Congress and the Fed

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

Let us spare a thought for the chairman of the Federal Reserve, Janet Yellen, and her fellow governors. There is no doubt that, more than six years into the Obama presidency, they have flinched from taking a step toward normalcy. They’re going to continue yet again an abnormal policy of zero interest rates. It is not entirely — or even predominantly — their fault that the central bank of the world’s leading economy has fallen into a trap. They did not write the law under which they are laboring. They are not the body primarily empowered to coin money and regulate the value thereof and of foreign coin.

Those powers belong to the body that oversees the Federal Reserve, the Congress, which is granted the monetary powers in Article One, Section Eight of the Constitution. Only it can rescue the Fed. This has been the editorial line of the Sun for as long as we can remember, though it’s hard to think of a moment when the cause of monetary reform has seemed clearer or more urgent. Never in the history of our republic has there been a span of monetary experimentation as long as the years of fiat money that followed President Nixon’s closing of the gold window in the summer of 1971.

Since then, our central bank, our Congress, our country have been issuing dollars that have no definition in law. That default led to a system in which the value of our currency is set by a group of academic sages with advanced degrees in economics (as opposed to, say, law or moral philosophy). The editor of the Interest Rate Observer, James Grant, famously mocks the system as the “Ph.D. standard.” Who grants Ph.D.s in deciding when a quarter of a point in interest rates will plunge the world into a worse crisis than that in which it already finds itself? One needs more than a committee for that.

There is no doubt that the leading figures in Congress are waking up to the Fed’s predicament. The vice chairman of the Joint Economic Committee, Kevin Brady, comprehends this point, as do the chairmen of Financial Services, Jeb Hensarling, the Senate Banking Committee, Richard Shelby, and Ways and Means, Paul Ryan. They all grasp that something is not working, even if Mr. Ryan’s committee’s assignment is tax-writing. No less a Fed giant than Paul Volcker has warned that “the absence of an official, rules-based, cooperatively managed monetary system has not been a great success.”

It may be too much to say that people are starting to laugh at the Fed. But not too much to say that they are starting to feel sorry for its leaders. Eventually these sentiments are going to start to be directed toward the Congress itself. It is not going to be possible for the Republicans to dodge this. In the last election, they put up a presidential platform calling for the establishment of a proper monetary commission. That has become only more urgent. It’s a mandate from the voters. It is not a question on which the Congress the GOP leads will want to let the country down.


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