President Biden has a chance to recreate the Federal Reserve Board of Governors by filling more vacancies. This is especially important given the outbreak of inflation, yet Mr Biden's recent nominees seem less concerned about prices than pushing progressive policies that are not the Fed's job.
Mr. On Friday, Biden nominated former finance minister Sarah Bloom Raskin as Fed vice president of oversight along with economists Lisa Cook and Philip Jefferson for vacant positions on the board. All three deserve scrutiny, but especially Mrs Raskin given what would be her regulatory power over banks and finances.
Ms Raskin previously served as Fed governor from 2010 to 2014. But her latest public statements have focused on climate change, particularly by using financial regulation to manage capital from fossil fuels to green energy.
In May 2020, with terrible timing, she wrote a New York Times op-ed entitled "Why Does the Fed Spend So Much Money on a Dying Industry?" It was in the midst of the government's pandemic shutdowns when the Fed acted to save the economy from collapse. The Fed established broad-based lending programs to prevent companies that were otherwise healthy from failing due to the shutdowns.
Ms. Raskin wanted the Fed to exclude fossil fuels from these facilities. "The Fed is ignoring clear warning signs about the economic consequences of the impending climate crisis by taking steps that will lead to increases in greenhouse gas emissions at a time when even in the short term fossil fuels are a terrible investment," she wrote.
This showed colossally poor judgment. The crisis of the time was Covid and a potential depression, not climate. Yet in that perilous moment, Ms. Raskin called on the Fed to discriminate against an industry that employed hundreds of thousands of people. Had the Fed followed her advice, many more oil and gas producers would have gone bankrupt and energy prices would be even higher today.
"The Fed's unique independence gives it a powerful role," Raskin added. "The decisions that the Fed makes on our behalf should build on a stronger economy with more jobs in innovative industries - not support and enrich the dying." With unique independence, she apparently thinks it is irresponsible to the voters. The Fed will not pay a price in the ballot box if it destroys jobs.
Ms Raskin expanded her views in a June 2020 report "Addressing Climate as a Systemic Risk", for the liberal investment equipment Ceres. "We need to rebuild with an economy where the values of sustainability are explicitly embedded in market valuation," she wrote. This will require that "our financial regulators do everything they can - which turns out to be a lot - to adopt practices and policies that will allocate capital and adapt portfolios to sustainable investments that are not dependent on carbon and fossil fuels. fuels. "
Note this phrase "allocate capital." The report recommended, among other things, that the Fed use climate stress tests to account to banks for the risk of the government's anti-carbon policies such as electric car mandates and carbon taxes. It also suggested that the Fed consider fossil fuels risky assets and require banks to calculate the carbon emissions of their loans and investments.
As this forced climate march will particularly hurt lower-income Americans, both through ruined jobs and higher energy prices, the report suggests that the Fed use "the societal reinvestment process to strengthen the resilience of low-income communities to climate change." Liberals have long used the Community's reinvestment law to manage more lending to low-income neighborhoods.
Now, Mrs Raskin apparently wants the Fed to use the law to force banks to finance green energy - for example, charging stations for electric vehicles and solar panels on the roof - in minority communities. None of this is the Fed's job under the law. The central bank's regulatory command is financial stability, not making political judgments that are the province of Congress, and not using regulation to allocate capital based on politics.
The Fed's vice president has extraordinary power to set the agenda for bank regulation. Chairman Jay Powell plays a secondary role. Along with the other new Fed governors, Raskin would be able to manage lending in ways that could undermine financial stability by penalizing some industries while favoring others.
It is no surprise that Mrs. Raskin was pressured hard by Senator Elizabeth Warren and other Democrats who want to use regulation to control bank lending. This political game to control the Fed is ironic given that Democrats opposed Judy Shelton for a regular Fed gubernatorial post because she had written positively about a price rule for monetary policy.
Raskin's views should worry senators who are concerned about the Fed's independence. And they should be of particular concern to Democrats, such as West Virginia's Joe Manchin and Montana's Jon Tester, whose state economies are dependent on fossil fuels.
"@FederalReserve is not a place for anyone who is unable to make political decisions independent of political calculations," Senator Warren tweeted last November. Do Democrats only care about the Fed's independence when a Republican is president?
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