Earlier today Bernanke Chairman Ben S. Bernanke testified Before the U.S. Senate in the Fed’s Semiannual Monetary Policy Report to Congress. I commented on his testimony in Bernanke’s Hogwash.
In an unusual but encouraging development, someone besides Ron Paul is calling Bernanke on his hogwash. Please consider Bunning Statement To The Senate Banking Committee On The Federal Reserve Monetary Policy Report.
As Prepared For Delivery:
Thank you, Mr. Chairman. I know we have a lot of ground to cover today, but I want to say a few things on the topic of this hearing and of the next.
First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans.
Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go. As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount.
Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.
Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this.
And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?
I will close with this question Mr. Chairman. Given what the Fed and Treasury did with Bear Stearns, and given what we are talking about here today, I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop?
Financial Powder Keg
Political Bases is reporting Bernanke: economy faces ‘numerous difficulties’
Bernanke’s testimony comes just two days after the Fed and the Treasury Department came to the rescue of mortgage giants Fannie Mae and Freddie Mac, offering to throw them a financial lifeline.
The Fed chief was later joined by Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Chris Cox, who were summoned to detail the rescue plan.
Paulson said that if the government extends any financial backing to the two institutions it will be done “under terms and conditions that protect the U.S. taxpayer.” He didn’t provide details. “This is a backup facility that hopefully it will never be used,” Paulson said. The Treasury chief said he hoped that the pledge itself would help to boost eroding investor confidence in the companies.
Sen. Richard C. Shelby of Alabama, the panel’s senior Republican, cautioned, “I fear that we’re sitting on a financial powder keg.” Officials may envision never using the powers, Shelby added, but “this is not an empty gesture…. what if they did?”
Read My Lips
Senator Shelby D-Ala (right) the ranking member on the Senate Banking Committee looks at Chairman Chris Dodd D-Ct and says “Read my lips … what if they did?”
Paulson did not provide the details because it’s impossible to explain how an “unlimited lending line” can have “terms and conditions necessary to protect the taxpayer“. In other words, it’s a lie, in a series of lies by Paulson.
For more on this line of reasoning and other Paulson statements that do not add up, please see Paulson Crosses Rubicon Lands In 5th Dimension.
As I said at the top, it is an unusual but encouraging development to have someone besides Ron Paul take Bernanke to the woodshed. It also appears we have two new proponents to the Fed Uncertainty Principle.
Mike “Mish” Shedlock
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