Wikinvest Wire

Maxine Waters on interest rates

Wednesday, February 24, 2010

Maybe the idea of more Congressional oversight of the central bank isn't such a good idea after all. In the question and answer session with Federal Reserve Chairman Ben Bernanke before the House Financial Services Committee a short time ago, Rep. Maxine Waters (D-CA) asked the following questions:

Starting with your discussion on page 4, "in addition to closing the special facilities, the Federal Reserve is normalizing its lending to commercial banks through the discount window" and you go on to talk about your new federal funds rate and a discussion of why you have done this and encouraging banks to go to the private market for investments.

And you say further in this discussion that these adjustments are not expected to lead to higher financial conditions for households and businesses.

The last thing I heard before I came here this morning was a prediction by some of the analysts on television that, in about one month, we can expect that there will be an increase in interest rates on mortgages and home loans. Everybody that I talk to really believes that this change that you have made in the federal funds rate is what's going to trigger that.

Is that true? Did you give any thought to this? How can you guarantee that it won't?
Wow - a pretty stunning lack of basic understanding about how the central bank works.

Recall that, last week, the Fed funds rates was not raised - it was the discount rate that was hiked from 0.5 percent to 0.75 percent and the potential rise in mortgage rates next month would come about due to the Fed stopping their purchase of mortgage backed securities.

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Anonymous said...

Well, I was shocked when Ron Paul said in his book, "End the Fed," that a fellow member of Congress thought the United States was still on the gold standard.

simplesimon said...

The problem with too much democracy is that you get representatives who represent the public too well.

The Founders actually discussed and addressed this problem to some extent but their solution, as usual, has been diluted and removed over time.

Anonymous said...

Jefferson spoke of a "natural" elite or ruling class. I think we would be better served if the Senate went back to the states electing its members. That and placing greater voting restrictions on our citizens. Less voting is a good thing because the people who vote in non-presidential year or primary elections tend to be better educated and know more about who they are voting for.

Anonymous said...

Has Ron Paul had his turn to ask questions?

But What do I Know? said...

Yes, most people out there don't have a clue how the Fed works. What's useful about Ms. Waters testimony is that she reveals a connection in the public's mind that most of us who know something about financial markets would never consider. If Sally Lunchpail thinks that mortgage rates went up because "the Fed raised them" it could cause some problems for Bernancke.

Tim said...

I'm going back to watch some of this and might follow up with another post later. As it happened, Waters was speaking when I flipped on the TV so I haven't yet gone back to start the recording from the beginning.

I think I saw Ron Paul speaking very early on.

Anonymous said...

The best solution is to just stop printing altogether. We don't need central planning of interest rates, which leads to disaster. We don't need constant CPI inflation, which leads to a lower standard of living over time. Ron Paul is right, shut it down. It is worse than useless.

Siesta000000 said...

Waters has no clue. It was embarrassing to watch. I can't believe her advisers allowed her to go to the stage with such ignorance.

I wish someone would confront Bernanke more about Treasury Supplementary Financing and interest rates paid on Federal Reserve deposits. Also, someone should have asked him if he or anyone at the Federal Reserve attended the world central banker meeting in Sydney, Australia a few weeks ago.

Anonymous said...

Dems are clueless on finance, so they get taken by business interests.

Repubs are owned by business interests, so they just go along, or get in the way of improvements.

Where is the party looking out for the middle class?

Anonymous said...

We are doomed.

Adam said...

She got the terms mixed up. So what. Was she really talking about the Fed Fund Rate or the Discount Rate?

Adam said...

What I really want to know is the answer. Was it correcting her ignorance. Was it saying what you said about not buying Mortgage Backed Securities is what might trigger higher mortgage rates.

Or was it more obfuscation?

Tim said...

It's on YouTube here and it picks up about half way through the transcript above - watch it yourself and decide.

James Cullen said...

What's really shocking about this isn't that Maxine Waters can't differentiate between Fed actions, but that she's so adamant that interest rates need to be kept low to bail out people with ARMs and convinced market interest rates are entirely controllable.

DLP said...

James -- I had that same thought -- it was a good demonstration as to what elected officials could do if given control over the central bank.

Al Brown said...
This comment has been removed by the author.
Al Brown said...

I propose a simple math test be a requirement for sitting on these committees. Addition, subtraction, maybe even fractions. That should shuffle her right on outa there.

Seriously, the only thing that will fix the problems in DC is a change in our electoral system.

We need proportional representation. Our winner-take-all elections make it necessary for candidates to get a majority of the votes, making it necessary for all candidates to lie a lot and whore themselves out to monied interests.

With PR, you could actually vote for and get the representation you want.

I'd go even further and give taxpayers an extra vote on all spending and borrowing in proportion to how much tax they pay. That will clamp down on wasteful spending once and for all.

Anonymous said...

That is an incredibly flattering picture of Maxine Waters. You are too kind Tim.

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