“At The Mercy of Central Bankers” a brilliant and compelling AFR article authored by Maurice Newman

To most of us, central bankers are arcane figures. We don’t really know what they do, but we do know that they can have a profound impact on our lives and the financial health of the planet. Such is their influence that some, like United States Federal Reserve chairman Ben Bernanke and his predecessor, Alan Greenspan, are celebrities.
 
For decades Washington, the media, Wall Street and their global equivalents have dwelt on every utterance, desperately searching for a nuanced sentence or a loaded word. The chairmen have exploited this and turned inscrutability into an art form. Greenspan once warned, “If I turn out to be particularly clear you have probably misunderstood what I said.”
 
Milton Friedman maintained that: “Any system which gives so much power and so much discretion to a few men, [so] that mistakes . . . excusable or not . . . can have such far-reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic . . . this is the key political argument against an independent central bank . . . To paraphrase Clemenceau: money is much too serious a matter to be left to the central bankers.”
 
Friedman thought that if you must have central banks they should be more transparent. He would undoubtedly have endorsed Republican Ron Paul’s Federal Reserve Transparency Bill, which was overwhelmingly passed by the US House of Representatives last July.
 
The bill was opposed by Bernanke on the grounds that it would compromise the Fed’s independence. However, proponents persisted with the motion for a more transparent Fed. They maintained that the central bank had failed to satisfactorily account for trillions of dollars dispensed to some of America’s and Europe’s largest financial institutions and corporations.
 
The US Government Accountability Office (GAO), when reviewing the Fed’s actions, found it had not provided “satisfying answers”. The GAO formed the view that the US central bank had exceeded its legal authority when in certain cases it had exercised discretion to extend credit, for which supporting documents could not be found.
 
There are also questions about the Fed’s accounting practices and claims that its balance sheet is misleading. Misleading or not, with leverage of more than 60 times and asset quality declining, it is certainly exposed to unexpected stress.

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