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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 [2] 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 [3], 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 [4], “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