Nominations That Really Matter

Common Sense
Nominations That Really Matter
Mar. 3 2011 - 3:10 pm
By MALLORY FACTOR

What if I told you that there is a secretive organization that operates in America and influences geopolitics more than almost any other organization on earth?  An organization that controls trillions of dollars -- and affects many aspects of your daily life, whether you own a home, how much your mortgage is, and how much your money makes in the bank?  An organization that holds its meetings in secret and that is ruled by people who, once appointed, are basically accountable to no one?  Without meaning to sound conspiratorial, there is such an organization: the Federal Reserve.  Its seven Governors are some of the most powerful people on earth.

The American people are highly critical of the Federal Reserve and of the Fed's policy of quantitative easing in particular, which received only a 27 percent favorable rating in a recent Bloomberg poll.  Many economists say that the Fed's easy credit in the 1990s and early 2000s created the dot-com and housing market bubbles.  And we just recently learned details of how the Fed secretly bailed out foreign central banks using billions of our dollars.  But despite these sharp criticisms of the Fed, America still is not paying sufficient attention to what the Fed does and how it does it. 

For example, did you know that Kevin Warsh is resigning from the Federal Reserve Board of Governors, seven years before the expiration of his term?  This should be big news because it means that President Obama will have filled every Presidentially-appointed seat on the Federal Reserve Board, except for one.  Given the Fed's impact on every aspect of our economy and our prosperity, you'd think this would be at least as big as the Super Bowl or the Oscars.

Both the American people and Congress have always paid much more attention to Supreme Court Justice appointments than to Fed Governor appointments.  Although the Chairman of the Fed, Ben Bernanke, is well-known, few Americans pay attention to the other Governors, even when they are appointed.  But now that real power over our economy rests in the Federal Reserve, we ought to change that.  After all, the Fed Governors have a major impact on the US, the global economy, inflation and money supply, whereas the Supreme Court Justices actually have more limited powers.

The Federal Reserve was created to ensure the stability of our financial system and lessen bank panics.  But since the recent financial crisis, the Fed has assumed huge responsibilities over almost all aspects of Americans' economic lives.  The Federal Reserve used the crisis to make an enormous power grab, in part by suggesting that it is the only part of our government smart enough to grapple with the complexities of modern American finance and the financial crisis.   Today, the Fed also controls the money supply.  Inflation.  Unemployment.  Banking regulation.  Our currency. Interest rates.  Risk management. Consumer credit.

Yet as an independent central bank. the Federal Reserve operates under minimal oversight by Congress -- its power is largely unchecked by Congress, the Administration and the courts.  Furthermore, the Fed Governors are given long terms (14 years) to insulate the central bank from political pressures.  Like judicial appointees, Fed Governors can be removed only for malfeasance, not for policy views inconsistent with the sitting President, the governing party or the will of the people.  So it is important that we take our one opportunity to evaluate the potential Fed Governors -- during the confirmation process.

 Rightly or wrongly, we accept scrutiny of Supreme Court nominees as a part of modern American political life.  Why don't we accord the same scrutiny to Fed nominees? When will the Chamber of Commerce or the AFL-CIO take out ads on FoxNews or CNN or place opinion pieces in the Huffington Post or biggovernment.com to discuss the views of Fed nominees?   After all, it's not as though the issues with which the Fed deals are any less important than those in the courts.

In the coming years, the Fed Governors will confront a looming debt crisis, mounting inflation, and persistent unemployment.  The Federal Reserve Board will impact our economic future more profoundly than at any other time in history.

We need to give the nominees to the Federal Reserve Board far greater scrutiny.  We must learn what their views are and what powers they want the Fed to exercise over our American way of life.   It is true that the appointment of one Fed governor, Peter Diamond, has not been brought to a vote for almost a year because of opposition in the Senate.  But the press and nation as a whole have not paid much attention to this matter.

It's time for a real debate on these important economic issues from all sides, and the upcoming confirmation hearings for Diamond and Warsh's replacement provide a perfect opportunity.   The American people and Congress must carefully examine Fed nominees and ensure that these nominees' views and outlooks will enable to a bright economic future for America.

http://blogs.forbes.com/malloryfactor/2011/03/03/nominations-that-really-matter/