Send a Tweet
Most Popular Choices
Share on Facebook 10 Share on Twitter Printer Friendly Page More Sharing
OpEdNews Op Eds    H3'ed 4/8/19

The "Independent" Fed Isn't Quite What It Is Cracked Up to Be

By       (Page 1 of 1 pages)     (# of views)   2 comments
Author 2529
Message Dean Baker
Become a Fan
  (41 fans)

From CEPR

Dollar Bill Secrets
Dollar Bill Secrets
(Image by YouTube, Channel: BuzzFeedVideo)
  Details   DMCA
- Advertisement -

Neil Irwin had a New York Times article warning readers of the potential harm if the Fed loses its independence. The basis for the warning is that Donald Trump seems prepared to nominate Steven Moore and Herman Cain to the Fed, two individuals with no obvious qualifications for the job, other than their loyalty to Donald Trump. While Irwin is right to warn about filling the Fed with people with no understanding of economics, it is wrong to imagine that we have in general been well-served by the Fed in recent decades or that it is necessarily independent in the way we would want.

The examples Irwin gives are telling. Irwin comments:

"The United States' role as the global reserve currency which results in persistently low interest rates and little fear of capital flight is built in significant part on the credibility the Fed has accumulated over decades.

- Advertisement -

"During the global financial crisis and its aftermath, for example, the Fed could feel comfortable pursuing efforts to stimulate the United States economy without a loss of faith in the dollar and Treasury bonds by global investors. The dollar actually rose against other currencies even as the economy was in free fall in late 2008, and the Fed deployed trillions of dollars in unconventional programs to try to stop the crisis."

First, the dollar is a global reserve currency, it is not the only global reserve currency. Central banks also use euros, British pounds, Japanese yen, and even Swiss francs as reserve currencies. This point is important because we do not seriously risk the dollar not be accepted as a reserve currency. It is possible to imagine scenarios where its predominance fades, as other currencies become more widely used. This would not be in any way catastrophic for the United States.

On the issue of the dollar rising in the wake of the financial collapse in 2008, this was actually bad news for the U.S. economy. After the plunge in demand from residential construction and consumption following the collapse of the housing bubble, net exports was one of the few sources of demand that could potentially boost the U.S. economy. The rise in the dollar severely limited growth in this component.

- Advertisement -

The other example given is when Nixon pressured then Fed Chair Arthur Burns to keep interest rates low to help his re-election in 1972. This was supposed to have worsened the subsequent inflation and then severe recessions in the 1970s and early 1980s. The economic damage of that era was mostly due to a huge jump in world oil prices at a time when the U.S. economy was heavily dependent on oil.

While Nixon's interference with the Fed may have had some negative effect, it is worth noting that the economies of other wealthy countries did not perform notably better than the U.S. through this decade. It would be wrong to imply that the problems of the 1970s were to any important extent due to Burns keeping interest rates lower than he might have otherwise at the start of the decade.

 

- Advertisement -

Well Said 2   Must Read 1   Interesting 1  
Rate It | View Ratings

Dean Baker Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 
Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines
Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

STAY IN THE KNOW
If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEdNews Newsletter
Name
Email
   (Opens new browser window)
 

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

The Federal Reserve Board and the Presidential Candidates

The Deficit Hawks Target Nurses and Firefighters

The Attack of the Real Black Helicopter Gang: The IMF Is Coming for Your Social Security

The profit on the TARP and Bernie Madoff

Poverty: The New Growth Industry in America

The Real Reason For The Government Shutdown

Comments Image Post Article Comment and Rate This Article

These discussions are not moderated. We rely on users to police themselves, and flag inappropriate comments and behavior. In accordance with our Guidelines and Policies, we reserve the right to remove any post at any time for any reason, and will restrict access of registered users who repeatedly violate our terms.

  • OpEdNews welcomes lively, CIVIL discourse. Personal attacks and/or hate speech are not tolerated and may result in banning.
  • Comments should relate to the content above. Irrelevant, off-topic comments are a distraction, and will be removed.
  • By submitting this comment, you agree to all OpEdNews rules, guidelines and policies.
          

Comment Here:   



You can enter 2000 characters. To remove limit, please click here.
Please login or register. Afterwards, your comment will be published.
 
Username
Password

Forgot your password? Click here and we will send an email to the address you used when you registered.
First Name
Last Name

I am at least 16 years of age
(make sure username & password are filled in. Note that username must be an email address.)

2 people are discussing this page, with 2 comments  Post Comment


Lance Ciepiela

Become a Fan
Author 14196
Follow Me on Twitter
(Member since Apr 4, 2008), 52 fans, 58 articles, 82 quicklinks, 4073 comments, 213 diaries
Facebook page url on login Profile not filled in Twitter page url on login Profile not filled in Linkedin page url on login Profile not filled in Instagram page url on login Profile not filled in


Add this Page to Facebook! Submit to Twitter Share on LinkedIn Submit to Reddit


  New Content

#HardlyIndependent at all (it's "Privately Owned") - these are bankers and international banking families and dynasties (e.g. N Rothschild of London and Berlin are the primary owners of the Federal Reserve System) who own the Federal Reserve System, issue the money, control the interest rates, and control the American economy ("Study of Corporate and Banking Influence") creating their signature "Boom & Bust" Cycles. #CenturyOfEnslavement.

Yes, the "dollar" makes the "ownership quite clear" - yes, it's the "United States of America" and on top it's the "Federal Reserve Note", in slightly smaller print, meaning, of course, yes, there will be a price for the American people to pay (their #NationalDebt from "borrowing" money in lieu of direct Treasury debt free financing) for using a "currency" issued by "a banking cartel". #NationaliseTheFed.

Submitted on Tuesday, Apr 9, 2019 at 2:02:44 AM

Author 0
Add New Comment
Share Comment
Reply To This   Recommend  (0+)
Help
 

Charles Homer

Become a Fan
Author 511996

(Member since Aug 27, 2018), 1 fan, 91 comments
Not paid member and Facebook page url on login Profile not filled in Not paid member and Twitter page url on login Profile not filled in Not paid member and Linkedin page url on login Profile not filled in Not paid member and Instagram page url on login Profile not filled in


Add this Page to Facebook! Submit to Twitter Share on LinkedIn Submit to Reddit


  New Content

Here is an article that looks at the new imaginative monetary policy that will likely be used by the Federal Reserve during the next economic downturn:

https://viableopposition.blogspot.com/2018/10/central-banks-and-equities-new-monetary.html

This move will lead to even further distortions in asset valuations.

Submitted on Tuesday, Apr 9, 2019 at 12:00:56 PM

Author 0
Add New Comment
Share Comment
Reply To This   Recommend  (0+)
Help
 

 
Want to post your own comment on this Article? Post Comment