OPINION:
It’s really amazing that the so-called stock market gurus were worried that the Federal Reserve Board would raise interest rates at its March 17-18 meeting, thus leading to a less bountiful Wall Street. The Fed passed once more on hiking rates. All the worry has resulted in enormous volatility in recent weeks, with stocks losing by big margins one day, recovering the next, then falling again as oil prices sink, the dollar rises and Europe faces the prospect of continuing turmoil in Greece.
It’s all quite amazing because the experts’ rationale is based on prudent economic thinking. To wit, the economy has recovered to a point in which mandated, rather than market-directed, interest rates aren’t necessary; in fact, that level was reached to a large extent two years ago. But the Fed continued its low-rate policy under the guise that there were still some problems. Worker wages weren’t great, some labor segments were still weak in terms of employment (no matter the continuing drop in overall unemployment rates), the housing market still had its ups and downs. And six union workers stubbed their toes in Detroit last week. Whatever.
The reality of the Fed, however, is that it’s not operating on prudent economic thinking. Rather, its chairman, Janet Yellen, and all other members have been appointed by President Obama, making them pawns of 1600 Pennsylvania Ave. and the Democratic Party. In short, the gobbledygook economic excuses raised by the Fed’s statements — the word “patient” is out, but there’s now gloom about economic growth — are designed to keep the artificial rates intact through the next presidential election. That strategy will aid in the election of another left-leaning Democratic Party chief executive who can boast about the solid stock market and cheap money designed for the middle class, no matter that corporations — and their bubbly stocks — are the real recipients.
What all this does to America’s so-called free market economy remains to be seen because the Fed has never been so biased in favor of the president and party in power. To be sure, it’s made mistakes over the years since 1913 when Congress created it: raising interest rates, for instance, during the Great Depression when the opposite policy should have been pursued. But to assume the role as an independent agency that also serves as a president’s entourage is unprecedented. And unlike even presidentially appointed federal judges, Fed members can’t be impeached or removed from office during their 14-year terms.
The Federal Reserve Act of 1913 and Obamacare were the nadir points of American politics, intensely partisan, jammed through Congress by Democrats thinking incorrectly that what was important in a democracy were the ends, not the means, to legislation. On Dec. 19, 1913, with Democrats controlling both houses, the Fed bill was passed in the Senate. A conference committee approved it on Dec. 22 (the House voting 298 to 60, with 76 not voting); the Senate passed the conference report on Dec. 23 by 43 to 25, with 27 not voting. Not a single Senate Democrat opposed the conference report, only two in the House, and President Woodrow Wilson signed it the same day.
Most of the nonvoters just happened to be opponents, absentees who had gone home for the holidays, thinking that past protocol in both houses would prevail, meaning that no serious business would be taken up during the season of good will. Opponents called the strategy “the Christmas massacre.” (Recall that Obamacare was passed by the Senate on a strictly partisan vote on Christmas Eve 2009, with the House holding off until March 21, 2010, again along party lines.)
In the old days of the Fed, bankers and expert-in-finance lawyers dominated membership, both with a sense of real world economics. Now academics prevail, living in a world that bears little relation to the past or reality. For instance, the Fed has kept interest rates near zero for six years — an uncharted trend that defies history. The last time the Fed raised interest rates was in June 2006. What the academic Fed has done is cater to the White House, whose prevailing kick-the-can-down-the-road philosophy has created an economy on stilts, with Wall Street serving as the gambling arena and small, prudent savers given crumbs for their thrift. That’s an economic crime.
The ancient Greek storyteller, Aesop, may have expressed this type of situation best when he noted that “we hang the petty thieves and appoint the great ones to public office.”
• Thomas V. DiBacco is professor emeritus at American University and author of “Made in the U.S.A.: The History of American Business” (BeardBooks, 2003).
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