What Should It Mean By “Transparency At The Federal Reserve?”

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Congressman Dr Ron Paul, a Libertarian Republican, and a twice popular candidate for president among the multitude of despondent Americans since 2007 but usually in sync with the Fed’s monetary ideology, wants the institution audited by the Government Accountability Office (GAO). He also wants to End the Fed. The country is bigger and older than the nation’s central bank he argues. And that we know how to run our money better than the Fed because we have been there and done that from 1789 to 1913 when the Federal Reserve was established.

Federal Reserve Chairman Benjamin Bernanke, in his public semi-annual monetary policy report to the Federal Reserve’s overseers in the United States Congress, vigorously defended his agency’s policy judgment and independence in the areas of money supply and banking supervision from audits by the GAO, and of course, not to forget the Office of Special Counsel (OSC), Equal Employment Opportunity Commission (EEOC) and the Federal Bureau of Investigation (FBI). His agency can do no wrong.

United States, as any other country, needs monetary policy independence, not agency insulation from constitutional and legal accountability. There are no gag rules against the citizenry to save the Fed from the American people unlike some in the United States Secret Service and legal system appear to be thinking. There are, however, rules of appropriate government conduct within and without according to the Office of Government Ethics.

In the ideal world of economic liberty, the Fed, in its own eyes, must be the personification of self-regulation: a hard working virtuous agency supplying money to honest market participants, across the street from the raging bull in Manhattan, conscientiously going about market activities incentivized for pursuing their classical economic virtue since the days of Adam Smith, their individual reputations in business conduct being the only check on their behaviors, to advance the wealth of our nation. The American economy is always at stake for the Fed if only it knows its Beige book.

The world outside the Fed’s cocoon where I worked for about 8 years only one floor above where Mr Bernanke sits is anything but ideal if the years since 1999 are any indication. It is Dionysian.

Market participants as we all well know by now don’t break the law but bend it sufficiently in their favor in ways which are unsavory according to Alan Greenspan in one of his ruminations reminiscent of the Papacy. In the language of the Fed’s college of cardinals on the Federal Open Market Committee (FOMC) and the “Catholic Church” they run, “unsavory” is the antonym of “delectable” suggesting that the conduct of financial markets since the 1999 slowdown has left a bad after-taste in the mouth of the nation akin to stale and spoiled wine. Wealth has become a fleeting memory for many who support Ron Paul and lasting for the rest of the partisans in Washington.

The path to ending an institution, as desirable as it may be to some, must be treaded on as cautiously as a chef in the kitchens of the Congress which created it in 1913.

Federal Reserve – as a first step in its defense, rather than attempting to stave off the GAO and other agencies which monitor government conduct for being lawful – must become fully transparent – as transparent as the Supreme Court of the United States if it informally claims the stature of an august institution.

First, Fed budget, independent of the revenues from its monetary and other operations, must be allocated a budget through the Congressional appropriations process (Fed remittances to the US Treasury can be found in the public Treasury statements and the budget, largely under the agency’s own control, in the Fed annual report). The Supreme Court, a co-equal branch of government, receives its operational expenditures from the Congress every year.

Second, even though the Fed has made substantial progress in shrinking the delay in the release of FOMC meetings information since 1997, a lot remains to be done. Internal staff analyses in the run up to each FOMC meeting to prepare the FOMC – Fed’s classified FOMC Class II Greenbook and FOMC Class I Bluebook – must be publicly released in real time at the press conference where Fed forecast is discussed after every FOMC meeting. Senior-most Fed bureaucrats involved in the FOMC meetings with the members of the committee must be available to answer questions on staff analyses.

FOMC meeting minutes must be released in audio together with the summary transcript. The meetings can be open to few from the press and the public similar to Supreme Court arguments but the portion of the meeting where voting decisions are should be closed (see sample FOMC statement) requiring individual FOMC members to optionally submit concurring or dissenting written statements for public presentation and discussion after each meeting.

Third, options presented by the Fed system bureaucracy in support of all banking supervision intervention decisions, both crisis and non-crisis (discount-window operations) must be defended in the financial press and in public explicitly in a press conference before a decision can be made by the Fed Board and/or FOMC in Washington. Ron Paul’s angst about the Fed is in this regard because about $16 trillion, with no detailed accounting once the money left the fire hoses, has been supplied by the Fed since 2007 to recover an economy worth $15 trillion.

Fourth, the Federal Reserve Act (FRA) must be amended to institute an explicit numerical inflation targeting regime of 1-5% personal consumption expenditures (PCE), without any further deliberation either in the economist community at large or within the Fed. Enough has been said about this subject for decades since Jimmy Carter’s appointment of Paul Volcker as Fed Chairman in 1979. Ben Bernanke, who received his PhD in Economics from MIT in 1979, would not have been Fed Chairman otherwise.

Under law, the Congress (and the American people) can ask the Federal Reserve any and all information publicly for formal dissemination through written materials or hearings, without regard to the Fed’s internal policies and procedures, about the agency’s past decisions but cannot politically direct future rate-setting and bank intervention decisions.

In the interest of this nation of laws and not men, the laws of the land supersede all Federal Reserve internal policies and procedures.


About Chandrashekar (Chandra) Tamirisa

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One Response to What Should It Mean By “Transparency At The Federal Reserve?”

  1. Edward Ingram • A straight “No” to that Long term, a low interest rate causes inflation and as in 2007/8/9 etc a great big crisis can follow.
    4 hours ago• Like

    Chandrashekar Tamirisa • It does not matter what the federal funds rate is as long as inflation is in the range 1-5% and unemployment is between 4-5%.
    2 hours ago

    Follow Faisal
    Faisal Javaid • How do you figure?
    Sent from my BlackBerry® smartphone
    2 hours ago• Like

    Follow Edward
    Edward Ingram • Chandra – that is what the chief secretary to the UK treasury said until he was proved wrong shortly after I told him inflation was about to take off.

    Faisal, look up the money multiplier on wikipedia
    1 hour ago• Like

    Chandrashekar Tamirisa • Edward, it depends on what you do with the money. In MV = PY, V only comes into play if it is used in real investment in Y = C+G+I+NX. Not much is being done at the moment but hiking financial asset prices such as JPM credit derivatives in UK, of about $6B, chump change these days, what is 9 zeros after 6? There is a more recent classic paper by BoE improving over the Glenn Hubbard table for the various money measures. These days monetary policy chiefs are flying blind beyond M2. GDP data is better.
    16 minutes ago

    Follow Faisal
    Faisal Javaid • Thank you for pointing that out Edward, but just a reminder that our discussion has been based on the presumption that Monetary Economics hinders growth because it gives rise to false-money-creation, so I was asking Chandra, how would he figure, the statement:

    “It does not matter what the federal funds rate is as long as inflation is in the range 1-5% and unemployment is between 4-5%.”

    to be correct, when we have assumed that because of 0% interest rate, there is no inflation. and of course, no money creation at the micro or macro level .
    15 minutes ago• Like

    Chandrashekar Tamirisa • Faisal: Thanks for reading my latest post to my corporate magazine One World.

    Fisher equation i = r + pi.

    Rate of technical and, hence, structural change holds the key to mitigate pi for i to be as close to r as is feasible or r = 0 when i = pi within limits. True that pi must be higher than zero for prices not to fall drastically.

    At the moment, real equilibrium rates are negative because pi is > 0, close to 2 in the US. At least pi = 1 is better to avert deflation (not disinflation) and depressions.

    US economy must be reflated back to 2 by forcing structural change through monetary policy if pi approaches 1.
    9 minutes ago• Delete • Edit Comment You have 5 minutes

    Follow Faisal
    Faisal Javaid • We now understand Chandra that you crammed those equations really well 🙂
    (no offence) but we are assuming that the interest rate is at 0% and thus
    has no effect.
    Now, please get your mind liberated from the boxed-in-monetarist-thought
    and re-think your economics logic based on trade rather than interest rate
    :), let’s see what you come up with!

    Sent from my BlackBerry® smartphone
    2 minutes ago• Like

    Chandrashekar Tamirisa • When I get paid they will know what I came up with.

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