♠ Posted by Emmanuel in Credit Crisis at 9/24/2011 07:52:00 PMHangman, hangman, hold it a little while
I think I see my friends coming, riding a many mile
Friends, you get some silver? Did you get a little gold?
What did you bring me, my dear friends?
Keep me from the Gallows Pole
Call me shallow--I don't mind--but I was rather amused by Texas Governor and Republican presidential candidate Rick Perry's idea of charging Federal Reserve Chairman Ben Bernanke with treason should he further realize his well-known money-printing advocacy. To many dollar holders, it probably isn't an issue whether this contemptible character who's debased the currency and hence their wealth should be executed. Rather, the real question is if he should be hanged, gassed, electrocuted or shot (nevermind that it's unclear who he's committed treason for). Don't mess with Texas--and while Perry's attention-grabbing stunt is probably just the stuff of electioneering as we approach 2012, I certainly wouldn't mind if the Dallas Fed calls for an "extraordinary meeting" of FRB governors in the very near future! (Adding insult to fatal injury, Bernanke won't even get a special last meal in Texas anymore.)
The reason I mention this (pseudo-)morbid stuff is because, hyperbolic rhetoric aside, it seems such dialogue has nonetheless had an impact on US central banking. As the arch-neoliberal state in the not-so-distant past, the US was long among the most vocal advocates of the concept of central bank independence. The latter is arguably among the most widespread and influential applications of rat choice / rent seeking theories. That is, shielding decision-making in the monetary arena as much as possible from public pressure should lead to more "rational" and less "political" choices. Suffice to say, central bank independence has long been part of the neoliberal fashion. Despite being a target for disdain among left-leaning academics (read: most UK political scientists) over accountability concerns, this matter is largely settled among the more insular community of orthodox economists. With the world's largest economy, academia, and IFIs (alike the World Bank and IMF) all peddling central bank independence, it has become expected--especially in OECD countries.
Nevertheless, it is remarkable that with all indications pointing to the US economy doing another of its dalliances with death by reaching stall speed, the only Fed action Bernanke could propose is "Operation Twist" or attempting to lower yields for (long-dated) Treasury bonds which affect rates for much private sector borrowing alike mortgages by selling an offsetting amount of (short-dated) Treasury bills. In theory, the Fed balance sheet should thus stay the same size. As our old sparring partner Andrew Leonard usefully points out, it was not only Perry but his congressional colleagues who've warned against the Fed taking "extraordinary measures" or QE3 in other words as Bernanke's helicopter elevates to a whole new altitude.
While I am from the school of thought that highly interventionist policies have done more harm than good, that's beside the point here, really. There are certainly many competing opinions out there. On the proponent's side, there's the belief that previous interventions haven't worked since they weren't large enough. On the sceptic's side, there's the familiar refrain that it's a solvency and not a liquidity problem bedevelling America. (F'rinstance, mortgage rates already are at all-time lows so there's little point in lowering them further when folks can't make the 20% downpayments or feel confident enough in their employment situations to meet future instalments.)
However, one thing all concerned will probably agree with is that a comparatively mere $400 billion worth of paper shuffling won't revive the US economy. And there, my friends, lies the rub. Given true central bank independence, Bernanke has written that an anything goes, throw it against the wall and see if it sticks approach is his preference. Strenuous Republican complaints against doing so have constrained his options. Though he may not be tried for treason, he is certainly doing some Bayesian updating given Obama's worsening approval ratings of thinking about what may become of him should a Republican win in 2012. Central bankers are certainly not immune to messianic complexes, and I'd venture that Bernanke would like to remain regardless of the election outcome to try and redeem himself from an unhappy ending as Fed chair.
Saving his own behind aside, perhaps Bernanke himself is having doubts about the cost/benefit ratios involved in orgiastic money printing. One certainly hopes, but I do get the impression that he's just biding his time. Old habits die hard, and it may take more than a warning from congressional Republicans not to indulge in his favourite tricks. Show him the noose, perhaps? Let's just say for now that even in the former heartland of neoliberalism, even hellbent combatants in international currency war are not *fully* central bank independent.
In international relations scholarship, there has been an academic fashion with "neo-mediaevalism" or the diminution of state actors compared to non-state ones such as NGOs, virtual groups, terrorist organizations, and what else have you. We might be on the cusp of taking this idea one step further: Recalling Henry VIII's orgies of senseless violence towards all and sundry while having bouts of illness-induced rage, who's to say that we are not returning to a less ostensibly rule-based, more volatile world where (Perry-esque?) chieftains can call for the head of the money man?
Once more with feeling from Led Zeppelin:
I couldn't get no silver, I couldn't get no gold
You know that we're too damn poor to keep you from the Gallows Pole