“Discounts for Individuals, Partnerships, and Corporations
[sic] In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any participant in any program or facility with broad-based eligibility, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange, the Federal reserve bank shall obtain evidence that such participant in any program or facility with broad-based eligibility is unable to secure adequate credit accommodations from other banking institutions. All such discounts for any participant in any program or facility with broad-based eligibility shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.”
Federal Reserve Act, Section 13. Powers of Federal Reserve Banks
The Obama Fed is in full compliance with the Democrats on the Hill and with 1600 Pennsylvania Avenue. Fed Chairman Benjamin Shalom Bernanke wants peace, by his middle namesake, during the troubled times for the institution he is running. So, he has traded monetary policy independence for complying with executive authority during these extraordinary economic times of crying wolf about the coming depression to help this president veer left to get reelected amidst conservative and Republican disarray.
Bernanke is scheduled to deliver the usual Fedspeak about the limitations of monetary policy to recover the economy at the annual central bankers’ retreat in Jackson Hole, Wyoming about pushing on a string, taking refuge in John Maynard Keynes’ fiscal expansion prescriptions and the American Economic Association (AEA).
The irony is that the monetary policy Hail Mary pass of QE3 (Quantitative Easing 3), the third in a series of QEs by the Fed, may not be able recover the economy unless the Fed relents to retreat into radicalism in a country founded by radicalism, political and economic, to confound its own economic forecasts in the last 5 years. The Fed is cautious to implement QE3, as it was with QE1, and reluctant to raise its inflation target (to 5 per cent), ideas of mine which I have championed since 2009.
The Fed is toeing the line of Barack Hussein Obama’s aspirations to become the 21st century Franklin Delano Roosevelt (FDR), both in military and economic terms, military in the Middle East and North Africa (MENA) and economic through government expansion with the central bank financing the Federal debt as it did during the Great Depression. However, this time around, the expectation is that not another world war but bigger government will trigger self-sustainable economic recovery in a second Obama term. The rationalization of government expansion is not war but the purported rational expectation of another Great Recession or depression for a second time in 5 years since 2006.
An acolyte of Milton Friedman’s monetarism, Ben Bernanke yielding to the Keynesianism of the Democrats to support the president’s economic agenda is an act of his timidity and that of the economics profession despite the very powers delegated to the Fed by the Congress in the Federal Reserve Act (FRA) as Amended to make industrial policy during the Great Depression.
Bernanke’s timidity is due to the academic culture which his generation of college professors helped shape, following the lead of American economics instituted by Paul Samuelson and Milton Friedman since the twin oil shocks in the decade of the ‘70s, when economists such as Bernanke and Friedman graduated with their doctoral degrees. The Fed’s de jure capacity to make industrial policy is dusting on the shelves of mainstream academic orthodoxy of saving the financial markets and ironically not the real economy.
The FRA “in unusual and exigent circumstances” permits the Federal Reserve, besides of course setting its inflation target, to design borrowing facilities for the agricultural and industrial sectors at large, and not just for the financial markets as it did with its Term Asset-Backed Lending Facility (TALF), to raise domestic investment in pursuit of advancing forward-looking structural change to lower the high structural unemployment.
If Ben Bernanke and the Fed are not innovative, radical being the wrong choice of words, he will be grossly negligent in fulfilling the Fed’s mandate as set forth in the Federal Reserve Act.
Should failing to perform be his Fed’s decision, he must resign.