The January 19 issue of the Frontline Weekly Newsletter points out a dangerous undercurrent of the year’s political tide: tinkering with the federal reserve for political gain.
In summary, the appointment of President Bush’s two nominees for the Federal Reserve Board are being held up by Sen. Chris Dodd, D-CT. Dodd has also announced that he will not allow confirmation of a third member, Randy Krozner (whose expertise is in mortgage markets) when his term ends.
Why would Dodd do this? He has made it clear that he is not happy with Fed policy, as has his counterpart in the House, Barney Frank; so some of this is just personal pique. They want the Fed to respond to their political goals. But some of it is clearly partisan. If there is a Democratic president, they would be able to immediately nominate three new governors, and would not have to reconfirm Ben Bernanke as chairman, which means he would leave and the new president would appoint the chairman.
Dodd clearly wants a say in this, and wants a Fed that will pay attention to his politically driven needs. This would mean the Fed would be short-staffed for at least another 18 months, which is not a good thing. The Fed does more than just hold eight meetings and set monetary policy. They have real work that needs to get done.
Whoever the new president is, they will get to nominate who they like as governor terms come to an end. But to act as Dodd is currently doing threatens the independence of the Fed, which is a critical part of the economic world. You can criticize the Fed and their policies, and I often do, but every right-thinking person agrees that Fed policy should not be set in Congress and subject to political whim. The last time we had a Fed chairman who let politics suggest policy was William Miller under Jimmy Carter, and that did not turn out well.
Politics is a merry mess, as evidenced by any day’s viewing of the continuous news channels in this election year. However, the security and prosperity of this country is far too important to be used as a pawn by those who wish to promote their own (or their own party’s) political future.
I remember the economy of the Carter years, and the prospect of a politicized Federal Reserve is a frightening one.