"Error is better than apathy. Error can be corrected in time to change the outcome. Apathy is seldom corrected until it is too late." - G. Edward Griffin
Federal Reserve deputy chairman Donald Kohn on Thursday defended the U.S. central bank's independence, saying congressional oversight could interfere with monetary policymaking. If the Government Accountability Office (GAO), the investigative arm of Congress, were authorized to audit the Fed, that "could cast a chill on monetary policy deliberations," Kohn told a House of Representatives committee.
Dominant Social Theme: This institution is OK.
Free-Market Analysis: The Federal Reserve has tapped the right fellow to put forward as its public face: Donald Kohn seems to us to come across as affable, concerned, though a bit beleaguered. All of which are refreshing change from Bernanke's occasional arrogance and the ineffable ignorance of the Fed's Inspector General. The Inspector General, in fact, made such a mess of her testimony that the Youtube.com videos featuring her incoherent explanations have a cumulative two million views after only about two months of posting - one million a month. But Donald Kohn is a much more forthcoming spokesperson, someone who can properly make the case for the Fed. And he certainly makes the best case he can. But let's examine some of his arguments more closely.
He says congressional oversight can interfere with monetary policy making. This one doesn't make a lot of sense to us. Being free-market oriented, we would prefer that there be no monetary policy making at all. But given that the Constitution puts Congress in charge of lawmaking it seems only reasonable that Congress should be apprised of the monetary policy making that does take place. In what other aspect of American polity does a private group meet every couple of months to set the intermediate laws of the land?
He points out that Federal Reserve officials regularly explain the rationale for their policy decisions. But explaining reasons why a private body decides on something leaves something to be desired in a democratic society. First of all, it is apparently up to the Fed what it wishes to explain. Second, the Fed does not really intend to explain much of the important stuff. The FED Inspector General for instance had no idea what the Fed did with about US$10 trillion that was parceled out to various financial and industrial entities over the past year. Then there's this.
He also defended the Fed's closed-door policy-setting meetings as vital for the financial markets and the public. "The publication of the results of GAO audits related to monetary policy actions and deliberations could complicate and interfere with the communication of the FOMC's intentions regarding monetary policy to financial markets and the public more broadly," he said, referring to the Fed's policy-setting Federal Open Market Committee. Credit rating agencies, Kohn warned, would lower their ratings on the United States if the independence of the central bank seemed threatened, which would make it more costly for the government to borrow at a time when its deficit is soaring amid a recession.
Why on earth would credit rating agencies lower ratings on the United States if the independence of the central bank seemed threatened? Central banks in both Europe and America have contributed to an enormous instability of interest rates as well as an inevitable over-printing of money. It would seem far more likely that an independent rating agency would raise ratings were a central bank for some reason to cease to function, given all the difficulties they cause.
Conclusion: What's really needed here is an expanded discussion. The Federal Reserve brain trust should be asked to debate the larger issue of a gold standard and to explain why gold has travelled up so far and fast during the 2000s. The merits of alternative systems should be debated, shouldn't they? The discussion seems strangely restricted to how much information the Federal Reserve is supplying and in what form. Why not ask the larger questions about what kind of money is really needed and what kind of money standard would be the most effective. Now is the time to ask such questions as the present system has shown itself once again to be flawed.
He acknowledged that the possibility of expanding the audit authority of the GAO over the Fed "has recently been discussed." "Although Federal Reserve officials regularly explain the rationale for their policy decisions in public venues, the process of vetting ideas and proposals, many of which are never incorporated into policy decisions, could suffer from the threat of public disclosure," Kohn said. He also defended the Fed's closed-door policy-setting meetings as vital for the financial markets and the public. - Agence France Presse/Newsmax
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