The Federal Reserve is America's Fourth Branch of government and Ben Bernanke is, in effect, the economic czar of the country. The Fourth Branch? The Fed and the Fed alone has the power to determine how much money should be in the economy. Such vast power over our lives makes the Fed a de facto fourth branch of government. Yet, its powers are not defined by the Constitution, and neither the chairman nor senior officials are elected by the people.
The seven Fed governors are appointed by the President, and confirmed by the Senate, for 14 year terms. The chairman of the Fed is appointed to his office for four years, and presidents have been more likely to re-appoint chairmen than not. Alan Greenspan's tour of duty lasted almost 18 years. Dr. Bernanke is in his second term. Perhaps one might be carried away with such power if one had it.
While the popular meme is that the Fed is owned and controlled by the "banks," they are, de facto, completely controlled by the federal government and history shows that no Fed has ever bucked the administration in power. In effect their "independence" has been co-opted by the government.
Should one institution or one man have such vast power over the economy? I don't believe so. This article is not about how to do away with the Fed (though I believe there are better ways to deal with monetary policy), but rather how easily we have accepted the Fed's status as The Great Regulator and its power to centrally plan the economy. For, when you analyze its functions and its mandate to keep prices steady and maintain full employment, that is central planning. And that is power.
And, they haven't done a very good job at it. Yet it is obvious from listening to Chairman Bernanke that he and the rest of the Fed's 19,000 employees believe they do control the economy. In reality all they really do is cause the boom-bust cycles that have been plaguing the economy. Once you understand this then understanding why they have failed to restore the economy from the recession they created is rather easy to see.
Like most economists, the Fed and its chairman mistake their manipulation of money for control of the economy. You and I are the economy and it is quite apparent that the Fed has very little "control" over us. If they could control us, then their policies would have worked and they wouldn't keep experimenting on us with radical policies like quantitative easing and ZIRP.
Money, lest we forget, it just a medium of exchange. It does other things as well (store of value, indicator of the relative cost of things), but its primary function and the reason money was invented is to allow us to easily facilitate exchanges of goods and services. The economy is what we do everyday when we work, buy, sell, and save. Money is just a tool we use. When the Fed manipulates our money what is does is upset our ability to plan about the future. We have one set of perceptions about what money is and then the Fed distorts those perceptions and we end up making bad choices and bad plans. It results in the boom-bust business cycles we have and price inflation or price deflation.
Dr. Bernanke has an exalted status in society and he is treated with deference and is adulated almost everywhere he goes. He has been barnstorming the nation with the purpose of "listening to the people" on how things are going out here. Perhaps these "town forums" he's been holding have been done by other chairmen, but I don't recall that. It reminds me, rather disturbingly, of a political campaign.
Listening to Dr. Bernanke on the "60 Minutes" interview was revealing and at times shocking. I urge you to view the interview, below. Reporters are intimidated by him because of their lack of knowledge of economics. Sunday night's interview was a shameless softballing by the timid reporter, Scott Pelley.
Mr. Pelley should have asked challenging questions. Why aren't Fed policies helping to create jobs? When you say the Fed doesn't "print" money, aren't you being disingenuous since you create money by the stroke of a keyboard? You say the risk of not acting during the crisis in 2008 would have caused another Great Depression as a result of a financial collapse. Do you have any reasonable evidence of that? What basis do you have for saying we would have 25% unemployment without the Fed's $3.3 trillion "rescue." Why are interest rates rising instead of declining as a result of your QE2 policy? If you believe your policies have helped the economy, why haven't they worked so far? Etcetera ...
I probably disagree with almost everything Dr. Bernanke says in the 60 Minutes interview. It just amazes me that Chairman Bernanke could sit there and say the things he said in light of the Fed's track record. He is totally incapable of admitting that the Fed is the source of our problems not our solutions.
This king has no clothes.
There is another ten minutes of interview outakes that you can see here.