Doing their part to keep the struggling U.S. Postal Service afloat, Congressional Republican leaders sent a letter a to Fed Chairman Ben Bernanke on Tuesday, demanding that he stop doing whatever it is that he's thinking of doing to help the economy, because they said so.
The Fed is having one of those two-day meetings where all of its officials sit in a circle and play two truths and a lie and decide monetary policy and later on hook up behind the dumpsters in the parking lot. Currently, they're expected to "undertake policies to lower long-term interest rates," which would in turn "loosen up credit in hopes of promoting growth." Seems like a good idea, right guys? Guys? Mitch?
"We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy," reads the letter, which is signed by Senators Mitch McConnell and John Kyl and Representatives John Boehner and Eric Cantor. "Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers."
Did you hear that? A weak dollar? How embarrassing! We'll go to the beach of international finance and get sand kicked in our face by the Euro! Sure, a weaker dollar would make it easier for consumers to pay off their massive debts, and, yeah, it would spur American exports... but it's weak. Like a girl.
Anyway, what's especially galling is that this is Republicans' attempt to block the one last meaningful avenue through which the economy might be helped. That is, since they've successfully guaranteed that any attempt at working stimulus (sorry, "job creation") packages will be D.O.A. in congress, the Fed (which has no congressional oversight) is the only government agency that might be able to stimulate the economy. And now the GOP wants them to stop. As former Secretary of Labor Robert Reich puts it in a post on his blog:
When I was Secretary of Labor in the Clinton Administration, it was considered a serious breach of etiquette - not to say potentially economically disastrous - even to comment publicly about the Fed. Everyone understood how important it is to shield the nation's central bank from politics.
If global investors suspect the Fed is responding to political pressure of any kind, investors will lose confidence in the independence of the Fed and its monetary policies. Even if the pressure is to tighten the money supply and keep interest rates high, it's still politics. And once politics intrudes, lenders of all stripes worry that it will continue to intrude in all sorts of ways. Lending to the United States becomes a tad riskier. As a result, lenders charge us more.
The Republican letter puts Bernanke and his colleagues in a bind. If they decide against another round of so-called "quantitative easing" to lower long-term rates and boost the economy, they may look like they're caving to congressional Republicans. If they decide to go ahead notwithstanding, they're bucking the Republicans and siding with Democrats. Either way, they're open to the charge they're playing politics.