The Fed: Defending the Indefensible

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In defending
the Federal Reserve against what CNBC
to be “an unprecedented level of attacks,”
former Fed governor Frederic Mishkin said it was because of the
Fed’s inability to “articulate a clear message regarding
its trillion-dollar monetary policies”:

policy is never easy. You’re always the whipping boy. The
question [now] is the degree. Now you’re getting whipped
with a little bit harder lash than usual. But you’ve got
to make the tough calls….

The Fed can
recover from this. It’s not over yet. But, boy, they’ve
got a lot of digging [to do to get] out of the hole [they’re
in] right now.

Although the
credibility of the Fed has been questioned for years in some quarters,
the first major crack in the wall took place in May, 2009, when
Elizabeth Coleman, inspector general of the Federal Reserve, was
directly and repeatedly questioned about the Fed’s actions
by Rep. Alan Grayson (D-Fla.). Coleman’s inability to articulate
any kind of explanation to Grayson’s persistent probing has
been viewed more
than a million times
on YouTube and ended with Grayson’s
acid conclusion: “I am shocked to find out that nobody at the
Federal Reserve is keeping track of anything!”

As reported
by the Daily Bell at
the time
, “There is no substantive, regularized way for
the Fed to recover from the battering [it took and] is taking in
hearings, in blogs, and on YouTube every day … the confrontation
between Grayson and Coleman will come to be seen (in our humble
opinion) as a watershed moment.”

The Daily
Bell rejoiced that “there comes a time when the power of
the leaders begins to be questioned by the masses of the led.”
And that time is now.

The gathering
momentum of Rep. Ron Paul’s (R-Texas) bill to audit the Fed,
which garnered more than 300 supporters in a Democratic-controlled
House was temporarily sidetracked courtesy of Rep. Barney Frank
(D-Mass.), but is certain to be raised after the first of the year
when Paul assumes chairmanship of the House’s Domestic Monetary
Policy and Technology subcommittee.
Paul said that that committee in the past just dithered and concerned
itself primarily with collectible coins and such but never had the
fortitude to push the Fed for more disclosure. Even that initial
ripple in the waters of discontent resulted in the “Open Letter
to Congress and the Executive Branch,” signed by a host of
Keynesian economists and other supporters of the Fed, defending
the Fed and declaring that “the independence of U.S. monetary
policy is at risk,” and that the Fed was the “foundation
of U.S. economic stability.” This letter was apparently published
in good faith and with a straight face.

And just a
year ago Time magazine named current Fed chairman Ben Bernanke
as u201CMan of the Yearu201D with a long-winded congratulatory piece about
the chairman's response to the challenges of the Great Recession.
The article failed to mention, of course, that the prime cause of
the Great Recession was the same cause of the Great Depression –
expansion of the money supply by the Fed – and also failed to mention
that Bernanke, for all of his touted knowledge about the failings
of the Fed during the 1930s, failed to see the Great Recession coming.
In summarizing that article, Charles Scaliger said,
u201CThe most that can be said of the Federal Reserve … is that it has
presided … over the orderly debasement of the U.S. dollar and the
gradual destruction of the U.S. economy.u201D

the rest of the article

27, 2010

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