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It Ain't Gonna be Ben's Fed for Much Longer
Everyone is familiar with the fact that Federal Reserve Chairman Bernanke’s second term as Chairman is drawing to a close. Janet Yellen is widely expected to ultimately be confirmed by the Senate. What is less appreciated is that the Federal Reserve is on the cusp of what may prove to be among the broadest changes in its 100-year old history.
These wholesale changes are an under-appreciated reason that the Bernanke Fed is highly unlikely to announce a new initiative in its short remaining tenure. Indeed, that tenure may be shorter than recognized. The Democrats have a majority on the Senate Finance Committee which points to relatively easy approval. However, her candidacy will likely meet more resistance on the Senate floor, which the Democrats have a majority for final approval, but Republicans may have enough to draw out the process a little.
Yellen will likely get confirmed late this year or in early January. It makes no sense to have to Federal Reserve chairs and Bernanke will likely resign shortly after Yellen’s confirmation. This means that Yellen, not Bernanke, is likely to lead the Fed at the first meeting in 2014 held in late January. Despite concern in some quarters that Yellen is too dovish, we expect her to oversee the tapering of the long-term asset purchases at her second meeting, which would be in March.
In discussions contrasting the Federal Reserve with the European Central Bank, often the dual mandate or the emphasis on core inflation, are emphasized. Yet arguably a more important distinction is the organizational structure. The Federal Reserve has a strong central board and weak representation by the regional presidents. The ECB, in contrast, has a smaller, weaker central board, while the regional presidents are a majority.
There are seven members of Fed’s Board of Governors. It is there were widespread changes are likely in the coming months. Consider, first, that there are two vacancies on the Board at the moment. As Yellen is most likely to take Bernanke’s seat, Bernanke’s departure opens a third seat.
Another Governor’s term (Powell) term expires at the end of January. Often a governor will stay on until a replacement is confirmed. So while Powell may linger a bit, a replacement for him will eventually be made. Governor Stein is under pressure to return to his teaching post at Harvard, where he enjoys tenure. He may resign in the coming months.
Finally, there are reports that suggest that Governor Tarullo and Yellen have a strained relationship. There is some suggestion that Tarullo may also step down. What this means is that of there could be 5-6 new people on the Federal Reserve’s Board of Governors in the period ahead.
In addition to these personnel changes, Dodd-Frank requires that a second vice chairman is named, to oversee the Federal Reserve’s regulatory responsibilities. This indicates that not only will the Board of Governor see dramatic changes, but so will the leadership and structure of the Board of Governors.
As far as we can tell, these sweeping changes are unprecedented. From a macro-economic point of view, and given that the first tapering is likely to be relatively small, say $10 bln, a few months one way or the other, makes little difference.
However, from an institutional point of view, there is little to be gained from Bernanke overseeing the tapering. Indeed, it arguably does more harm than good. It reduces rather than increases the freedom and flexibility of the next Federal Reserve. Moreover, it denies the next Fed of the opportunity to establish anti-inflation credentials and demonstrate its gravitas.
When coupled with the core PCE deflator showing little sign, if any, of moving back toward the Fed’s 2% target; the prospects of more sequester-driven government spending cuts; and possibly another cut in the Fed’s growth forecasts at the December FOMC meeting, these institutional considerations appear to all but rule out tapering while Bernanke is Chairman of the Federal Reserve, despite the better than expected establishment survey of the October jobs report and the inventory accumulation that bolstered the initial Q3 GDP estimate.
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DEBT JUBILEE, ANYONE?!?!?!
moneybots: "Who chooses the board members (governors)?" Dem Bones.
Answer is Congress. Not GS.
http://www.federalreserve.gov/faqs/about_12591.htm
Who nominates candidates? President.
Who picks nominees for the President? Congress
In Yellen's selection, Senator Sherrod Brown (D-Ohio)
NY Times: Senator Sherrod Brown of Ohio, whose letter endorsing Ms. Yellen and signed by a third of Democratic senators helped turn the tide against Mr. Summers, said in a statement late Tuesday, “Today is a historic moment for the Federal Reserve, for women everywhere and for all of us who care about job creation.”
"In the middle of his Senate campaign in April 2006, Brown, along with John Conyers, brought an action against George W. Bush and others, alleging violations of theConstitution in the passage of the Deficit Reduction Act of 2005. The case, Conyers v. Bush, was ultimately dismissed for lack of standing."
Think of the mission of the Fed the same as the missions for the Department of Defense. Congress establishes the strategy (war/monetary policy) and the President administers the mission or implementation (battle force/banking system supervision and oversight).
"Monetary policy is a term used to refer to the actions of central banks to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth. In the United States, the Congress established maximum employment and price stability as the macroeconomic objectives for the Federal Reserve; they are sometimes referred to as the Federal Reserve's dual mandate. Apart from these overarching objectives, the Congress determined that operational conduct of monetary policy should be free from political influence. As a result, the Federal Reserve is an independent agency of the federal government."
http://www.federalreserve.gov/faqs/money_12855.htm
Continuing with the war powers of Congress vis-a-vis monetary policy powers of Congress, the UN acts as the Fed with the President of the US since WWII declaring UN "police actions" instead of varying wording of Congressional approvals in the same slang English as most Fed Chairs use when discussing money stuff to severely unbalanced right brained Congress, Administration and Judiciary rarely with one monetary policy economics class under their belts (as opposed to inside their hats).
How governors are selected to be appointed and what is being tapered are questions for other articles.
Fredo Corleone, da Fed's secrets are in da footnotes of da financial statement, not da balance sheet.
imagine if there was no Fed, what would happen? well the UST would have to move their debt off balance sheet, and that would have the blessing of Obama because he had already given our debt legacy status. its money we've already spent. would congress stop them, i mean its the same damn thing, why should they complain now that the Fed is out of the picture, after all they ran Iraq off balance sheet, why not the whole enchilada,
Who chooses the board members? The FED chairperson?
Submitted by Marc To Market
I see what you did there...
I really think when things get beyond ugly; the governments will impose bail-ins and confiscatory measures world wide to balance their accounts and pull in fragile banks into a pseudo nationalised system. The great stagnation of first world is not only constrained by debt but by peak resources as well.
This will only work if the international TRilateral cooperates to impose debt jubilees and restructuring balances in global accounts both private and public. This will only work if the social cohesion of major nation states with stand the reset which will be at the cost of entitlement pay outs; health, insurance and pensions. No way around that. And, it means victory of the global paradigm as nation states become marginal to decide the conditions of reset. The problem is just too big for one nation to impose unilateral solutions. We see that happening on Syria and Iran as the US prepares roll back of military spending in that hot spot. That will be an acid test. The trilateral has to agree to a median solution acceptable to all.
The first world comes out much slimmer after reset. By then we should have a new monetary and energy paradigm blue printed.
Under the gun, under the stick, faced with the cliff, man finally sees reason but at a price paid by generations of sacrificed lives who die today, not in nuclear burn out, but by a thousand cuts of economic decay.
We call that progress relative to the 1929 crisis and what succeeded it.
The amazing part of this conundrum stays : why oh why are we here, when we had it all in 1980 except a need to rebalance the structural balance in energy with the ME by appeasing inflation not by asset pumping and social throttling but in a more intelligent and balanced way, albeit based on letting energy be a true indicator of paradigm change instead of hiding it under the carpet of Ghawar/ME short term manipulation. The Arabs should have kept their production valves throttled to keep fossil expensive, their wells less depleted for future as SWING producer instead of pleasing RR for short term gain; as did Maggie with the North Sea splurge; raging urge of "I want it all, I want it now!"
We lost it right there IMHO, when we took the train going the other way; aka Reaganomics hubris.
"The supposed Federal Central Bank of the US (Federal Reserve or briefly Fed), controls completely the monetary policy and the money flow in the country, while being under control of large private banks. It is characteristic, that one of the largest lenders of the US government is Fed, which holds a significant share of public debt. The debt of the Federal Government to Fed, is due to quantitative easing policies, i.e. mainly, printing new money.
Similarly, the ECB becomes a corresponding Fed in the European area, “serving” the problematic economies that are excluded from the bond markets, through the print of new money. Therefore, the problematic economies will be loaded with more and more debt which the ECB, i.e. the largest private European banks will hold."
http://failedevolution.blogspot.gr/2012/09/lea-jacta-est-by-emperor-drag...
will this change be as significant as the one during Bush - Obama? ultimately we can end the Fed one governor at a time, by not appointing replacements. seems to me the republicans have done this before with agencies they wanted to end. Yellen may not have a problem because of cronyism in the Senate. in a one and done situation, these things get through without a hitch, but place them on the calender next to debt ceililng inflection points, and you get the perfect storm. finally the feds real problem is how to justify 85B of QE while govenment spending is being reduced. Taper They Must!
More taper BS. The fed will not and cannot taper. Yellen is even less likely to taper than Benny, and Benny wasn't going to taper.
they will just keep up the "we will taper when confidence returns" or "we will taper when unemployment reaches a certain level" if they spoke the truth it would be "we have inflated the mother of all stock bubbles...what the fuck can we do now but keep printing?"
To much power in a single persons hands. Time to take it back to the Congress.....
Power ?
The ever-burgeoning Fed balance sheet is the Mother of All Hot Potatoes; as such, Congress will not touch it with a ten-foot pole. It is much more politically beneficial to always have such a whipping boy as Bernanke hanging about.
Let Ole' Yellin feel the lashing tongues of politicians now - Congress wants no part of this monetary "experiment."