Lars Christensen has a post discussing politicization or lack thereof of the Fed on which I offered a couple of comments discussing possible scenarios in which the Fed might have been interfered with that are not quite so obvious as the letter a group of prominent Republicans wrote to Bernanke last year. The purpose of this post is that I want to expand on it here. But a bit of warning first that it is highly speculative. I do not have access to information that isn’t already publicly available, nor have I been told anything that no one else has been told.
Very old liberal roots run deep in the Democrat Party. What some view as anti-capitalist tendencies come from a radical Lockeian perspective against aristocratic hoarding and excess. Back in the days of Cromwell, people of similar belief were called Levelers. They saw the same things happening during the financial crisis as I did, people being foreclosed upon right and left, the formation of tent cities and so forth while bankers were being bailed out by the dozens. If it is true that Obama is an ideologue, it would be reasonable to suspect that he believes that we carried the capitalism thing just a bit too far, toward the creation of an American aristocracy, and right in the center of it all is the Federal Reserve. Of course that isn’t the reality of what happened to the people who were foreclosed upon, but I don’t believe reality matters in politics.
And so if I were Obama, elected on a platform of fundamental transformation from a radical Lockeian perspective, would I really want the Fed to goose the system? I think not even if that choice conflicts with all the necessities of reality. I think that a continuation of the financial system bailout was his compromise and perhaps a matter of survival in politics as they are.
All the evidence I have is purely circumstantial as there aren’t any smoking guns and no one is talking about what Obama might have insisted upon. But consider that Timothy Geithner will likely be stepping down. Obama will need a Treasury Secretary; and he is leading in the polls. Who are the most vocal people on the FOMC who would be possible contenders for that position, or possibly even Bernanke’s when his term expires, and when did they start complaining about QE3 in public? Why not complain about it right after it was decided upon if doing it just to voice disagreement? I think Bullard, Plosser and Fisher are opportunists looking out for number one, regardless of the damage they leave behind.
Now consider the slogan that is scrawled across Romney’s campaign bus. “More jobs. More take-home pay.” More employment, higher incomes. How is he going to accomplish that if he rips up the Fed? But suppose you’re a politician in a party that has little or no power at all, and perhaps you’re aware of what’s been going on with the Fed al la Obama and you want to turn it into your advantage to gain some traction. Go with the flow with your own spin. I honestly do not believe that Republicans are that stupid to do what they’ve been talking about while grandstanding. They need the Fed to be doing the right things or they will be a flash in the pan if they manage to pull off the big win they are hoping for.