Calabria on Bernanke

by Russ Roberts on December 3, 2009

in Monetary Policy

Mark Calabria asks the right questions. An excerpt:

The fact that Rep. Ron Paul’s bill to audit the Fed currently has 313 co-sponsors is a clear indication that Congress is unhappy with the Fed’s lack of transparency. Bernanke’s lobbying efforts against the Paul bill have had little traction. When it comes to transparency, the simple truth is that the Fed lacks credibility on the issue. Bernanke should use his confirmation hearing as an opportunity to re-build that credibility.

Bernanke has argued against the Paul bill on the grounds that it would diminish the Fed’s independence. The fact is, however, that Bernanke’s own actions have undermined the Fed’s independence to a far greater degree than anything an audit would do. He has acted essentially as a full member of both the Obama and Bush administrations. Going forward, he will be under tremendous pressure from the Obama administration to maintain loose monetary policy.

Perhaps the most important question Bernanke should answer is: how will he re-build and maintain an independent Fed?

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  • Pierce Randall
    So does this Calabria guy think Bernanke is only maintaining low rates to appease Obama and Bush? From what I've heard with Bush, it was Bernanke (and Paulson) who went to the administration and said, Look, here's a bunch of stuff we have to do, and Bush said, Fine, whatever, I'll try to get Congress behind it. I've got a feeling Bernanke is doing the same thing with Obama.

    Current monetary policy is fed-generated, not administration-generated. Perhaps correcting the arrow of policy dictated from the fed to the administration would be in fulfilling the mandate of independence, but I'm not convinced that what the fed has done during this crisis constituted bad decisions. Ron Paul probably is convinced, but that's because his idea of finance is stuck in the 19th century.
  • Chris
    It seems inconsistent to me that Congress would be so unhappy with the Fed, yet Bernake's confirmation has little chance of being denied.

    Of course, it is no surprise that Congress would do something inconsistent. I am a bit concerned that I may be missing something, though, because I have not heard/seen anyone mention this.
  • Methinks1776
    What's the difference? If not Bernanke, then who? They're all cut from the same cloth.

    All of the would-be banana kings are the same.
  • These are NOT the right questions.

    First, "independence" sounds nice, but what Bernanke means by "independence" is "secrecy." (see: http://www.youtube.com/watch?v=x1xePtuGzPY&feat...)

    Second, IF a central bank were necessary and IF Bernanke should be its chair, then he should "build his (and the Fed's) credibility" through its effective and useful services it provides, just as any private industry must do. The Fed and Bernanke have not been able to demonstrate that since its inception, in which the dollar has lost more than 90% of its value.

    I think the right questions would be: Why do we need a central bank? What have you (Bernanke) or the bank done to demonstrate its necessity?
  • Methinks1776
    Yes, but every time Ron Paul brings it up, everyone rolls their eyes and falls asleep. My bet is that Bernanke's answer to why we need a central bank is that every other developed country has one and it's just insane to think that the financial system can get along without some level of central planning. He's a graduate of the Nancy Pelosi school of logic.
  • neoaustrian
    Bernanke is a true believer of the monetarist school. He did pretty much exactly what Friedman and Schwartz counseled in their book about the Great Depression. Although, in last month's Reason, Schwartz didn't seem to think so. She suggested he's gone too far with money creation policies.

    Gold standard + 100% fractional reserve banking + free banking. And while I'm dreaming, I'm like a pony.
  • Methinks1776
    In a WSJ op-ed several months ago, Anna Schwartz accused Bernanke of fighting an old war. She said his response was completely inappropriate because the 1930's crisis was an issue of liquidity and this crisis is an issue of bank solvency. He was fighting the battle of 1929. I don't think Bernanke responded at all in the way Friedman and Schwartz counseled in their book if this was, in fact, not a crisis of liquidity.
  • neoaustrian
    I went and looked up the Reason article. You are spot on - she accuses him of misdiagnosing the problem. Is this what happens when a person studies one part of history too much, eschewing all others? There's an old saw about this... when you have a hammer, everything looks like a nail. Is that it?
  • Methinks1776
    Personally, I think Bernanke's favourite tools are a hammer and sickle.
  • Mark
    LOL
  • Curious
    Auditing the Fed will not solve anything.

    Private currencies are the solution.
  • Methinks1776
    judging by what I could stomach of his confirmation hearings the only opportunity Bernanke has taken is to prove beyond all doubt that he's an evasive, arrogant putz. Obviously, he'll be confirmed.
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