The Fed: A Tremendous Challenge

Every job has its challenges, but being the chairman of the Federal Reserve Bank has to rank up there for the assortment of challenges that face Ben Bernanke. The farmer has an assortment of challenges to deal with: the weather, the price of seed and fertilizer, the price and maintenance of his farm equipment, the weather at harvest time, the price of the commodity he is growing. The chairman of the Fed has his own set of challenges and they can be very formidable too.

I worked for the State of Ohio for a little over 9 years with the state agency that insured the workers’ of Ohio for job related injury, commonly referred to as workers’ compensation. The state insurance fund was in the billions of dollars. Whenever there are large pools of money in government, there is political pressure. I saw this first hand. Large pools of money attract politicians and their patrons like a cherry popsicle attracts ants on a hot sidewalk in the summer sun. The sweetness is too much to resist.

The real estate developer as well as every other kind of developer or CFO wants low interest rates. High interest rates cause projects to get scrapped or put on hold. The economy cools and growth rate of our economy declines when interest rates are moving up. On the other hand, low interest rates and an expansive monetary policy can lead to inflation, especially when the government spends wildly and needs to borrow billion$ in the capital markets. People who live from pay check to pay check, rent, and/or are on a fixed income, a pensioner, are hurt by inflation. Yes, I know what a COLA is. But a Cost Of Living Adjustment (COLA) doesn’t give equal protection to those among us who can least sustain a rapid rise in prices. Think food, oil & gas and health care. Who looks out for these people? The business person borrows, the homeowner borrows, the investor borrows and then they pay off their debts with inflated dollars, but who looks out for those unable or not capable of taking on debt?

The Fed plays that role, or should play that role in my opinion. The integrity of the dollar, our currency, is in my opinion, the most important job the Fed can do for all the American people. Growing the money supply is also important, but I think it is secondary to maintaining the value of our currency -- our money. The Fed, created by Congress, is responsible to Congress, and as such has been drawn into helping the politicians keep their jobs. This should not be one of the challenges of the central bank, but in the real world, it is. Yes, I remember g-h-g-n from my philosophy class over 45 years ago. "Greatest good for the greatest number", a good reason to keep the economy growing. But, we need balance. Congress should stand up and take responsibility for the hole we are in economically, and not foist the problems they have created through mismanagement onto the Fed or for that matter the Fed Chairman Ben Bernanke.

That’s enough for today. I will return to this theme of the Fed’s responsibility to all Americans, and not just those among us who have influence. Stay tuned.