Monday, November 30, 2009

Senator Dodd: Do Not Eff With The Fed


Our central bank is a complex tool, that used correctly can maintain the integrity of the US Dollar and supply the economy with enough money (credit) to facilitate our economic growth. Too much money in circulation and you run the risk of inflation, while too little money can hold back the growth of the economy. Simple?

Now comes the Senate and Senator Christopher Dodd and his Senate Finance Committee. They are suppose to understand the basics of a central bank, our Federal Reserve Bank. The Fed, as it is known, is today the scape goat for the economic crisis of 2007-08 and the present. But, is it fair to make the Fed and its Chairman, Ben Bernanke, the scape goat for the actions of the Senate, the prior Fed Chairman, Alan Greenspan and prior administrations? Politics is not about being fair, politics is about taking credit and getting re-elected.

In 1999, with the "leadership" of Senator Phil Gramm, the Senate passed the Gramm-Leach-Bliley Act which gutted what was left of the Glass-Steagall Act that prevented commercial banks from owning brokerage firms and insurance companies. Later, under President George W. Bush's administration, Senator Gramm slipped in another Bill called the Commodity Futures Modernization Act. After doing all this "good work", Senator Gramm left the Senate and went to work for UBS (Union Bank of Switzerland), who bought Paine Webber, a brokerage firm due to the deregulation Bill of Senator Gramm.

The Fed's role in all of this is unknown to me, but to blame the current Chairman for the mess that was made by the US Senate seems to me a bit unfair. Perhaps Congress should make everyone working at the Fed wear a little yellow cloth bank sewn to their left breast pocket of their suit coats. In this way, we can make those people working at the Fed first-class scape goats for everyone to see.

The Fed is not the problem. The new legislation that is being crafted by Senator Dodd and his fellow senators will tie the hands of the Fed to operate and conduct monetary policy. The Fed has an assortment of tools it can use to conduct monetary policy and its three basic tools can not be taken away or else we will no longer have an independent central bank. Remember, there are other central banks and their governments around the world that understand how a central bank is suppose to operate. Fucking up our central bank with a bunch of stupid regulations will not go unnoticed by the central banks in the rest of the world. Politics is one thing, but fucking up the monetary system of the United States is a whole lot bigger.

Stay tuned.

4 comments:

LceeL said...

Yeah - but will he listen?

moneythoughts said...

He may not listen to me, but they will have to listen to the other countries when they see how screwed up they have made a major player in the international banking community. This is not 1945. In 2009, we are just another player. But, will Paul Volcker tell them they are going down the wrong road? Bring back Glass-Steagall and put in place better regulations with powers of enforcement. Don't tie our central bank's hands to conduct monetary policy.

Julie Schuler said...

I don't understand money. I'm going back to the barter system.

moneythoughts said...

Julie, it is OK if you don't understand money, but if you live in 21st century America, you have to understand credit. Credit enables you to live a life style now that makes it possible for you to live a decent life style longer term. Buying a washer and dryer on credit, may give you the time and clean clothes to hold down a job, work at home, and a whole punch of things that washing your stuff by hand would not give you. So, credit, used in moderation, is a good thing. And money in the 21st century is the ability to get credit. Barter has its downside too.