The Federal Reserve: What’s the Big Secret?

Currently, there is a move in Congress for more government oversight of the Federal Reserve System, or at least a one time audit? Chairman Ben Bernake predictably resists this. Mr. Bernake says the Federal Reserve needs to remain independent, free of congressional pressure. As an example, the chairman states that the Fed sometimes must raise interest rates to combat inflation, a decision often unpopular with politicians who want to keep rates to stimulate the economy and, presumably, get them more votes at election time.

But there seems to be a “disconnect” (to use a popular word of today) here. The Congress already knows what the Fed is doing about interest rates. The Congress can demand lower rates any time it wants to. The Fed can ignore the Congress as it always has. No matter what the Congress wants or what secret information the Fed gives the Congress, the Fed can continue to do what it wants. With one exception. If the Fed is doing some illegal or improper, then changes will occur.

But that’s crazy talk. The Federal Reserve is composed of very distinguished, accomplished individuals. They would never do anything wrong or improper, would they? Well the fact is that the Federal Reserve’s ability to give emergency loans to banks or to buy up various assets gives it the power to do favors for friends or business associates. The public is suspicious of a power like that. Likely some members of Congress are also suspicious. To use the cliché, is the Fed favoring Wall Street over Main Street? Just put everything out in the open and everyone will be happier. Why can’t that be done?

Well, one argument used by advocates of secrecy is that the Fed sometimes gives loans to banks that are having difficulty getting financing elsewhere. Public knowledge of this could, in theory, lead to a run on the bank, thereby defeating the Fed’s purpose. But should the Fed be supporting banks that can’t survive on their own? Perhaps this is not what the Congress wants. I know it’s not what some members of the public want. No, we want disclosure. If exceptions need to be made to prevent a national disaster, which I doubt, then those exceptions can be made. But the Federal Reserve System is not the CIA or the Manhattan Project. The public and Congress should know what it’s doing.

Why Do We Still Have a North Korea?

In recent days, the United States and China have been having discussions regarding North Korea. Has North Korea breached the Korean War armistice? Are sanctions in order? I suggest that with the cold war long over, there is no reason for two Koreas to continue to exist. If sanctions are proposed, then they should include the ultimate sanction: a request that a plan be put in place to hold free elections for a government of a unified Korea.

I know, I know. This is a laughingly naïve proposal. Of course dictator Kim Jong II will not voluntarily step down and hold elections. That’s not the point. The point is that is what he should do, and this request will only be the first step to getting him to do what should be done. And it’s a long overdue step.

Times have changed. We no longer have a philosophical battle between the Communism of the Soviet Union and Red China and the capitalism of the western nations. Kim Jong II is clearly a dictator who got his position by being the son of an earlier dictator. All Koreans know this; the whole world knows this. And this is not a benevolent dictator who has made life better for his people. The North Korean economy is a basket case. Jong has absolutely no credible response to a request that he step down and unify with the South.

The separation of Korea into two pieces was an accident of World War II, much like the division of Germany was an offshoot of the war. The intent to reunify the country goes as far back as the post-war 1940s. The Korean War, caused by the cold war antagonisms, ended the drive to reunification in the 1950s. But those days are long over. It appears to me that China has devoted itself to economic competition not military competition. China would welcome a stable, united Korea and the elimination of an unpredictable dictator. Some years ago the political pundits said that the Germanys would never unite, history had moved on. But the German people of course wanted their whole country back and without a doubt, so do the Koreans.

A unified Korea will also serve the interests of the United States. South Korea has a population twice the size of North Korea and an economy many times stronger. South Korea would dominate the unified country and transform the North Korean economy into a successful capitalist economy similar to that of the South. The need for tens of thousands of American troops in Korea would disappear, saving the United States huge amounts of unnecessary military expense.

In recent years, South Korea has been make mild attempts at rapprochement with North Korea and China. These efforts should be encouraged by the United States and intensified. The ultimate goal will be the reunification of a homogeneous group of people who should never have been separated in the first place. There is no reason why the United States, China, and the other members of the United Nations Security Counsel should not now take the lead in formulating a plan for the eventual reunification of Korea.

Gov. Christie and the Tea-Parties

With New Jersey being one of the many states in the Union having severe financial difficulty, Governor Christie recently submitted an austere budget with major cuts to many state programs. Christie followed this up with a veto of new legislation raising the state income tax from 8.97% to 10.75% on persons earning over a million dollars per year. The governor took the position that New Jersey’s economic problems must be solved by spending cuts rather than tax increases, which would only drive more people out of the state. The Christie veto was followed by a huge public rally in Trenton, the state capitol, where 35,000 people gathered to object to the governor’s spending cuts and tax veto. Christie, to his credit, is reported to have said that protesters have a right to speak their minds.

Gov. Christie is correct in saying that opponents of the tax cuts have a right to rally to oppose those cuts. However, for the past several months, the nation has seen the “tea-parties” hold numerous rallies supporting tax cuts and lower spending. The tea party rallies have had some success in pushing the electorate, as well as our elected officials, to the right. With the proposed budget cuts in New Jersey, California and other states, are we now going to see a series of anti-tax cut, pro-government spending rallies? If so, will these rallies have the effect of pushing our state legislatures into the direction of raising taxes to continue government programs?

The tea-partiers have for the most part presented a rather simplistic solution to our nation’s economic problems: lower spending and lower taxes. Will protests such as the Trenton rally cause the tea-partiers to consider the consequences of lower taxes? Although that’s unlikely, it is likely that the tax cut advocates in our legislatures will now become more sensitive to the possible impact on their chances for reelection in the future. If more anti-spending cut rallies occur, will we, in effect, have something akin to the old-fashioned “town hall” style of government where the public presents its views directly to their elected officials? Dueling protest meetings may seem like a strange, chaotic approach to governing, but if results in the legislature determining the proper balance between spending cuts and taxes increases, it may be a good thing.

The New International Order

In his recent speech to the graduating cadets at West Point, President Obama stated that the U.S. engagement in Iraq was a "success." In a sense, the U.S. involvement became a success as soon as it accomplished its goal of overthrowing the Saddam Hussein regime. The question of why we are only now, seven years later, in the process of withdrawing our troops is a question best directed at the administration that planned and initiated our movement into Iraq.

Of far greater importance are President Obama's comments regarding Afghanistan. Chief among these was his stated intention to seek a new international order that can resolve the challenges of our times. This is, in effect, the Obama administration's statement that it intends to end the unilaterism of the Bush administration and give up the United States self-appointed role as the world's policeman. But Obama's emphasis on international cooperation suggests that the international community will soon be invited to assist with resolving the chaos in Afghanistan.

While the U.S. military, with its superior technology and resources, will always be successful in battle with the Taliban, there is no way a military force can install a stable government in Afghanistan. The so-called "government in a box" has not shown itself to be workable. If a stable government is to be created in Afhanistan, and it's not certain that it can be, only the Afghan people can create that government. Even now, the Karzai government is talking about an accomodation with the Taliban, and perhaps a shared government. The United States can provide Karzai with military protection from a Taliban take-over for only the next year or two. After that the Obama administration intends to withdraw and leave Afghanistan to whichever governing body that the people of Afghanistan will support. If the country is not united under one govenment at that time, the international community, perhaps initially in the form of a U.N. peacekeeping force, will take over the role of building a nation, or nations, in Afghanistan. What form the new "international order" will take will evolve over the next two years of Obama's presidency.