this blood sport gets under Bernanke’s skin sufficiently to change the course of monetary policy will be the question for markets in years to come.

Comments

Thought the FED wasn’t supposed to be politicized? Funny how the republicans made it an issue when it’s their guys that dropped the rate from roughly 7.5% a decade ago to essentially negative now… talk about irony – and stupidity. My personal opinion is that the FED is over-reaching now mostly BECAUSE they are being overly politicized, that and because congress was and still is spineless when it comes to spending cuts and raising taxes; you know, the two ways to close a deficit. And Bernanke is saying as much.

If the US govt really wants to fight the deficit, how about try these on for size:
-reduce military overseas presence by 30% and sell the bases they leave to the people who are America’s allies where these bases are (Japan, Germany, South Korea…);
-redefine middle class, stretching it from half of median income to $1m… then give that group a 5% tax cut;
-anyone making over 1m, 50% straight up. No AMT, no evasion by being paid in stock, nothing! If you are an individual who has an income of $1m per year, you will write a cheque to Uncle Sam for half of that income every April;
-an overhaul of education, one where teachers are paid on a scale that pertains to their evaluated effectiveness. As for post-secondary education, an immediate 50% rollback in tuitions will be instituted and enrollment fees will no longer be allowed to increase more than inflation;
-lastly, govt employees get paid not more than 10% of median income and elected officials at all levels of govt should receive NO PAY! (unless their financial situation warrants it, ie they’re not independently wealthy which could be defined by having 1m+ in assets.)

And that should be enough to get America out of the unbelievable fiscal hole while preparing the next generation to be able to do something with the country other than start wars and blather on about the constitution.

Posted by CDN_finance | Report as abusive
 

The GOP should go after the Fed, and reform it. Without such reform there can’t be an effective cure for the fundamental problems of the US economy.
If the GOP are fast enough, they’ll be able to stop QEII, and avoid the stagflation it will bring.

Posted by yr2009 | Report as abusive
 

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