Dean Baker: The People Who Couldn’t See an $8 Tril Housing Bubble and Thought Iceland Was Thriving

[chill_wind]

oppose auditing the FED.

The People Who Couldn’t See an $8 Trillion Housing Bubble and Thought Iceland Was Thriving Oppose Auditing the Fed

By: Dean Baker Friday November 20, 2009 6:51 am


That is what Alan Blinder tells us in a Washington Post column today. Blinder tells us that the vast majority of academic economists and people in the financial industry oppose efforts to make the Fed more accountable to Congress. (He also bizarrely asserts that "very, very few" people support more Congressional control of the Fed. This would seem to be inconsistent with the support for the Paul-Grayson bill to audit the Fed.)

Blinder tells us why more congressional input into monetary policy would be a bad thing. He notes that the Fed will start to raise interest rates at some point when the economy starts to recover. He then presents the hypothetical scenario: "Would we like to see the FOMC members called on the congressional carpet to explain why they are ‘killing jobs’?"

Very good question. Just about everyone I know would say "yes." As phone records for Treasury Secretary Timothy Geithner from his days as President of the New York Fed show, Fed officials are in constant contact with top figures in the financial industry. There is no doubt that they would loudly hear the complaints from the industry if they were not raising interest rates fast enough to meet the industry’s concerns about inflation.

The financial industry tends to be more concerned about inflation than the rest of us. While there is a large body of research that shows that modest rates of inflation (3-4 percent) have little negative economic effect, the financial industry holds large amounts of fixed rate long-term debt. This debt loses value even if there are just small increases in the rate of inflation. For this reason, the financial industry tends to be much more vigilant in opposing inflation than manufacturing or other industries or the public at large, who may benefit from seeing the real value of mortgages and other debt eroded. Given the excessive influence of the financial industry on Fed policy, it would be perfectly reasonable for those not tied to the industry to desire a countervailing force on Fed policy.

more: http://seminal.firedoglake.com/diary/15502

[zbdent]

1. I bet that they'd say Terri Schiavo was fully cognizant and would have had

a full recovery, too ...

How many of them were there saying that Clinton's 1993 budget would cause deficits as far as the eye could see?

[chill_wind]

3. Alan "Blinder" of the WAPO.

When I get some time, I'm going to have to look up his other columns and see what his whole schtick is.

[abelenkpe]

2. kick nt.

[Overseas]

4. K&R. //nt

[chill_wind]

5. Alan S. Blinder-- ah yes, here he is:

a vice chairman of the Federal Reserve from 1994 to 1996, is an economics professor at Princeton and vice chairman of the Promontory Interfinancial Network.


"An independent monetary policy, designed and executed by the Federal Reserve, is one of the great and enduring achievements of the Progressive Era. It has enabled the long time-horizons of technocrats to triumph over the short-term perspectives of politicians, bringing us low inflation over the decades. Because of this, and because technocratic monetary policy seems to be more skillful than political monetary policy, the Fed's independence has been admired and imitated by country after country. Passage of the Paul bill would be a step away from independent monetary policy and a step toward ending the Fed as we know it."

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/19/AR2009111903472.html