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The Credibility of the Federal Reserve

Posted by Larry Doyle on November 16, 2010 7:12 AM |

The Federal Reserve is arguably the most powerful institution in the world. Additionally, it is one of the least understood.

In the midst of the ongoing financial experiment known as quantitative easing are we supposed to blindly trust the abilities of our central bankers within the Fed, especially Fed chair Ben Bernanke? I know of no institution, especially with the size and scope of the Fed, that has so much power in one man’s hands and simultaneously so little transparency and accountability.

Yet, despite that lack of transparency and accountability, at this very point in time our nation’s future largely rests in the hands of one Ben Bernanke and his control of the Federal Reserve. Should we have reason for concern? We should.

That concern was voiced yesterday by Republican leaders and a number of Republican economists. The Financial Times highlights this development in writing, Fed Officials Defend $600 Billion Stimulus,

Mike Pence, chairman of the House Republican conference, on Monday said he planned to introduce a bill that would end the Fed’s dual mandate on unemployment and inflation and force it to concentrate solely on price rises.

A group of Republican economists have also written an open letter to Fed chairman Ben Bernanke saying that the “planned asset purchases risk currency debasement and inflation”. Separately, countries from Brazil to Germany have attacked the policy as a ploy to weaken the dollar.

Not surprisingly the Federal Reserve is fighting back. Fed vice-chair Janet Yellen and New York Fed President William Dudley have issued statements dismissing the concerns of the Republican economists and others who may wonder about the efficacy of Ben Bernanke’s quantitative easing program. While we can sit on the sideline and observe the daily tete-a-tete between these two camps, the larger question overriding this debate is the very credibility of the institution itself. I raised this question ten days ago in writing  The Real Cost of Quantitative Easing,

….. I am compelled to address what I view as the real cost of the Fed’s quantitative easing program. What is the Sense on Cents perspective of that cost? It is actually very simple. It’s called credibility.

I raise the credibility question again today. Are we to blindly defer to the Federal Reserve as being all knowing and all powerful in rescuing our nation? What do we know about the quality of the Fed’s staff? What do we know about the quality of the Fed’s models? What do we know about the quality of the Fed’s risk management systems? Very little.

While the Fed has had its detractors over the years, I think the most compelling piece of evidence in regard to the Fed’s credibility is an engagement between the Fed’s Inspector General Elizabeth Coleman and Congressman Alan Grayson (D-FL). This video clip has been seen by millions but it deserves further viewing in light of the ongoing and increasing large presence of the Federal Reseve in our daily lives.

Can we ever forget, …?

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Horace Greeley

    “While boasting of our noble deeds were careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery.”

    -Horace Greeley

    • Tim

      I see that quote a lot on the internet. The problem is: I don’t know if its authentic or not. Everyone quotes it, but no one lists the source where it came from. For all I know, it could be made up. Do you know the source where that quote came from?

  • Hotel California

    “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

    Thomas Jefferson

  • Jack

    How successful was the first round of QE? Not very.

    This is a classic Depression era move by Bernanke. Remember this QE is all about bailing the banks not helping the economy.

  • Barry Goldwater

    Senators and Congressmen

    “Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States” — Sen. Barry Goldwater (Rep. AR)

  • That is a great video for us to remember. I admit that I had forgotten about her testimony but I do remember when it came out originally. It’s amazing.And Scary!

  • Mayer Rothschild

    “Give me control of a nation’s money and I care not who makes it’s laws” —

    Mayer Amschel Bauer Rothschild

  • Mike

    Inspector general of the federal reserve must be paid quite nicely.

    What the hell, if I was grayson I would’ve said ‘ARE YOU STUPID!?? STOP BLATANTLY AVIODING MY QUESTION!!!”

    LOL “I haven’t read that article yet” she said, woooowwwwww

    It’s starting to become mainstream to hate the Fed. Slowly but surely America is waking up! Thank you LD for blazing the trail.

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