Book Reviews, Politics

Our Legislators Should Read This Book Then Restructure The Fed

Our Legislators Should Read This Book Then Restructure The Fed
Image source: Pixabay

Our Legislators Should Read This Book Then Restructure The Fed
Image source: Pixabay

Our Legislators Should Read This Book Then Restructure The Fed
Image source: Pixabay

Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America by Danielle DiMartino Booth is a devastating account of what actually goes on in the Federal Reserve.

I’ve known Danielle for years, and we’ve had many talks in which we despaired of the impact the Federal Reserve is having on Main Street. To say she eviscerates that august institution in her new book is to be kind.

Ten years ago, Danielle left a trading gig on Wall Street to work directly for Dallas Federal Reserve President Richard Fisher. She helped him gain insights into the economy and aided in crafting his speeches and writings.

Fed Up

Fed Up

When Fisher resigned and Danielle left the Fed, she started her own website and newsletter. She is the third most followed person on LinkedIn, after less than a year.

I persuaded Danielle to let me take you right to the end of her book. There, she gives a summary of how the Fed should be reorganized. This is a powerful to-do list that I hope every Congressman and Senator will read. It is crucially important that they reorganize this institution that is playing havoc with Main Street.

We should remove the Fed’s dual mandate, reinforce its oversight functions, and so forth, while understanding that there is a role for an independent central bank—just not the role subscribed to by the academics that currently run the Fed.

After you read Fed Up, I think you too will be ready to join the movement to demand the restructuring of our central bank.

Culture Shock

“If it were possible to take interest rates into negative territory, I would be voting for that.”

– Janet Yellen, February 2010

As her fame has grown, Janet Yellen is recognized in restaurants and airports around the world. But her world has narrowed. Because the Fed chairman can so easily move markets with a few casual words, Yellen can’t get together regularly and shoot the breeze with businesspeople or analysts who follow the Fed for a living. She must rely on her instincts, her Keynesian training, and the MIT Mafia.

“You can’t think about what is happening in the economy constructively, from a policy standpoint, unless you have some theoretical paradigm in mind,” Yellen had told Lemann of the New Yorker in 2014.

One of Lemann’s final observations: “The Fed, not the Treasury or the White House or Congress, is now the primary economic policymaker in the United States, and therefore the world.”

But what if Yellen’s theoretical paradigm is dead wrong?

The woman who “did not see and did not appreciate what the risks were with securitization, the credit rating agencies, the shadow banking system, the SIVs … until it happened” has led us straight into an abyss.

It’s time to climb out. The Federal Reserve’s leadership must come to grips with its role in creating the extraordinary circumstances in which it now finds itself. It must embrace reforms to regain its credibility.

Even Fedwire finally admitted in August 2016 that the Federal Reserve had lost its mojo, with a story headlined “Years of Fed Missteps Fueled Disillusion with the Economy and Washington.” In an effort to explain rising extremism in American politics in a series called “The Great Unraveling,” Jon Hilsenrath described a Fed confronting “hardened public skepticism and growing self-doubt.”

Mistakes by the Fed included missing the housing bubble and financial crisis, being “blinded” to the slowdown in the growth of worker productivity, and failing to anticipate how inflation behaved in regard to the job market. The Fed’s economic projections of GDP and how fast the economy would grow were wrong time and again.

People are starting to wake up. A Gallup poll showed that Americans’ confidence that the Fed was doing a “good” or “excellent” job had fallen from 53 percent in September 2003 to 38 percent in November 2014. Another poll in April 2016 showed that only 38 percent of Americans had a great deal or fair amount of confidence in Yellen, while 35 percent had little or  none – a huge shift from the early 2000s when 70 percent and higher expressed confidence (however misguided) in Greenspan.


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In early 2016, Yellen told an audience in New York that it was too bad the government had leaned so heavily on the Fed while “tax and spending policies were stymied by disagreements between Congress and the White House.” Maybe if she hadn’t been throwing money at them, lawmakers might have gotten their house in order.

“The Federal Reserve is a giant weapon that has no ammunition left,” Fisher told CNBC on January 6, 2016.

The Fed must retool and rearm.

First things first. Congress should release the Fed from the bondage of its dual mandate.


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A singular focus on maintaining price stability will place the duty of maximizing employment back into the hands of politicians, making them responsible for shaping fiscal policy that ensures American businesses enjoy a traditionally competitive landscape in which to build and grow business.

The added bonus: shedding the dual mandate will discourage future forays into unconventional monetary policy.

Next, the Fed needs to get out of the business of trying to compel people to spend by manipulating inflation expectations. Not only has it introduced a dangerous addiction to debt among all players in the economy, it has succeeded in virtually outlawing saving.


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Most seniors pine for a return to the beginning of this century when they could get a five-year jumbo CD with a 5 percent APR, offset by inflation somewhere in the neighborhood of 2 percent. Traditionally, 2 to 3 percentage points above inflation is where that old relic, the fed funds rate, traded. The math worked.

Under ZIRP, only fools save for a rainy day. The floor on overnight rates must be permanently raised to at least 2 percent and Fed officials should pledge to never again breach that floor. Not only will it preserve the functionality of the banking system, it will remind people that saving is good, indeed a virtue. And that debt always has a price.

Limit the number of academic PhDs at the Fed, not just among the leadership but on the staffs of the Board and District Banks. Bring in more actual practitioners – businesspeople who have been on the receiving end of Fed policy, CEOs and CFOs, people who have been on the hot seat, who have witnessed the financialization of the country and believe that American companies should make things and provide services, not just move money around.

Governors should be given terms of five years, like District Bank presidents, with term limits to bring in new blood and fresh ideas.

Grant all the District Bank presidents, not just New York’s, a permanent vote on the FOMC. Why should Wall Street, not Main Street, dominate the Fed’s decision making?

While we’re at it, let’s redraw the Fed’s geographical map to better reflect America’s economic powerhouses.

California’s economy alone is the sixth biggest in the world. Add another Fed Bank to the Twelfth District to better represent how the Western states have flourished over the last hundred years.

Why does Missouri have two Fed banks? Minneapolis and Cleveland can be absorbed into the Chicago Fed. Do Richmond, Philadelphia, and Boston all need Fed District Banks? Consolidate in recognition of the fact that it isn’t 1913 anymore.

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