President Trump again has put a wide swath of the establishment types in a state of fear for another of our “venerable” institutions. What could he be thinking? Steven Moore and horrors Herman Cain considered for the Federal Reserve Board? Why they don’t even have a PHD among them. Worse he is playing politics with appointment by selecting people generally agreeing with him on economic policy. They see the Fed as a revered independent agency led by highly educated elites delivering stable money and full employment from on high. Contamination with these two louts will taint this wonderful institution with mediocrity possibly leading to failure. We have trouble in River City.
Before everyone hyperventilates, remember we’re talking about the Federal Reserve. You know, the people not having a clue the “Great Recession” was on the horizon. The ones by keeping interest rates so low it forced people in need of returns worldwide to buy riskier instruments such as the Collaterized Mortgage Obligations containing the subprime mortgages. That rocked the world economy. Even when they woke up, their answer was to buy trillions of dollars worth of debt with newly created money driving interest rates near zero. The result was the slowest recovery ever recorded after any recession or depression. This even with Obama’s near trillion-dollar stimulus. At best the Fed has a hit or miss record since its inception. We warned of the continuing destabilization of the economy if interest rates continue below normal in our post Free Capital to Finance “More” in our series “The long Journey to More.” The Fed never seems to be aware of the bubbles it creates till they burst.
Tightening or loosening the money supply at the wrong time may actually have happened more often than they got it right. As Milton Friedman put it, “No major institution in the US has so poor a record of performance over so long a period as the Federal Reserve, yet so high a public reputation.” And this was said before its “Great Recession” failures. It would seem this is an organization in clear need of fresh ideas to achieve positive performance.