Incredibly Dangerous

Mishkin Calls Ron Paul Fed-Audit Bill ‘Dangerous’ (Update1)

By Steve Matthews and Thomas R. Keene

Dec. 1 (Bloomberg) -- U.S. Representative Ron Paul’s proposal to allow audits of the Federal Reserve’s monetary policy is “incredibly dangerous” and could stoke inflation, said Frederic Mishkin, a former Fed governor.

Me: Hogwash, audits will not stoke inflation, excessive money printing and increasing velocity of money will eventually cause inflation.

“The Ron Paul bill is incredibly dangerous,” said Mishkin, who is now a Columbia University professor, in a Bloomberg Radio interview. “It is remarkable the kind of attacks that are occurring on Fed independence.”

Me: Who is Mishkin kidding? The Fed has no independence now, it serves the ruling elite, not the common man.

Fed Chairman Ben S. Bernanke has opposed the proposal by Paul, a Texas Republican, saying it might open the door to interference in monetary policy. A separate proposal in the Senate backed by Banking Committee Chairman Christopher Dodd would strip the Fed of authority to supervise banks.

Me: End the Fed now. It has done an extremely poor job of supervising banks, itself and interest rates.

Paul’s bill “would be very dangerous in terms of promoting inflation,” Mishkin said. “If you make the central bank beholden to politicians on a short-run basis, you get very bad outcomes: high inflation and less of the ability to deal with shocks like the ones we had recently.”

Me: Central banks are beholden to politicians and the elite for their own selfish interests now. This argument is a red herring.

Bernanke goes before Dodd’s Senate panel Dec. 3 in a confirmation hearing for his second term as central bank chief. He is likely to face questions about the central bank’s record of supervision during the financial crisis and its role in taxpayer-funded rescues of firms including insurer American International Group Inc.

The Fed chairman, in a Nov. 29 commentary in the Washington Post, said curbing the central bank’s authority to supervise the banking system and tampering with its independence would “seriously impair” economic stability in the U.S.

Me: Economic stability is already seriously impaired by the central bank's drunken decisions to fool around with interest rates for political purposes that have now created a crisis. Mishkin is trying to make the hero in this episode (Ron Paul) into the villain. This is classic Marxist boomerang propaganda. If there is a stock market crash after the Fed is audited you can bet the establishment will blame Ron Paul.

Core Functions

“A number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions,” he wrote. The measures “would seriously impair the prospects for economic and financial stability in the U.S.”

Paul, who wrote a best-selling book this year titled “End the Fed,” said provisions in his amendment would limit interference in monetary policy. The measure, co-sponsored by Representative Alan Grayson, a Democrat from Florida, would exclude any unreleased transcripts or minutes of Fed policy meetings. It calls for an audit of the Fed and its 12 regional banks by the GAO within a year after enactment.

Mishkin, 58, said government audits could lead members of Congress to second guess Fed decisions and prompt them to call on Fed governors and bank presidents to explain their interest- rate decisions.

Me: Why does it seem that the establishment is so opposed to audits? They only reveal the truth! What is so scary that they do not want investors and the general public knowing?

“This is not the way to do monetary policy,” he said. “There are a whole bunch of proposals about regulatory authority and the Federal Reserve, which are potentially extremely damaging to the economy.”

Asset-Price Bubbles

Mishkin also said the Fed shouldn’t be overly concerned right now about asset-price bubbles. Fed policy makers said their decision to cut interest rates to near zero may be fueling undue financial-market speculation, according to minutes released last week.

Me: More Mishkin nonsense. A bubble in housing and commercial real estate still exists in much of the country. The Federal Reserve bubble blowers want to blow another bubble so they can continue this charade.

“You have to make sure you are not fighting the last war,” he said. “In the U.S. context, there have been people talking about bubbles in the United States and saying this is a big problem and the Federal Reserve needs to exit from its expansionary monetary policy in order to deal with them. This is fighting the last war.”

Policy makers need to distinguish between bubbles associated with “credit booms” that can harm the economy and others that have less impact, he said.

Gold ‘Sideshow’

Mishkin called surging gold a “sideshow” and said prices of the metal “move all over the map for many, many different reasons and have very little impact on the economy.”

“If gold price movements are reflecting other factors that could be important, you might worry,” he said. “For example, if gold is going up because people are worried the Federal Reserve won’t be able to contain inflation, that is serious.”

Gold jumped to a record above $1,200 an ounce in New York today as declines in the dollar and higher commodity prices spurred investor demand for an inflation hedge.

Me: If gold is a sideshow, why is the central bank in India continuing to buy more after just buying 200 Tonnes? Other central banks are following India's lead, including the Chinese. The theme here is accumulate gold and limit US dollar exposure. This is not a good signal for long term dollar health.