The future of the Federal Reserve under a reconfirmed Bernanke

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Ben Bernanke has consistently cited the Federal Reserve’s “independence” every time members of Congress requested additional information about the central bank’s secret deals and special lending programs it established during the financial crisis. But when his nomination to be reconfirmed Fed Chairman appeared to be in jeopardy, Bernanke was anything but independent of the political process.

Bernanke made numerous visits to Senators seeking their support and was reported to have been still working the phones during the FOMC meeting. Several Republicans broke their filibuster of blocking anything the Democrats wanted, joining in the spirit of bipartisanship to please the corporate and Wall St. donors they enjoy trashing when the cameras are rolling. Warren Buffett who said on CNBC the week before to “let me know a day or two in advance if Bernanke is not confirmed so I can sell some stocks,” had been lobbying Senators. And so was GE CEO Jeffrey Immelt who serves on the board of the New York FRBrepresenting the public”; as the company has received beaucoup benefits from Bernanke’s Fed.

Resistance declined as the week progressed, and Ben Bernanke was confirmed at 4:12 PM yesterday to a second term as Fed Chairman by a 70-30 vote after Senators voted 77-23 to break the filibuster on his nomination. Bernanke is lucky that politicians are also driven by the fears they enjoy stirring up. Members of the Administration and Bernanke supporters were working feverishly to push Senators to vote for Bernanke for fear they would be accused of contributing to a market collapse. (This was the same excuse used by Buffett and other supporters to push Timothy Geithner’s nomination through even though other Obama nominees dropped out over tax issues.) Senators were instructed to imagine how much worse things would have been if Bernanke hadn’t been at the helm during the financial crisis.

While Washington, Wall Street, and corporate America largely support Bernanke, a majority of Americans do not. Only 18% of people surveyed in a January 23-25 Wall Street Journal/NBC News poll said they were “positive” about Bernanke; support for his reappointment had changed little since a June poll. More men favored his reappointment than women, probably because women are still predominantly responsible for grocery and other household expenditures and managing household budgets. Because of this, women (at least speaking for myself :-) ) tend to be more cognizant of inflation’s real world effect on purchasing power and how the Fed’s policy of zero interest rates create a negative return on interest income even before it is taxed. For all the political pandering to senior citizens on healthcare and other issues, Washington and advocate groups such as AARP have been stone silent about how the Fed’s policies have severely harmed seniors’ financial health.

“Beginning late this year and extending through 2009, Pluto will aspect the Fed’s Sun (identity/the Chairman), Midheaven** (reputation/status), and Pluto (transformation). This has never happened in the Fed’s history. What it means is that the Fed’s purpose and scope will be radically revamped from its current existence.

Chairman Bernanke’s Sun, Moon, Mercury, Venus, and Jupiter will face challenging energies in 2008-09 from Saturn and Uranus. High level people (especially government) will exert even greater pressure on him to do their bidding. At the same time, he will want to free himself from these restrictions to pursue a different course of action. (Or he could disagree with the new duties and structure of the Fed.) These energies also have the potential to create health challenges from high stress. Bernanke’s position as Chairman expires on January 31, 2010. He will not be re-appointed, and will probably resign before then.” – From my post on “The Fed’s Future

I wrote that post on September 18, 2007 – less than one month before the Dow and the S&P made record highs and one year before the financial crisis erupted on Wall Street. Even when he was nominated for a second term on August 25 as part of President Obama’s agenda of “change that we can believe in,” virtually no one had any concerns that the Senate would fail to reconfirm him. Bernanke will go down in the history books as the Fed Chairman with the most “No” votes.

Pluto in Capricorn has already “revamped the Fed’s purpose and scope” as Bernanke has pushed the Fed’s powers to the limit. Now that Saturn in Libra is squaring Pluto, proposals are making their way through Congress that would limit or separate the Fed’s power and responsibilities. Saturn in Venus-ruled Libra reflects the movement in Congress to remove the Fed’s ability to regulate banks, while the Administration proposes the creation of a Consumer Financial Protection Agency to regulate consumer finance while the Fed would be in charge of regulating all financial institutions that could pose a systemic risk. Bernanke has made it clear that he opposes any legislation that would reduce the Fed’s authority and threaten its “independence.” The GAO is auditing the Fed’s handling of AIG, and Bernanke is not pleased that a bill to audit all of the Fed’s special lending programs is going through the Congress.

It is unfortunate that Bernanke still refuses to take responsibility for the Fed’s role in precipitating the financial crisis. His continued allegiance to the Greenspan doctrine of creating asset bubbles now and mopping up the mess later is not the way to create a steady and sustainable economy.

Wednesday’s FOMC Announcement contained subtle changes, reflecting that Bernanke runs the risk of waiting too long to embark on an exit strategy to tighten monetary policy. The only FOMC member who appears to realize the Fed is moving too slowly and wanted the “extended period” phrase dropped from Wednesday’s statement was Thomas Hoenig, president of the Kansas City FRB. This was really interesting to me as the intuitive impression (versus examining the planetary influences) that immediately entered my mind before I wrote the Weekly Forecast was “it’s time to take off the training wheels” regarding the “extended period” phase. It never dawned on me to think about any dissenters since the committee has been unified with Bernanke for so long.

I have previously written why I believe the Fed will raise interest rates no later than the June 23 FOMC meeting. The training wheels could come off at the March 16 meeting. The April 28 FOMC statement will prepare the market for the rate increases to follow. At the same time, the Fed will probably assure the market that mortgage liquidity will be available.

The stock market has always been fearful of change, especially when overly accommodative monetary policies were the primary source of Wall Street’s recovery. Monetary tightening does not signal the end of the world but is a welcome acknowledgement that economic conditions are gradually improving. There is the additional danger that inflation could quickly overheat if tightening does not occur.

As much as I disagree with the Greenspan/Bernanke doctrine, I object even more to those who would like to abolish the Federal Reserve System altogether. If Congress were in complete control of the Federal Reserve we would have an extremely accommodative monetary policy forever instead of for an “extended period” of time.

Because there will likely never be a Fed Chairman like Paul Volcker again, Congress should limit the Fed’s duties to focus on monetary policy. And then Congress should refrain from any attempt to interfere with the Fed’s independence.

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