Just-retired Dallas Federal Reserve President Richard Fisher has made great hay with his proposal for reducing the power of the New York Federal Reserve, and the idea is gaining support on both sides of the aisle in Congress.
The idea is to curb the regulatory role of the New York Fed, which has great power over the nation's biggest banks, and to end the practice of giving the New York Fed president a permanent seat on the Fed's policymaking committee, while other regional Fed presidents rotate.
Senate Banking Committee Chairman Richard Shelby, R-Ala., and House Financial Services Committee Chairman Jeb Hensarling, R-Texas, have expressed support for Fisher's ideas. And Democratic critics of the Fed, are showing some enthusiasm as well.
"Mr. Fisher’s proposal dealing with the Fed and the Federal Open Market Committee [the Fed's policymaking committee], we’re going to pursue all that, and that would include the role of the New York Fed," Shelby said last week, according to Politico
“The New York Fed plays an extraordinary role, and maybe it’s extraordinarily captured, but it also represents only 6 percent of the population,” Rep. Brad Sherman, D-Calif., noted. Sherman wants to give a permanent vote on monetary policy decisions to the San Francisco Fed, since it serves nine states and 20 percent of the population.
Meanwhile, author/columnist Tom Mullen says that though politicians love to take credit for the economy's strength and lay blame at the feet of their opponents for its weakness, they are actually irrelevant in the economic sphere.
"What most people don't know, or at least don't acknowledge, is that the Federal Reserve really runs the entire economy," he writes in an article for The Huffington Post
"When the Fed inflates the supply of money and credit, indexes go up, growth occurs and the economy 'improves. When it deflates the supply of money and credit, indexes go down, contraction occurs and the economy 'slows.'"
The economy has grown a bit more than 2 percent a year since the recession ended in June 2009.
"What we're really seeing [now] are the results of unprecedented monetary inflation by the Fed," Mullen says.
The Fed has kept its federal funds target rate at a record low of zero to 0.25 percent since December 2008. And its balance sheet has expanded to $4.5 trillion through massive quantitative easing.
The Fed's omnipotence argues for "a full audit of what they're doing," Mullen says.
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