On Constitution Day, Congress Abdicates Constitutional Responsibilities to Fed

Two hundred and twenty eight years ago today, thirty nine delegates gathered in Philadelphia to sign the Constitution of the United States.

This profound document states clearly in Article I, Section 8:

The Congress shall have the Power To … coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

Today, 228 years later to the day, an unelected bureaucrat named Janet Yellen will announce the Federal Reserve’s latest policy decisions that will impact the value of our money.

Americans need to remind elected officials that Congress, and only Congress, has the authority to coin our money and determine its value.

Congress has abdicated this responsibility.

Please post Article I, Section 8 to your Representative’s Facebook page!

Steve Lonegan is the Director of Monetary Policy for American Principles in Action. Continue Reading

Zero Interest Rates and Uncharted Territory

Federal Reserve Chair Janet Yellen (photo credit: International Monetary Fund via Flickr, CC BY-NC-ND 2.0)

At her June 17th press conference, Fed Chair Janet Yellen stated:

Returning to monetary policy, as I noted, the Committee reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate.  As we said in our statement, the decision to raise the target range will depend on our assessment of realized and expected progress toward our objectives of maximum employment and 2 percent inflation.

There obviously is nothing wrong with the Fed’s objectives of maximum employment and minimum inflation.  God, however, as Mies van der Rohe once said, is in the details. What to do?  It has been astutely noted that the Fed is in “uncharted territory.”

As the FT wrote on April 17th of this year, in a piece headlined “Federal Reserve and Treasury market face uncharted territory”:

The task of lifting interest rates from near-zero levels — when it finally happens — will be an unprecedented one for the US Federal Reserve. Never before has the central bank been faced with the challenge of starting to unwind such a vast amount of stimulus.

But venturing into uncharted territory does not stop there. Profound changes in the composition of financial markets — and in the menagerie of players operating in them — will make this a very different operation from when the Fed completed its previous interest rate tightening cycle in 2006.

It makes as little sense to have our shamans and pundits, rather than the Fed’s shamans and pundits, trying to get monetary right by guesswork … when none of the experts, ours or theirs, have a map. Continue Reading

Yellen to Hillary: What’s the Problem?

Federal Reserve Chair Janet Yellen (photo credit: Day Donaldson via Flickr, CC BY 2.0)

Yesterday, the Federal Reserve announced that it is maintaining its existing policy of historically low interest rates, stating that the policy “remains appropriate.” When asked at the news conference about the renewal of this controversial policy and whether there is a role for congressional bills affecting Federal Reserve actions, Federal Reserve Chair Janet Yellen replied, “What’s the problem?”

The Fed Chair insisted that the institution is extremely transparent and questioned what else Congress and the public could possibly want.

With Hillary Clinton making income inequality a key campaign issue, one has to wonder—will she address Yellen’s stubborn insistence that the economy is just fine?

You would think she would. Clinton correctly insists that the current recovery has left behind the average American worker. Janet Yellen must disagree—how else could the current policy ‘remain appropriate’ when it has resulted in stagnant wages and rising prices that have negatively impacted millions of Americans?

If Clinton is serious about tackling income inequality, she should understand how critical it is for us to have a currency debate—a debate in which Janet Yellen has shown no interest. That starts with congressional oversight and complete transparency at the Federal Reserve.

Steve Lonegan is the Director of Monetary Policy for American Principles in Action. Continue Reading

Janet Yellen’s Pickle

Federal Reserve Chair Janet Yellen (photo credit: International Monetary Fund via Flickr, CC BY-NC-ND 2.0)

Have you ever heard of a pickle?

I don’t mean what you put on a hamburger. I’m talking about one of the funniest sequences in baseball—when a base runner gets a little too aggressive and finds himself caught between two bases, running hopelessly back and forth as the basemen trap him on the base path and eventually tag him out.

That’s a pickle. And boy, Federal Reserve Chair Janet Yellen is in one heck of a pickle.

Peter Morici wrote an interesting piece in the Washington Times last week where he speculated that the Federal Reserve may choose not to raise rates in June. He also questioned whether it would ever be prudent to do so.

Morici has a point. There are serious long-term consequences to raising the interest rate. There are also serious long-term consequences to keeping it where it is now.

If we raise the rate, economic activity might slow, resulting in lower tax revenue for cash-strapped states like Illinois and debt-ridden nations like Spain. Higher interest rates would effectively raise their relative debt burdens by increasing their interest payments, quite possibly to levels that they would be unable to pay.

So why not keep the interest rate near zero like the Federal Reserve has been doing for years?

Well, there are serious long-term consequences to that, too. As I’ve covered in the past, near-zero interest rates may have played a huge role in wage stagnation and the rising cost of living. Continue Reading

What Does Janet Yellen Fear?

Federal Reserve Chair Janet Yellen (photo credit: Day Donaldson via Flickr, CC BY 2.0)

conversation last month between New York Sun editor (and former WSJ editor) Seth Lipsky and radio host Dawn Bennett raised some interesting points on monetary policy and the Fed:

Ms. Bennett: It is quite clear to me that the Federal Reserve doesn’t want the rest of us to actually be able to see what they really up to. If we did know what they’re doing, do you think most Americans would just want it shut down? To your point, since 1913, the dollar has actually lost over 97% of its purchasing power. And of course, the economy has been subjected to one painful depression and a series of what I call Fed-created recessions. Despite the poor track record, we continue to support them. At the end of the day, does it matter if we even have a Federal Reserve?

Mr. Lipsky: I think the monetary questions do matter to every American in all positions. My favorite statistic is that between 1947 and 1971 the average unemployment rate was below 5%. From 1971 until today it was above 6%. What happened in 1971, when the unemployment rate began souring? What happened is we abandoned the Bretton Woods Gold Exchange System, under which the dollar was linked to gold, and the money began flowing not in the productive enterprises, but into the money markets and hedge funds and all these sorts of things and not so much into the kind of investment that created the great industrial base in America.

Continue Reading

Conservatives Talk Monetary Policy with Janet Yellen

Federal Reserve Chairwoman Janet Yellen (public domain via Board of Governors of the Federal Reserve)

Last Friday, a coalition of more than 20 conservatives and libertarians met with Federal Reserve Chair Janet Yellen to discuss the impact of Fed monetary policy on middle income and working families. The group, led by American Principles in Action Director of Monetary Policy Steve Lonegan, received a lot of great press coverage.

Lonegan worked diligently to make this meeting happen. Back in December, after news broke that Yellen had met with a group of left-leaning community activists, Lonegan sent a letter to Yellen requesting a meeting with a group of center-right thought leaders and economists. Initially, the Federal Reserve did not respond.

Lonegan didn’t give up. He then hand-delivered another letter requesting a meeting and followed that up with a press conference outside the Federal Reserve building in Washington, D.C.

Chair Yellen listened, and on February 27 the meeting took place.  It was very well covered by the national media.

Janet Yellen Meets the Right

Federal Reserve Chairwoman Janet Yellen (public domain via Board of Governors of the Federal Reserve)

In my weekly Forbes.com column today, I described the presentations made at a meeting led by American Principles in Action with Federal Reserve Board Chair Janet Yellen and Governor Lael Brainard last Friday.  To read the full column, click here.

An excerpt:

Janet Yellen, meeting with 21 members of the center right, in Washington … may actually have made some real history. While this story was reported by the AP (as carried, among many publications, by the New York Times, ABC, Fox Business, and Salon.com), the Wall Street Journal, Bloomberg, CNN, the Washington Examiner, and theDaily Signal, among others, there is more to report.

On February 27th, at the Fed headquarters at the corner of 20th and Constitution, the Chair of the Federal Reserve Board of Governors, Dr. Janet Yellen, and Governor Lael Brainard, met with a delegation of 21 center right figures. The delegation included some of the most influential free market thought leaders from the monetary and financial policy arena. A dozen attendees made thoughtful statements. The rest, myself included, were present as observers.

[…]

The delegation was assembled and led by the Hon. Steve Lonegan, monetary policy director of American Principles in Action. It included four other representatives from APIA: its chairman, Sean Fieler; APIA director and board secretary Ellen Barrosse; Dr. Marc Miles, an APIA consultant; and myself, APIA’s senior economic advisor.

Continue Reading

What Brian Domitrovic told Janet Yellen

The Marriner S. Eccles Federal Reserve Board Building – Washington, DC (photo via Wikimedia Commons)

Brian Domitrovic was one of 22 conservatives invited by American Principles in Action to meet with Janet Yellen last Friday. In his column yesterday for Forbes.com, Domitrovic reveals what he told the Fed Chair:

In the era of the near-classical monetary standard, the economy enjoyed a long rush of investment into the production of finished goods and services, into ‘real’ purposes that help human beings live better. In the non-classical eras, investment in primary inputs to the exclusion of finished production of other goods was so great that it took on the aspect of a distortion.

The rush into commodities in the 1970s and the 2000s was, collectively, a move into hedges against the currency, on account of the non-adoption of classical monetary policy. The economic effect was the deprivation of investment in real purposes. The primary harms fell upon wage-earners, who are dependent on real investment for jobs and the affordable provision of real goods and services. The primary benefits (which were proportionately smaller than the harms) fell to those who were well-positioned in one place—in the financial sector—to profit from the new status of currency hedges.

Be sure to read the rest here.

Paul Dupont is a legislative assistant at American Principles in Action. Continue Reading

The New Republic Wants to Ask Yellen About the Dangerous Gold Standard

Federal Reserve Chairwoman Janet Yellen

Kudos to Danny Vinik, with his shiny 2013 degree in economics and public policy from Duke University, for wanting to push Janet Yellen to address what he calls the GOP’s “implicit” support of a gold standard in its party platform. The last of four questions he wants Democrats to pose to Yellen when she appears before Congress is: “How dangerous would it be to return to the gold standard?”:

Senator Rand Paul has made news recently as he has barnstormed around the country promoting his “Audit the Fed” bill. A number of Fed officials have vehemently criticized Paul’s bill. But the Kentucky senator and presidential hopeful wants to do more than that. Just a few weeks ago, he said it would be ‘great’ if we got rid of the Fed. Paul has also spoken approvingly of the gold standard.

Krugman and his many acolytes want to put monetary policy into the 2016 campaign mix. Kudos we say again, and bring it on.  Among other things, Yellen would explode the myth of an apolitical Federal Reserve.  And an honest examination of the record of economic growth since Nixon de-linked the dollar and gold would not look good for the current monetarist regime. Continue Reading