Mary O'Grady on The Fed vs the 'Lindsay Lohan' Congress

Wednesday, March 9, 2011
In "The 'Lindsay Lohan' Congress vs. the Fed" Mary O'Grady describes the thinking in these two interventionist camps: "Is the Federal Reserve still an independent monetary authority with the power to curtail the inflationary impulses of politicians? Dallas Federal Reserve Bank President Richard Fisher seemed to suggest otherwise in a speech this week to the Institute of International Bankers. Mr. Fisher is an ardent defender of the Fed's "lender of last resort" intervention in 2008, in the midst of the lock-up of credit markets. As he reminded his Washington audience of bankers, "We showed our nation, and others who look to us for leadership, that central banks must act deliberately and conduct their duties doggedly, however intense the criticism or political heat." But today, he said, the U.S. is suffering from "Lindsay Lohan Congresses." That is, Washington politicians have a spending addiction and if they don't check themselves into rehab, disaster on the monetary front is looming. "A large and growing government debt inevitably places pressure on the Federal Reserve to hold interest rates too low for too long," said Mr. Fisher. "Throughout history, feckless governments have dodged their fiscal responsibility by turning to their monetary authority to devalue the currency, monetize debt and inflate their way out of structural deficits." To prove his own sound-money bona fides, Mr. Fisher reminded his audience that he had argued against "the $600 billion extension" -- aka the second round of "quantitative easing," or QE2 -- last November. QE2 is the Fed's commitment to purchase $75 billion in Treasury debt every month for six months. Mr. Fisher said that "if at any time between now and June, [QE2] should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue it." He also said that short of some "frightful development" he will "vote against any program that might seek to extend or enlarge the substantial monetary accommodation." So can we expect the Federal Open Market Committee, which sets monetary policy, to follow that line of thinking and stop financing the whims of the politicians any time soon? The way Mr. Fisher sees it, not unless the politicians reform themselves. After describing the banana republic-like outcomes of a government that gets the central bank to finance its politics, he told the conference of bankers that "it is best for everyone . . . that our fiscal leaders not go there" and that "Congress and the executive branch thus have no choice but to now suck it up." And what if they don't? -- Mary Anastasia O'Grady"