One might suspect that because our newest member of the Federal Reserve Board of Governors, Ms. Lael Brainard, wasn’t part of the 2008 vintage I would at least be willing give her a bit of test drive before barraging her with meat missiles. After all she has given but three speeches in her short tenure and hasn’t had time to do affect policy much all.
But here’s a sample of why that is nearly an impossibility, Brainard’s very first speech as a member of the board. Maybe you can tell me what’s wrong with it and why it’s misleading.
Although its founding statute makes no explicit mention of financial stability, the Federal Reserve was created in response to a severe financial panic, and safeguarding financial stability is deeply ingrained in the mission and culture of the Federal Reserve Board. Today, financial stability is more important than ever to the work of the Federal Reserve Board. With the lessons from the crisis still fresh, we are in the process of strengthening our financial stability capabilities.
Well, for starters, the 1907 panic was a doosey that began with the passage of the Hepburn Act. And to make a long story short, it started in railroad securities and grew into a mass of bankruptcies, mass suspension of gold convertibility and lots of political consternation. The Federal government went broke and was bailed out by J.P. Morgan who subsequently leveraged his position to grind his pound of flesh.
The beginning of the Federal Reserve had everything to with protecting the government’s interest and preserving democratic control of government, and nothing to do with babysitting people who supposedly have little control over themselves – because it was a bad act of government that had started the snowball rolling down the hill.
Serving some bit of its original intent of so-called financial stability is an entirely different animal than what we’re lead to believe. It would have meant OMOs when revenue fell short – not hemming, hawing, and hiding under the desk from the inflation boogieman. It’s amazing to me how an institution born out of a need preserve government at all costs would now stand back as it fell during the ensuing political chaos from fear and panic.
And of course to propose that it was always meant to keep money tight as to rob the future of opportunity and prosperity is just simply false. There is no other way of putting it.
I firmly believe, however, that Ms. Brainard wholeheartedly believes the snake oil she’s pawning. It’s quite sad, really.
But the saddest thing of all is that the third of her three speeches is dedicated to “The Great Recession Generation,” the people young people who were screwed out of solid beginnings in life by explicit inflation targeting gone wrong – and that she gives this speech while supporting her colleagues’ unjustified desire for tight money.
It makes me sick to my stomach.