Open Letter to Ben Bernanke

by Don Boudreaux on November 29, 2009

in Monetary Policy, Myths and Fallacies, Other People's Money, Politics

29 November 2009

Mr. Ben Bernanke, Chairman
Federal Reserve Board
Washington, DC

Dear Mr Bernanke:

I had to down an extra mug of coffee this morning to be certain that I read your op-ed in today’s Washington Post correctly.  Sure enough, you claim to be worried about a recent House-committee vote to, as you say, “repeal a 1978 provision that was intended to protect monetary policy from short-term political influence.”

Ummm….  What guided Fed “policy” over the past couple of years if not short-term political influence?

Working hand-in-glove with the political branches, you now have the Fed performing activities – such as direct lending to what, in an April 2009 speech, you called “ultimate borrowers and major investors” – that are utterly outside of the Fed’s traditional role.

As my colleague and celebrated monetary historian Larry White wrote earlier this year, “The Fed’s new activities deserve to be called a bailout program because they seek to channel credit selectively at below-market interest rates, or purchase assets at above-market prices, in hopes of rescuing, or enhancing profits for, favored sets of financial institutions.  The Fed’s new lending facilities are not parts of a central bank’s traditional ‘lender of last resort’ role.”

Sorry, Mr. Bernanke, any independence that the Fed might have once had from “short-term political influence” has already been trampled to death – chiefly by you.

Sincerely,
Donald J. Boudreaux

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