The Senate Banking Committee began holding hearings last Thursday to consider whether to confirm President Obama’s nomination of Ben Bernanke for a second term as Federal Reserve Chairman. Chairman Bernanke claims that the Fed’s actions under him helped prevent a more serious crisis from occurring. The members of Congress seem to be split between praising his efforts in curtailing the effects of the recession and blasting him for failing to prevent its occurrence in the first place. Some Senators, like Bernie Sanders of Vermont, are angry over the bailouts and the size of corporate executive compensation. Sanders has said that he will place a hold on Bernanke’s nomination.
Congress is also considering if they should change the scope of the Federal Reserve’s role in the economy. A bill that is working its way through the House proposes subjecting all of the Federal Reserve’s monetary policy decisions to review by a congressional watchdog agency, hurting the independence of the Fed. Others, like Senator Dodd, chairman of the Senate Banking Committee, while they favor an independent Fed, believe that the Federal Reserve has too many responsibilities to handle and this has resulted in a mishandling of these various responsibilities. Senator Dodd states that, “the country is best served by a strong, focused central bank – not one that is saddled with so many diverse missions and competing responsibilities that its independence and competency are called into question.” In order to rectify this situation, Dodd has proposed the creation of “new entities outside of the Federal Reserve to focus responsibility for bank regulation, consumer protections, and systemic risk, so these important duties will not need to compete for the Federal Reserve’s attention.” The hope is that if the burden is shared amongst multiple organizations, the chances of another recession occurring could be reduced as the economic situation will be more closely monitored and problems can be spotted earlier.
The creation of additional organizations to help manage the economy could help safeguard against future economic turmoil by catching any mistakes the Fed might make. Of course, it also raises fears that the new congressional watchdog agency would be too influenced by the political process, possibly attempting to force the Federal Reserve to make policies beneficial to certain interests instead of policies beneficial to the health of the economy. Will the creation of these new agencies improve the Fed’s capacity to implement good monetary policy and lead to effective regulation of the financial sector, or will their creation introduce bureaucratic red tape and set conflicting interests against each other, thus neutering the Federal Reserve’s efficacy and hindering any future attempts to make fast and effective economic responses when they are needed?
The Senate Banking Committee will hold its vote on December 17.
1 comment:
What a helpful story to pop up (for both Gov and Econ!). Note that this particular appointment is one of those that does NOT serve "at the pleasure of the President." The FED is insulated from public opinion, for better or worse, by being insulated from pressure from the elected branches of office. Like with the Supreme Court, the only way to affect policy is to adjust the people making it. If you don't like our monetary policy, then the only way to affect it is to swap out Bernanke for someone else, or, change the laws that frame the powers of the Federal Reserve in the first place. (Which would be much harder to do, politically.)
Totally awesome: the first segment of The Colbert Report from 12/8. The interview with Bernie Sanders (I-VT) is interesting, too, but obviously from one point of view.
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