This mornings must read work is an article in the Sunday Washington Post by none other than Ben Bernanke, titled The right reform for the Fed.
It is a rational pushback against the like of Ron Paul and Chris Dodd’s programs to either hamstring or completely get rid of the Federal Reserve.
As I have previously noted, being the only country with out a Central Bank would be like unilateral nuclear disarmament. Its a nice theory, but you will eventually be destroyed by your enemies.
Here’s helicopter Ben:
“These matters are complex, and Congress is still in the midst of considering how best to reform financial regulation. I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions. Notably, some leading proposals in the Senate would strip the Fed of all its bank regulatory powers. And a House committee recently voted to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States. The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.
The proposed measures are at least in part the product of public anger over the financial crisis and the government’s response, particularly the rescues of some individual financial firms. The government’s actions to avoid financial collapse last fall — as distasteful and unfair as some undoubtedly were — were unfortunately necessary to prevent a global economic catastrophe that could have rivaled the Great Depression in length and severity, with profound consequences for our economy and society. (I know something about this, having spent my career prior to public service studying these issues.) My colleagues at the Federal Reserve and I were determined not to allow that to happen.”
The key line in Bernankes impassioned (or is that dispassionate?) defense is simply this: Independent does not mean unaccountable.
If he can sell that to the public, the White House and just a few Congress critters, he will avoid seeing the Central Bank neutered . . .
The right reform for the Fed
Washington Post, Sunday, November 29, 2009