Wednesday, May 05, 2010

Central bank independence

Wall Street Journal:

Sen. Bernie Sanders can seem like a character from another era with his rumpled suits and oratory about economic justice. But as anger at bankers and Wall Street runs high, Congress's only self-declared socialist is moving to center stage.

An amendment sponsored by the independent senator from Vermont to require Federal Reserve audits is gaining momentum, powered by a coalition of activists on the left and right who are taking aim at the financial establishment for its role in the economic collapse.

Mr. Sanders's amendment, which is likely to be voted on within days, is worrying White House officials, who say it would violate the central bank's independence and cripple its ability to protect the economy.
One of Mr. Sanders's partners in his assault on the Fed is Rep. Ron Paul (R., Texas), who led a successful charge in the House to adopt a similar provision last year.

"Yes, we have disagreements, but we both despise fascism," Mr. Paul said, half-jokingly. When governments are primarily used to serve the interests of big corporations, "that's unfair and we don't like it," he said.

The White House is correct that if Congress knew what the Federal Reserve was doing, this would violate the central bank's independence from "politics" -- which in this case means Congress.

This is "worrying" to the extent that Congress, unlike the Fed, is never fully "independent" of democracy, but slides toward it with sufficient public pressure.

Preserving central bank independence, then, only enhances its "ability to protect the economy," as the transfer of public wealth into private hands is always a deed best done behind closed doors!

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