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The Public Policy
The Fed Is Enhancing Our Vocabulary
That’s about the best thing going for it these days.
The already rich English language is being even more enriched by the monetary policy of the Federal Reserve. And words still matter — the last time I checked.
First, we had Quantitative Easing I and II, and now potentially QE III. These denote Fed monetary interventions of an exceptional nature, beyond the normal buying and selling of securities to maintain interest rates within a certain target range. No doubt some people were rightly confused over the QE moniker, perhaps thinking that three generations of the magnificent cruise ship Queen Elizabeth could be sighted in New York Harbor just off the Statue of Liberty — with British and European royalty, Hollywood, and prominent artists on board.
But in recent days, new and robust vocabulary has been added to the American lexicon. Like Chubby Checker, who sang various songs about the Twist in the early 1960s, the Federal Reserve has announced its “Operation Twist” (named for a similar monetary action in 1961). This provides for the sale of $400 billion short term securities and the purchase of a like amount of long term ones — all to make longer term borrowing more attractive — and yes, to encourage the use of debt by the American people and companies. But for those of us already confused by the meaning of QE I, II, and III, this is yet a new rhetorical frontier.
If there is anything that has been learned from the financial crisis that erupted with fury in September 2008 with the collapse of Lehman Brothers, it is that the American financial system — the consumer, corporate and government sectors — has too much debt. The excessiveness and danger of debt are evident when revenues fall or real estate values decline. In that environment, debt cannot be repaid, or there is not enough equity left to refinance, or loan assets of banks become impaired with the drop in collateral value, or pools of mortgage securities must be written down with huge losses for banks — indeed, all of the above.
Low interest rates do more than encourage consumers, corporations, and the federal government to borrow. They also punish savers, investors, and retirees, forcing them to incur more immediate risk or longer term investments that earn more to maintain a standard of living. Low interest rates make the use of debt for people and companies more attractive. Further, they cause risk averse folks and taxpayers who behave prudently to ultimately bear the losses and bail out those who behave recklessly — this is the very type of moral hazard that we have heard so much warning about from our financial policymakers.
Some estimates are that one in four American homeowners is underwater, meaning the debt on their house is greater than its market value, and that the value of an average American home has declined by 27 percent since 2006 — an immense loss in perceived purchasing power as well.
Meanwhile, back at the Fed, the high priests of pain are ensconced in the narcissistic and combative culture of the District of Columbia, heavily bunkered on L Street in an elegant 1930s building that is an example of classical revival architecture. Fed whiz kids consult their models and analytics, attend meetings to project their theories in PowerPoint slides, and with their utterances appear to treat the rest of the country as a high tech workshop for the experiments of well-trained financial minds.
The Fed must have an active communications or creativity department to craft such euphemistic and clever designations for its arcane programs such as Operation Twist. While to the Fed they are just clinical descriptors, to the American people they may be seen as glib expressions affecting our way of life.
We need a strong and credible Fed to manage the price and employment levels, regulate the financial system, be a steward of interest rates and the country’s cost of capital, and be the lender of last resort. Moreover, we need a Fed that can look the European Central Bank and Chinese government in the eye, and be an opinion leader on the interconnectedness of their and our monetary policies. To its credit, the Fed has well-defined leadership and unlike Congress, actually accomplishes things.
We should want Fed staffers to like their jobs and have a sense of humor, even during times of stress and economic travail. But perhaps they should first see the pain on Main Street before making up their next witticism.
About the Author
Frank Schell is a business consultant and former international banking executive. He serves on the Dean’s International Council of the Harris School of Public Policy Studies, University of Chicago, where he is a lecturer, and on the editorial board of the Chicago-based National Strategy Forum, which focuses on national security issues.
Letter to the Editor View all comments (18) | Leave a comment
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Clint| 9.27.11 @ 6:55AM
Audit The FED.
" The US Federal Reserve is a failure, its franchise system a failure, its monetary policy a failure, its balance sheet a failure, its analysis chronically incorrect, its initiatives in backfire, its toolbag empty. Perhaps it is time for the USFed to resign its contract with the USCongress. The crowning blow should have been the $16 trillion in unauthorized loans to global banks, given cloud cover by the TARP Fund and its confusion. This is a syndicate fortress with its own agenda, nothing more."
The Tea Party Rebellion Is Here.
Moe Blotz| 9.27.11 @ 7:39AM
Federal Reserve has gone down hill since Bernanke was confirmed and then featured on 60 Minutes. The @*#&%^! can not even afford razors and shave cream. Fed has also failed by not keeping the dollar strong.
Mike Rogers | 9.27.11 @ 8:08AM
El Wrongo, my friend from Rio Linda!
Schell wrote: "We need a strong and credible Fed to manage the price and employment levels, regulate the financial system, be a steward of interest rates and the country's cost of capital, and be the lender of last resort"
NO!! We need a strong and credible Fed to regulate the value of our money[PERIOD]
It's all the other stuff which causes boom and bust cycles, inflation, and our slavery to government.
Ron Paul is not wrong about the evils of the Fed, but a sudden death to the beast might be harmful to the nation.
Herman Cain and Steve Forbes both want to return the Fed to a single purpose of managing (preventing) inflation by tying the creation of money to the price of Gold (and/or a basket of valuable commodities).
Lets put the handcuffs on the Fed, not the people.
Clint| 9.27.11 @ 8:27AM
Cain Was Against Auditing The FED, Before He Was For Auditing The FED.
"Presidential hopeful and former Kansas City Federal Reserve chairman, Herman Cain, has flipped his position on auditing the Federal Reserve from being “not necessary” to now championing calls for the move.
“Some people say, we ought to audit the Federal Reserve,” Cain said on the Neil Boortz radio show on December 29, 2010. “Here’s what I do know: the Federal Reserve already has so many internal audits, its ridiculous. I don’t know why people think we’re gonna learn this great amount of information from auditing the Federal Reserve.
“There’s no ‘hidden secrets’ going on in the Federal Reserve, to my knowledge,” Cain continued. “and I tell people, you know, we’ve got 12 Federal Reserve banks, find out which district you’re in, call them up and go from there!
“We don’t need to waste money with another ‘commission,’ or an audit that’s not necessary.”
Cain’s statemnt did not sit well with members of the Tea Party, whom the Republican is said to represent, and a growing consenus within the Party against a loose monetary policy. Online conservative magazine World Net Daily labeled Cain an “elite bankster” who “is far too financially and economically dubious to be given any serious thought as a conservative presidential candidate.”
In an attempt to quell growing distrust, Cain issued a new video that praised Texas Republican, Ron Paul, for his calls to audit the Fed.
“I am thankful to representative Ron Paul for his consistant and steady pressure on the Federal Reserve,” Cain said. “and as chairman of the Subcommitte of Domestic Monetary Policy, he will have oversight of the activities of the Federal Reserve, including, the ability to require an audit of the Federal Reserve Bank. Congressional oversight, and not more commissions appointed by the president, will bring more accountability to the Federal Reserve on behalf of the American people.”
The Tea Party Rebellion Is Here.
Margie| 9.27.11 @ 2:05PM
A rabid Paul-bot seeks to destroy a REAL conservative once again~ Herman Cain.
In his own words, Herman Cain's thoughts on the Fed:
http://www.youtube.com/watch?v=wI_oocjB3A8
Sean| 9.27.11 @ 8:11AM
The FED is there to accommodate debt. The Federal government could not run trillion dollar deficits without the FED. The FED also devalues our currency. It is time for the FED to be abolished.
PattyMor| 9.27.11 @ 9:00AM
I agree with Ron Paul; end the Fed. Its been nothing short of a disaster. The money function properly belongs in the Treasury Department; not in an independent (supposedly) private bank. A Nation that does not control its money, is a Nation that does not control its destiny. But perhaps that was the real reason for its creation.
Dan Hirsch| 9.27.11 @ 11:41AM
Pattymor and you 'nationalize the Fed' folks,
Before we run down this road, stop and ask yourself this question:
What if Eric Holder or Rahm Emmanuel or Valerie Jarrett were running the Fed right now. Where do you think we'd be?
Bernanke is as helpful as a whetstone at a gunfight, but imagine if BHO could just call the Fed up and Executive Order up himself QE's IV - LXIV?
Anyone holding a single cent of US currency would find it to be worthless. BHO would have inflated his way out of this debt thing in three heartbeats. They could inflate the currency to such a low value that we could pay of the national debt with the change in my car's ashtray!
We must remember, we do not win every election - do we really want to hand THAT power to any ol' fool that cons America into electing him?
You betcha, the Fed should get back to its single purpose, regulating the money supply. It should do so with close, active Legislative and Executive Branch oversight...
But let's not gleefully surrender the value of our currency to the whims of our sometimes whimsical Chief Executives...
THINK!
DTOM
PS And another thing: On this Solyndra deal! No, we don't want Eric Holder to appoint some Lizzie Warren type socialist to be a "Special Prosecutor" over this Democrat money laundering/theft scandal. Holder has a file cabinet full of reliable socialist law professor attorneys who can whitewash that thing out of existence, filing a report precisely two weeks before the 2012 election exonerating every elected Democrat and indicting every elected Republican in the country.
No DAMNNIT, Congress should haul out its gavel and have some good ol' fashion hearings and air this thing out in full.
Congressmen, do your Constitutional duty, don't delegate the investigation to the perps!
Hearings, televised hearings into Solyndra! Hearings, televised hearings into Fast and Furious!
Hearings, televised hearings into Light Squared!
The only way we can fix our lawless Federal government is the vigorous application of the law so that these bureaucrats now that it actually does matter!
Remember Nancy Pelosi LAUGHING at the question of whether or not Obamacare was Constitutional? The woman laughed!!!
Are we a nation of laws or chumps? Well, chumps what are you gonna do, sit there?
Get on the danged phone!
Don't Tread On Me!
Dan Hirsch| 9.27.11 @ 11:44AM
Oops! in my PS please note:
Actually Eric Holder has a cabinet file full of resumes, not law professors.
Rahm's the one with the cabinet full of actual attorneys...
DTOM
Timothy L. Pennell| 9.27.11 @ 9:09AM
Really? You think that the FED has increased our Vocabulary? Cause I think it's OBAMA, who has expanded our Verbiage.
Trillions. Before the advent of Obama, when did we ever use the word: Trillions? Sealed Documents. Who has Sealed Documents? When do we ever hear the term: Sealed Documents? Just as Oral Sex, isn't really Sex, that 'AND' can have Multiple Meanings, and that you're never really alone if you BELIEVE that you're not alone, we've learned that Bombing other Countries, and Attacking their land, doesn't necessarily mean that it's WAR. It might just be "KINETIC" stuff.
Bailouts and Waivers, are big these days. Green Technologies. Why, even Sons of Bitches, is out there, now. Redistribution. Marxism. Communism. Socialism. Man Made Catastrophe.
What's Quantitative Easing, compared to THAT?
Len| 9.27.11 @ 12:13PM
"We need the FED."??
The only thing the FED does is distort the market by printing "money", create inflation and allow the government to surreptitiously tax the people while continually expanding.
In fact if people would bother studying the US constitution they would learn that one of the reasons that the federal government was given power to COIN money, was that certain states were issuing bills of credit or paper money which is unbacked. Further the dollar was a known quantity, the Spanish silver dollar, and was a measurement for the amount of silver or gold in a coin, not a name for a piece of paper.
One cannot claim to be a constitutionalist and not oppose an economic horror like the FED. Alas, we are too far gone to do anything but wait for the wreck.
TrueBlue| 9.27.11 @ 7:31PM
Have to wean ourselves off of it really. First get it under control, and then remove it altogether and return to the gold standard, or a standard based on precious commodities.
JimH| 9.27.11 @ 12:50PM
They keep talking about QEII. The Titanic is more appropriate as they rearrange the deck chairs.
JP| 9.27.11 @ 1:09PM
The Federal Reserve Bank was a Progressive goal going back at least 110 years. According to banking lore, a financial catastrophe was averted in 1907 when JP Morgan extended credit to cover losses incurred by other houses of finance during a rather nasty panic. As the logic goes, why should the public rely on the goodwill of someone like Morgan when a centralized federal bank could do the same thing?
The rest is history. And since 1913 (the year Congress granted the Fed its charter), the dollar has lost some 90% of its value. Inflation is now so normal, that our financial experts all agree 2% annual inflation is not a bad thing. But, even at 1% inflation, a simple savings account would lose 10% of its initial value over a decade. Our economy must work on all 4 cylinders and make up for that loss with every greater productivity.
The loss of purchasing power over time is one of the greatest legal thefts in modern history. Ron Paul is correct on all counts. However, the Fed isn't going anywhere anytime soon.
aware| 9.27.11 @ 5:05PM
I must say, I was with you and surprised the Spectator was the site where I was reading: "Meanwhile, back at the Fed, the high priests of pain ..." until you got to the last 2 paragraphs. There you lost me.
You sure someone else didn't insert those after you submitted? Strong Fed? It is already the most powerful agent of destruction in existence. It's also been "managing price and employment levels" with unquestioned power for a century. It even managed it to where it is now.
While you do a descent job of describing your oppressor you just can't make the jump of imagining life without it. You just want it to be "nicer" while it is oppressing. Years of conditioning and conforming have left you unable to see feudalism for what it is.
Control by the State of credit and money issuance through the creation of a central bank. Coupled with control by the State of wealth allowed in private hands through a progressive income tax were 2 ways of controlling "the masses" advocated by Marx. Ultimately this is why they are both evil and support evil, they are about control of people by the State. Even worse, it convinces its victims it is for their own good and protection to the point they believe the imagined horrors of living without it are worse than the real horrors of living with it.
Don't fall for the old "Reform" movement either. When politicians say "reform" they mean organize previously unorganized corruption and make you think something has been done so you move along.
The Bruce| 9.27.11 @ 10:21PM
Smash... the damned... FED!!!
POST American| 9.28.11 @ 5:14AM
----------------BOTTOMLESS LINE--------------------
ALAS, so much of our 'verbal enrichments',
far from any kind of grassroots, are engineered,
planted and directed by the usual
'neuro-linguistic' cultural EUGENISTS of the Tavistock
Institute, the Rand Corporation and Stanford
Research --one and all lavishly funded by the
Carn-EGG-hee/ Ford and Rock--F--L--O
'benny violent' sin--dick--its.
---------------ALAS
-------------------ALAS
And now, back to the media cover up of the greatest
world nuclear disaster in history which is unfolding
across North America ---and the entire northern hemisphere
--------------------FUKISHIMA--------------------------