House Republicans frustrated Obama hasn’t appointed vice chair of supervision for Fed
BY: Ali Meyer
November 5, 2015 4:35 pm
The Federal Reserve’s zero-interest rate policy “absolutely” helps the Obama administration, Rep. Sean Duffy (R., Wis.) told the Washington Free Beacon on Wednesday.
“Whether that’s the sole intent, I can’t get in the mind of Chair Yellen,” Duffy said. “Does it help the Obama administration? Absolutely.”
“But monetary policy only goes so far,” he said. “At some point we have to get the fiscal policy right and we get stopped at every turn when we try to reform our tax code with this administration. It definitely has a benefit, but I don’t know if that’s the sole intent of Ms. Yellen.”
The House Financial Services Committee, on which Duffy serves, discussed at a hearing Wednesday the Fed’s lack of a vice chair of supervision. This position was created by the Dodd-Frank Act to keep the Federal Reserve accountable to Congress, and it has been more than 1,900days since President Obama has been required to appoint someone to fill it.
By keeping interest rates near zero, the Federal Reserve allows the government to continue to finance its debt without worrying about paying high interest on that debt. “The ultra-low interest rates on Treasury debt, with the three-month T-Bill rate now at zero, have allowed the federal government to act as if deficit financing is a free lunch,” explains James Dorn, a fellow specializing in monetary policy at the Cato Institute.
“It’s certainly propping up part of the economy,” said Rep. Scott Garrett (R., N.J.). “And that was the testimony of Secretary Lew and [Chair] Yellen, saying that we see higher prices in the commodities and also on the street as well. And to the extent that this endures to the benefit of this administration, that they’re able to say as they did yesterday in the hearing that things are just going well in the economy and people are profitable – sure.”
To say the low rates inure to the political benefit of the administration is certainly correct, and is fine as far as such a statement goes. In this commenter’s opinion, though, such a statement blatantly fails to make the most salient and crucial point, which is that the federal government’s ability, going forward, to finance it’s current debt (i.e., to pay the costs of bond interest to the already existing bond holders), depends on current interest rates constituting a CEILING, or AN UPPER LIMIT to what the government must pay going forward. Put another way, any appreciable (or not-insubstantial) increase in the average rate of interest payable by the federal government on new 2, 3, 5, 7 or 10-year T-bills (inexplicably, there have been no 15 or 30-year debt issuances recently) would throw U.S. government finances into a true death spiral. So this is the real reason Janet Yelling is standing in the way of any appreciable increase in T-bill interest rates. It’s much more than a desire simply to “benefit” Obama. She is under strict orders to stave off utter destruction of the U.S. financial system (which at this point seems inevitable) as long as possible during the current period while Obama is still _resident. The minimum acceptable delay would be between now and the first few days after next year’s general election. Beyond that, knowing Obama, he probably doesn’t care.