Thursday, July 16, 2009
What's funny about this WSJ report($) telling of the 250+ economists who signed a petition urging Congress to stop meddling in the affairs of the central bank? They all sound a little bit like former Fed chief Alan Greenspan - as if they were just casual observers, innocent bystanders as another enormous asset bubble inflated right under their noses and then burst.
"The interactions with Congress are becoming increasingly hostile," said Anil Kashyap, a University of Chicago finance economist who was among the initiators of the 185-word petition. "Competent monetary policy needs to be forward looking. So at some point the Fed is going to have to act to tighten policy before the economy is booming. If that gets stopped for political reasons it would be a disaster, and just the perception that it might be stopped could be costly."Ummm... "Competent monetary policy" and "would be a disaster"? What we've been through over the last two years or so has been an unmitigated disaster. Even if Congress did wrest complete control of monetary policy from the central bank, how could they possibly do any worse than the Fed did the last time around?
Arguing that the independence of the central bank is "essential for controlling inflation," the petition urges Congress not to meddle when the Fed decides to raise short-term interest rates or reverse its purchases of Treasury debt and mortgage-backed securities, which will tend to push up longer-term interest rates.
"When the Federal Reserve judges it's time to begin tightening monetary conditions, it must be allowed to do so without interference," the economists said.