Rand Paul Likens Fed to Soviet Politburo After Interest Rate Increase

Sen. Rand Paul (R-KY) (photo credit: Gage Skidmore)

On Wednesday, the Federal Reserve announced that it was raising interest rates for the first time in seven years. Surprisingly, longtime critic of zero interest rates Senator Rand Paul skipped the expected sigh of relief, instead expanding his criticism of the Federal Reserve’s role in setting the value of money:

“Is it a good thing or a bad thing to raise the interest rate?” Paul asked. “Well, I’m kind of agnostic on it. It’s kind of like if you ask me: All right, should the Politburo raise the price of bread or lower the price of bread? I like both prices, but the real question should be: Should the government be involved with setting prices? What amazes me about the Federal Reserve setting interest rates is that almost to a person, conservative economists in our country will say, wage and price controls are a mistake.”

The Soviet references seem a little overboard, but it’s good to hear Senator Paul bring up the important question of whether the federal government should be in charge of setting the price of anything, much less the value of the dollar. Rand Paul has been a big advocate in Congress of reform packages like the Centennial Monetary Commission, which passed the House last month as part of the FORM Act. As 2016 heats up, I’m looking forward to Senator Paul continuing to lead a national discussion on the future of U.S. monetary policy.

Nick Arnold is a researcher for the American Principles Project. Continue Reading

BBC Asks Why Americans Distrust the Federal Reserve

The Federal Reserve headquarters in Washington, DC (photo credit: Dan Smith, CC BY-SA 2.5)

The debate over monetary policy has started to spill over into foreign media. In an article Monday, the BBC noted voters’ negative outlook on the Federal Reserve:

Just a third of Americans felt the Fed was doing a good or excellent job, according to the last Gallup poll to check on the bank’s popularity. The only US federal agency with a consistently lower approval rating was the IRS, the Internal Revenue Service or tax collector.

BBC also noted a high (74 percent) support for auditing the central bank and tried to examine why the Fed has become so unpopular since the days of Alan Greenspan. In addition to our uneasy history with central banks in general, they cited two reasons:

1.) Possible Role of Loose Money in the ’08 Crash

Experts say many of the policies that helped the economy grow under President Clinton can really be credited to Mr Greenspan.

However, since the financial crisis politicians and economists have pointed to the loose monetary policies he championed as a factor leading to the crash.

2.) Bank Bailouts Following the Crash

Politicians on both sides of the aisle have criticised the bailout, saying it helped banks at the expense of the American tax payer.

“If big financial institutions know they can get cheap cash from the Fed in a crisis, they have less incentive to manage their risks carefully,” says Senator Elizabeth Warren, a Democrat who has built a reputation for challenging Wall Street.

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Poll Shows Americans Agree With J.K. Rowling: Voldemort Could Take Trump

When BBC Newsbeat tweeted that people were starting to compare GOP front runner Donald Trump with the wizarding world’s greatest villain, Dark Lord Voldemort, Harry Potter author J.K. Rowling leapt to defend him…Voldemort, that is:

Let’s leave aside for a moment the fact that comparing Donald Trump, abrasive as he is, to a homicidal maniac who advocates the genocide of all Muggles isn’t exactly apples to apples. Does she have a point about Trump being less well regarded than the Dark Lord? A Washington Post study of favorability ratings from this summer suggests…yes! In fact, if he decided to run, Voldemort would likely be in the middle of the current presidential pack:

…You’ll recall that Voldemort killed Harry Potter’s parents, fed his enemies to a giant snake, and tortured and killed muggles just for fun. But he’s still polling better than Mike Huckabee, Ted Cruz, Jeb Bush, Rick Santorum, Chris Christie and Donald Trump.

So, is it time for Voldemort to throw his hat in the ring? Probably not. Unfortunately for him the WaPo poll suggests the three real dark horses in the race are the Terminator, Darth Vader, and Jaws the Shark, who came in first, second, and third, respectively, and have favorability ratings that blow everyone else (including Hillary Clinton and Bernie Sanders) out of the water. Sadly, America just doesn’t seem ready for a Death Eater candidacy yet.

Nick Arnold is a researcher for the American Principles Project. Continue Reading

Forbes Defends Cruz on Gold Against NYT

Sen. Ted Cruz (R-TX) (photo credit: Gage Skidmore)

Steve Forbes explains how The New York Times just doesn’t understand the gold debate and misfires in attacking Ted Cruz:

The New York Times recently ran an article trashing the idea of a return to a gold standard. A growing number of Republicans, including presidential hopeful Senator Ted Cruz, advocate fixing the value of the dollar to gold.

If the purpose of the Times story was to discredit such a possibility before it gained any more momentum, it failed. The piece is actually useful in that it encapsulates some of the egregious myths, misunderstandings and just plain ignorance of what a gold standard is all about.

The purpose of a gold standard is to ensure that a currency has a fixed value, just as measures of time, weight and distance are fixed. We don’t “float” the number of minutes in an hour or inches in a foot. Yet, strangely, economists believe that constantly changing the value of a currency is good for growth.

[…]

Read it, and weep — or better yet, cheer for Cruz, Rand Paul, and others taking up the battle against our unaccountable and misguided Federal Reserve.

Nick Arnold is a researcher for the American Principles Project.

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Cruz Questions Yellen on Fed Policy

Sen. Ted Cruz (R-TX) (photo credit: Gage Skidmore)

Ralph, you noted this first, but this New York Sun editorial is worth a closer look. In a glowing column Friday, the Sun praised Ted Cruz for his astute questioning of Federal Reserve Chair Janet Yellen in last week’s Joint Economic Committee hearing, and in particular for focusing on the effectiveness of having a monetary rule verses current Fed policy:

The key question Mr. Cruz asked is whether Mrs. Yellen agrees with her predecessor Paul Volcker that the absence of a cooperatively managed rules-based monetary system has not been a great success. Mr. Volcker offered that assessment in a speech to the Bretton Woods Committee in May 2014; it was first reported in a Wall Street Journal op-ed piece by the editor of the Sun and, given Mr. Volcker’s stature, was an important moment in the debate over monetary reform.

Mr. Cruz sketched the economic turmoil since we abandoned the Bretton Woods system for fiat money. He also pressed Mrs. Yellen about a view — of Nobel laureate Robert Mundell, among others — that the central bank’s tightening early in 2008 precipitated the crisis that became the Great Recession. Mrs. Yellen seemed startled, even confused, by the question, at least according to some, and in any event dodged Mr. Cruz’s query with classic Fed-speak.

The editorial also praised the effort in Congress to address U.S. monetary policy shortcomings, particularly the FORM Act and its accompanying Centennial Monetary Commission:

That is the bill that was passed last month by the House and is now before the Senate.

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Rand Paul Rips Federal Reserve, Says Shrinking Dollar Hurts Poor

Rand Paul criticized Bernie Sanders for his “free college” plan Wednesday, pointing out that the money had to come from somewhere and predicting it would be from either taxpayers or the Federal Reserve.  Paul then pivoted to criticize the Fed’s monetary policy, saying that the falling value of the dollar and rising prices hurt the poor more than anyone else.  His full comments are below (starts around 1:10):

Somebody’s got to pay. The education will not be free. The professors will be paid; the buildings will be built; there’ll be electricity; there’ll be heat. There is an expense. Somebody will pay for the education. Maybe it’s going to be a plumber or a carpenter; somebody who didn’t go to college. Probably will be. Or maybe it’s going to be a couple that doesn’t have kids. Or maybe you are going to pay for it.

Well, ‘no, no, Bernie says it’s going to be free.’

Well, maybe we print up money. We have a Federal Reserve, and we print up money, and we give everybody money so they can pay for education.

Well, what happens? The value of the dollar then shrinks. In fact, over the last hundred years, 96 percent of the value of the dollar’s gone. So what happens when the value of the dollar shrinks? Your prices go up. So if gas costs more and food costs more, who do you think gets hurt the worst: the rich or the poor? The poor!

Nick Arnold is a researcher for the American Principles Project. Continue Reading

Fed Responds to Critiques by Trying to Curb Own Power

The Marriner S. Eccles Federal Reserve Board Building (photo via Wikimedia Commons, CC BY-SA 3.0)

The Federal Reserve announced Monday that it is scaling back its controversial bailout authority in the latest sign that increasing congressional scrutiny is making Fed officials nervous. The move by the central bank seeks to reduce the impression that the Fed shows favoritism when bailing out financial industries, as some have alleged happened in the 2008 cases of AIG and Bear Sterns:

From now on, the Fed would be prevented from extending assistance to a single bank or insurer. Any emergency lending would instead need to be broad-based and addressed to the wider financial system, a response to worries that Fed lending could introduce conflicts of interest.

[…]

The rules agreed to Monday follow a mandate in the 2010 Dodd-Frank Act to introduce limitations on the Fed’s crisis lending abilities. All lending would be done at a penalty interest rate higher than market rates. And the Fed would be required to provide lawmakers with explicit justification for any broad-based bailouts of financial institutions.

While the new rules are a welcome change, the fact that they were voluntary on the Fed’s part leaves open the question of whether it could reverse the policy at the whim of Federal Reserve officials. Also, the new rules don’t address the broader concern in Congress that the Fed’s interest rate policy may be hurting the U.S. economy. Ultimately, it is highly questionable whether this bailout shift will affect the debate on U.S. Continue Reading

Cruz Surge Sets Off Panic in Congress

Sen. Ted Cruz (R-TX) (photo credit: Michael Vadon via Flickr, CC BY-SA 2.0)

Ted Cruz’s strong showing in recent polls is provoking an interesting response from his colleagues in the Senate.  The more success he shows, the more people line up behind his rival for the nomination, Marco Rubio:

Senior Republican senators who’ve clashed with Cruz for years have had nothing but nice things to say about Rubio even as he’s dissed — and largely ditched — his day job in the Capitol. Just this month, Rubio has racked up endorsements from nine members of Congress, compared with two for early GOP front-runner Jeb Bush. More House endorsements for Rubio are set to roll out in December, according to campaign sources, and several GOP senators said privately they expect their colleagues to get behind Rubio once the GOP field thins.

Why the sudden stampede toward Marco Rubio?  Despite past disagreements with Cruz, Republicans insist it’s mainly because they think Rubio would be a stronger candidate in the general election:

 “Marco is a true next-generation conservative,” said Steve Daines (R-Mont.), one of three senators who endorsed Rubio in November. “Every time there’s a debate, his stock goes up.”

Cruz winning the nomination “could happen with the angry situation we have out there” among the GOP electorate, said one Republican senator who hasn’t endorsed in the race but does not want Cruz.

On the electability question, it’s easy to see where congressional Republicans are coming from: Cruz has taken some hard line positions, especially on immigration reform, that could come back to bite him later.  Continue Reading

Fiorina Slams Fed: “Strip the Dual Mandate”

Former Hewlett-Packard CEO Carly Fiorina (photo credit: Peter Stevens via Flickr, CC BY 2.0)

Carly Fiorina gave a scathing analysis of the Federal Reserve on Tuesday, accusing it of deliberately pursuing policies that hurt savers and calling for a major pullback on the central bank’s mandate:

‘The Federal Reserve has become a politicized body, unfortunately,’ GOP presidential candidate Carly Fiorina [said] at New Hampshire Federation of Republican Women annual meeting.

‘What you’ve seen is the Fed continue to find reason after reason not to raise interest rates; and who is hurt by low interest rate? [sic]  It is savers. Who is benefited?  Investors.’

‘That’s why stock is performing way above.  If you’re in the investor class you’re doing really well with this policy.  And if you are in the saver class you are getting harmed.’

‘This is less than ten people and somehow they know what to do.  The Federal Reserve has too much power.  We need, I believe, to strip the dual mandate.’

Fiorina is the latest of several candidates who have called for more controls on the Fed.  Chris Christie and Ben Carson have also been critical of the effects of zero interest rates on the economy, and Senators Rand Paul and Ted Cruz have sponsored legislation to audit the Federal Reserve and called for a rule to guide U.S. monetary policy.

Nick Arnold is a researcher for the American Principles Project. Continue Reading

Fed Reform Battle Heats Up in Congress

The Federal Reserve headquarters in Washington, DC (photo credit: Dan Smith, CC BY-SA 2.5)

A new bill seeking to increase oversight on the Federal Reserve and force it to endorse a rule will likely come up in the House this week, kicking the debate over U.S. monetary policy into high gear:

The bill, called the Fed Oversight Reform and Modernization Act — FORM Act for short — deals with a lot of issues relating to the Fed’s management of U.S. monetary policy, but one element of the bill will receive most of the attention and commentary by monetary policy specialists. This is the bill’s requirement that the Fed publish a rule that would, in theory, explain what the Fed would do to achieve the twin goals of low inflation and economic growth. The Fed doesn’t have to follow the rule, but it must explain why it varies from the rule when it is does so.

Unsurprisingly, Federal Reserve Chair Janet Yellen is not happy about the idea.  She wasted no time writing a letter to Speaker Paul Ryan asking him to reject the bill, calling the sections pertaining to monetary policy “particularly troubling”:

“This provision would politicize monetary policy and bring short-term political pressures into the deliberations of the FOMC by putting into place real-time second guessing of policy decisions,” Yellen wrote in the letter. “Such action would undermine the independence of the Federal Reserve and likely lead to an increase in inflation fears and market interest rates, a diminished status of the dollar in global financial markets, and reduced economic and financial stability.”

The FORM Act’s sponsor, Bill Huizenga, disagrees:

“The Fed’s recent high degree of discretion and its lack of transparency in how it conducts monetary policy demonstrate that not only are reforms needed, but more importantly that reforms are necessary. 

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