Many thanks to those who have sent me questions via email and my Facebook mailbox over the past hour or so in relation to my March 31st discussion about The Fed, its purpose, and its prospects for reform via legislative channels.
While the discussion I participated in yesterday was creative in nature and occurred unofficially, it gave some framing to what may soon emerge as a legislative topic arena in the US Congress.
Here are a few quick, informal and conversational comments which I'll elaborate upon in the coming weeks as I have more information and specific angles.
I expect that the Fed discussion, and legislative ideation around it, will commence around the time we 'hit' the Federal debt ceiling. The Fed topic ties into the debt topic closely (the deficit topic, while related, is a different topic.) How we run up debt/how debt becomes an issue doesn't just relate to how we budget, appropriate and spend money, but how money is created and put into the system in the first place.
The debt ceiling hit, which is expected to occur in a matter of weeks, has been described by some as an opportunity, and others as a moment of apocalyptic catastrophe. It's more the former than the latter, though that's not to say that it's an event that's positive. It's a moment of realization - as I said yesterday, 'a moment of diagnosis.' There are times when you get some news about your own health, the warning language of which says "this would be the time to start exercising," "stop eating so much sugar" or "stop smoking." So it's the beginning of turning over a new leaf. It's also a statement that you've screwed up. Both are serious moments.
So hitting the debt ceiling will be a time when we say "we have too much debt!" Of course we do; that's obvious. Not the question.
It's time to ask, how did we get here? Then ask, what can we do to get somewhere else that's better?
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The conversation yesterday began around how to communicate debt and deficit differences to the American people.
That conversation led to the Fed:
-the Fed's role in our systemic debt addiction,
-how Federal debt addiction and personal debt have different characteristics and why,
-what the Fed's new press conference policy will do to its decision process, and
-how the Fed topic is expected to be a legislative priority, especially for the GOP.
The Fed has been a legislative priority before. Principally via Congressman Ron Paul of Texas. He's been on this topic for a while. I was conducting a focus group back in early Sept 2008 in Greentree, Pennsylvania, just outside of Pittsburgh (which, I must mention, is Ron Paul's birthplace) and many of the independent unaffiliated voters I spoke with could recite a lot of his ideas quite well. They ranged from accurate to wildly conspiratorial. Most were a combination of both: voters shared with me, for example, that the creation of the Fed system has been 'the root cause' of subsequent inflationary periods the US experienced in the 20th century.
Congressman Paul's son, Senator Rand Paul of Kentucky, has floated a few Fed ideas of his father's, extrapolating in his own creative way on some of them, such as a call for a full audit of the Federal Reserve system, on through to a call to abolish the Fed altogether. It is both Pauls' theory that a previous very mild Fed audit, ordered by Congress, uncovered what was just the tip of a more frightening alien sort of X-Files-esque glacier. A cartel of secrets and smoking men, which required the American people's own eyes and the clear virtuous light of day to come to its humbling demise. This imagery plays emotionally with a lot of voters, whether or not it's considered based in reasonable fact.
When it comes to the Fed, there is a lot of reasonable fact. There are also many electeds who, in the near future, could dissect the accurate from the conspiratorial and make the Fed issue set a far more mainstream, though I think right leaning, sort of legislative focus. Many key GOP electeds, both freshman and seasoned, have dabbled the Fed topic into recent speeches and press conferences. It’s important to them. They also are doing a bit of trial balloon testing, watching crowd and press reaction to the topic, now re-versioned into calmer and less dystopian tone.
The discussion I participated in yesterday considered what this mainstreamed Fed focus might look like. While it did invoke some fun X files imagery and metaphor on occasion, it concentrated on three general areas:
1) Audit.
It's one we've seen before. It's one I expect we'll see again. Audits are wonderfully healthy moments for an organization. They are moments of diagnosis. Will a call to audit Fed process and methodology specifically around the debt question happen? I expect so. If it's overly moralized or politicized, it will be ugly. It will waste time and create animosity. If it is done for process and economic purposes? It will be beneficial. The communications people and the policy people will have to join hands on this one and skip together. That doesn't always happen, but I can hope that it will.
2) Monetary Expansion. QE2, inflation, pricing (commodities and related.)
The Fed's expansionary monetary policy, almost unheard of except in situations of dire developing-nation-crisis or the like, has introduced several structural questions - and perils - into the market - among them negative real interest rates, pricing imbalances for basic commodity inputs, and a dependence upon an unsustainable cycle of debt creation. This cycle of debt creation is systemic and does not relate to one single expenditure. It relates to feeding the system new money. Will legislation seek to nab, blame or at least halt QE? Will comparisons be drawn to other central banking systems which do not have monetary powers? Will some call for the Fed to have a policy-only role rather than a policy + monetary combination? Perhaps yes.
3) What is The Fed anyway?
As a colleague of mine asked yesterday, is it human or alien, or a human alien hybrid? (This was funny as if you watched X-Files, the aliens have blood the color of dollar bills...) In basic terms, is it government or private? Alliance or cartel? Transparent or secret? Domestic or International? Is it subject to FOIA or the free market? Just because it's a not for profit type of system, does that mean it doesn't bear responsibility for how its methods allocate *profit opportunity* to those who control it? What are its rights if any? How do these differ from or overlap with the rights of its governors? Lastly, if this whole system was established for greater social benefit in a necessarily flexible, expanding economy, should we then ask if creating money and creating debt - two things that are married in terms of how the Fed does business - have social benefit?
Clearly money has enormous social benefit. Does its spouse, debt, also get 'love?' If not, why not? Does Congress have any role in elucidating these points, and/or answering these questions?
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The thing I like about these three areas is that they look at the process. They are fundamentally 'apartisan' and extramoral. They are not right or left. There's a possibility to educate the voters via such debate. Yet clearly, there's also the possibility to engage in scary discussions that scare and misinform. I will seek to remain a voice of civility in this discussion, and will encourage others to do the same.
A fact we can all agree upon? This Fed thing is something we’ve got to talk about. It might - and might not - be something we need to legislate about.
I'll follow upon this very informal note with harder argument. I've quickly written this post in acknowledgment of how much I enjoyed yesterday's a conversation, and how heartened I am by the excellent and relevant questions I received on this topic today. Thank you!
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