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Federal Reserve Board Chairman Ben Bernanke testifies before the House Financial Services Committee in July 2010. Bernanke has been heavily criticized by Republican presidential candidates in recent months.
Federal Reserve Board Chairman Ben Bernanke testifies before the House Financial Services Committee in July 2010. Bernanke has been heavily criticized by Republican presidential candidates in recent months. Alex Wong/Getty Images
The Federal Reserve on Wednesday took the latest step in its effort to revive the economy, saying it will shift its portfolio of Treasury securities in a bid to drive down interest rates.
In recent months, the Fed has come under increasing fire both from politicians and regular citizens. One such critic is Steve Dore, a 65-year-old resident of San Antonio, Texas, who has a T-shirt that reads "End the Fed" in bold print.
Dore has written some 25 songs about the Fed, one of which argues: "Government promise ain't worth a damn. The Fed is an outrageous scam."
Dore wrote that rock anthem about the central bank in 2008 just as the Fed took extraordinary measures to prop up the nation's financial system. He's part of a larger movement, though it's unclear exactly how big it is.
"It's about our money. It's about you and me, and a fair medium of exchange, [and] the Fed making money out of nothing," Dore says. "It just dilutes the value of what you and I have in our pocketbook."
A Matter Of GOP Debate
Concern over Fed policy extends right into the political mainstream. Four leading congressional Republicans sent a letter to Fed Chairman Ben Bernanke earlier this week encouraging him to resist further intervention in the economy. Republican presidential candidates have been even blunter.
Republican presidential candidates and lawmakers have criticized the Federal Reserve in recent weeks. A sampling of their comments:
"We submit that the board should resist further extraordinary intervention in the U.S. economy. ... We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy." — Republican congressional leaders Mitch McConnell, John Boehner, Jon Kyl and Eric Cantor, in a letter to Fed Chairman Bernanke on Monday.
"Printing more money to play politics at this particular time in American history is almost treacherous — or treasonous, in my opinion." — Rick Perry, speaking to voters in Iowa on Aug. 15
"The Federal Reserve has a lot to answer for, and that's why it's important that they're not only audited, but they have got to be shrunk back down to such a tight leash that they're going to squeak." — Michele Bachmann, at a Republican presidential debate on Sept. 12
"I think the Fed should be audited. I think the amount of money that [Bernanke] has shifted around in secret with no responsibility, no accountability, no transparency, is absolutely antithetical to a free society." — Newt Gingrich, at a Republican presidential debate on Sept. 7
"The Fed today has ominous powers that Congress barely understands. There is essentially no oversight, no audit and no control. ... Trillions of dollars can be created and injected into the economy with no obligation by the Fed to reveal who benefits." — Ron Paul, in his 2009 book End The Fed
Speaking at a presidential debate this month, Rep. Michele Bachmann said, "Congress has given the Federal Reserve unlimited power over the federal economy. That has to change."
And at a campaign even in Iowa last month, Rick Perry took criticism for saying of Bernanke, "If this guy prints more money between now and the election, I don't know what ya'll would do to him in Iowa, but we would treat him pretty ugly down in Texas."
It is worth noting that Bernanke says what the Fed has done isn't technically printing money. Thus far, established economists say inflation has remained tame.
Mark Thoma, an economist at the University of Oregon, says he thinks all this political heat is affecting the Fed, and that the central bank should actually be doing more to help the economy.
"The Fed has to be very careful that if they do make a mistake, they could lose their independence," Thoma says. "And so they not only have to worry about the present crisis, but they have to worry about the politics of what might happen to them in the future, and I think that's tying their hands."
A History Of Criticism
This current wave of criticism is nothing new for the Fed. Economic historian John Steele Gordon says Fed-hating goes back to Thomas Jefferson — and that was more than 100 years before the Fed even existed. Jefferson opposed America's original central bank, The First Bank of the United States.
"Jefferson just thought this was a giveaway to the rich and the mighty, and it was over-powerful and he hated it," Gordon says. "And that hatred has passed down through Jefferson's political heirs."
More recently, in the early 1980s, then-Fed Chairman Paul Volcker and the bank's board of governors raised interest rates to break inflation. Randy Kroszner, a professor at the University of Chicago Booth School of Business and a former Fed governor, says that Volcker may be revered today, but back then he was reviled.
"The construction industry, for example, was sending in pieces of two-by-fours with threatening notes written on them," Kroszner says, "and there's still a few sitting around the Fed offices."
Kroszner says the Fed is misunderstood and sometimes maligned because it represents a combination of power and banking and government and secrecy. He notes that 20 to 25 years ago, it was even more secretive.
"There was no statement that was put out; there was nothing that was said publicly about what they were trying to do," he says. "There was very little testimony, very few speeches. It was really completely opaque."
The deliberations are still a closed-door affair. But now, Bernanke holds press conferences several times a year as part of a charm offensive to combat the misunderstanding and distrust.