A Fed Without Vision

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

It’s nothing short of amazing to see the stonewalling of Congress by the Federal Reserve. This was certainly the headline news out of the testimony by the chairman of the central bank, Janet Yellen, before the House Financial Services Committee. It’s not only that she’s resisting the beginnings of the movement in Congress for greater oversight of the formation of monetary policy. She’s also resisting the congressional demands for documents related to what Congress suspects was, as Reuters put it today, a “failure to properly respond” to the leak three years ago of “sensitive information to a private financial newsletter.”

This erupted when Congressman Sean Duffy, a Republican of Wisconsin, “lambasted,” to use Reuters’ phrase again, Mrs. Yellen and the central bank over the failure to produce to Congress certain documents. Mrs. Yellen claims she wants to cooperate but is refusing to do so at the moment owing to an open criminal investigation. “We’ve said that we plan to give (the documents) to you as soon as we’re able to do so and not compromise an open criminal investigation,” Reuters quoted Mrs. Yellen responded. “We want to see this investigation succeed.” Mr. Duffy didn’t buy it. Quoth he: “If anyone is trying to sweep this under the rug, it’s the Fed.”

We’re not entirely unsympathetic to Mrs. Yellen on this head. The Constitution prohibits Congress from passing bills of attainder — meaning acting against individuals for violating laws— precisely because legislatures, which lack for due process, are no place to be trying people for crimes. Let’s see up with what, if anything, the Justice Department comes, and proceed from there. What’s far more important is the general air of distrust that has begun to pervade relations between the Fed and the branch of the government that created it. Here the Federal Reserve (and it’s not just Mrs. Yellen) is far too defensive for our taste and for a growing faction within Congress.

And no wonder. We are approaching the half century mark in our experiment with fiat money, meaning money that has no legislated definition and is not defined in terms of gold or silver. We have consumed an entire presidency waiting for a full recovery from the recession that struck in 2008, a recession that the leaders of the Federal Reserve — both Ben Bernanke and Mrs. Yellen — have confessed they failed to see in the models and data followed by the Fed. Even now, when the President of America is trying to convince the voters that the economy is just ducky, people are un- or under-employed and the Fed can’t seem to find the moment to bring back a normal interest rate regime.

So the chairman of the House Financial Services Committee, Congressman Jeb Hensarling, is right as rain to begin opening up the question of monetary reform, as is Senator Shelby, who chairs the Senate Banking Committee. The House has already twice voted, by overwhelming margins, for Audit the Fed. The Joint Economic Committee’s vice chairman, Congressman Kevin Brady, is nursing a plan for a Centennial Monetary Commission to take a look at the Federal Reserve’s first century and explore what reforms might be logical as it begins, as it does this year, its second century. Should Congress continue to assign the Fed a task like maintaining full employment?

A braver, more visionary Fed leadership would welcome this kind of ferment, particularly because the constitutional grant of power to the Congress over monetary matters is so unambiguous. It has the power to tax, borrow, spend, regulate commerce, and coin money. From which one of these powers does Mrs. Yellen think the Fed deserves to be protected? As the folly of fiat money becomes ever more apparent, the Fed’s leadership has grown ever more verbose. Yet the more its chairmen, vice chairmen, regional presidents, and past chairmen talk and talk, the more Congress starts to understand that forward guidance is no substitute for the specie that is the true constitutional money.

The New York Sun

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