Politics and the Dollar
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.
Politicizing the Federal Reserve has emerged as one of the goals of the Democrats. The financial reform bill now in House, it turns out, would require the Fed’s board of governors and also its 12 regional banks to establish offices to oversee the inclusion of minorities and women; it makes such officers presidential — i.e., political — appointees. The Senate bill would transfer to the president of America the power to appoint the head of the New York Fed. The Wall Street Journal, in an important editorial, warns that what the Democrats, led by Congresswoman Maxine Waters, are really aiming at is the “political allocation of credit.”
We take the Journal’s editorial as an opening bell in what could well become a historic fight over the standing of the Federal Reserve. And what a moment. Only a few days ago the chairman of the board of governors, Ben Bernanke, was testifying before the House Budget Committee about how he is confident … “even though we have indeed expanded our balance sheet, as you know and understand, I’ve give some testimonies in the last few months where I’ve laid out in some detail how we can exit from those extraordinary policies as needed, when needed without leaving any monetary or inflationary bias in the system.”
Congressman Paul Ryan then asked Mr. Bernanke about what is going to happen after the current credit crunch. “What’s to make us think that we’re not going to have tighter credit when the time comes around for your policy actions to be reversed?” is the way he put it. Mr. Bernanke coolly explained that it’s “exactly the same situation under any monetary policy tightening. When the Federal Reserve thinks the economy’s growing more than a sustainable pace, it begins to raise interest rates precisely to reduce the demand for credit.” Yet what is going to happen if, come that juncture, new political operatives installed at the Fed by Nancy Pelosi and Maxine Waters raise objections.
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Our prediction is that as we approach the 100th anniversary of the Federal Reserve, which is but three years hence, the logic of constitutional money is going to become ever more appealing — for it is precisely a way to avoid the politicization of monetary policy. Politicization, after all, is also the complaint the Fed itself makes in respect of the movement in the Congress to audit the Federal Reserve. Politicization was a worry of the Founders as well, which is why, in monetary matters, they limited the role of the federal government to coining. The power is granted in Article 1, Section 8 of the Constitution. The Founders adopted as our national unit of account a dollar that already existed at the time the Founders convened at Philadelphia. It contained 371 ¼ grains of pure silver, a definition of the dollar that was entered into law in 1792. If the de-politicization of monetary policy is the goal, constitutional money is the way forward.