Tuesday on the RealClearPolitics podcast, Andrew Walworth spoke to RealClearMarkets editor John Tamny about his recent piece on the Federal Reserve. Tamny wrote in Forbes: Say It Repeatedly, The Fed Isn’t Nor Can It Be ‘Independent’ “The notion that the Fed’s in control is laughable,” Tamny said. “Fed officials are appointed by politicians. To presume that they didn’t politic to be in that position in the first place… is laughable.” “This is a politically appointed entity. I don’t say that as a conspiracy theory. I just say that you don’t need the Fed to regulate banks. You don’t need the Fed to liquefy solvent banks. You certainly don’t need the Fed to set interest rates.” “I don’t say this as some wild-eyed Austrian School person who thinks the Fed is the source of all of our economic ills. The books I’ve written about the Fed make a case that it’s just not that important one way or the other,” he said. “Do we need it? Of course not. And how you know we don’t need it is that any bank that runs into near-term credit difficulties-as in, it’s solvent but it just needs cash in the near term-it would never go to the Fed… For a bank to go to the Fed for a loan is for a bank to admit that it’s bankrupt. And that’s why banks avoid it.” “In a perfect world, the Fed would disappear, because it serves no purpose. But that’s never going to happen. It’s never going to happen because it’s a full employment act for economists,” he added. “It’s also a way for Congress to outsource the dirty stuff about bailing out banks that markets no longer would prefer to go under in the first place.” “I mean, since when do Republicans think that a government entity can set an interest rate in the first place? At which point, it’s superfluous-which means it is, by its very definition, its description, a politicized institution.” “Politicians believe, and so do a lot of economists believe, that the Fed can set interest rates-which is laughable. The Fed is an interest rate follower. If the Fed could set interest rates, the U.S. economy would be too weak to even talk about, and we wouldn’t be having this discussion because we’d be working in desperation just to feed our families,” Tamny quipped. “I just think this focus on the Fed is kind of odd.” “I think with Trump, there’s a little bit of showmanship precisely because media left and right still focus on the Fed as though what it does actually moves the cost of credit,” he said. “I think he wants to be seen as the person decreeing lower credit costs. But it’s-let’s just agree that it’s much easier said than done.” *** Don’t miss a single episode of the RealClearPolitics weeknight radio show – subscribe at Apple, Spotify, or wherever you listen to podcasts.
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