I’ve been indebted to Dr. Cochrane for decades. Working out of the Hoover Institution, CATO Institute and the University of Chicago Booth School of Business, he remains along with John Taylor, Allan Meltzer the finest minds understanding what’s gone awry with the Federal Reserve.
For those who are new to this game, here’s the score. The Federal Reserve sets interest rates, that effects the amount of money in supply, it also shapes the amount/duration of credit for banking institutions. No other institution effects the world more than the Federal Reserve.
Possessing conflicting mandates doesn’t help clarify things either, be it unemployment, financial regulation, inflation, price stability, credit allocation or even the hard won battles to effect election outcomes. . . This unelected private Cartel of central bankers has an awful lot to answer for. . .
Now comes news that this very same FAILED institution, the one that was responsible for fixing unemployment, the soundness of the dollar, the inflation rate, is going to confer on itself another mandate of micromanaging the entire financial system!
The fancy word is: macro-prudential.
According to Dr. Cochrane this is not limited to broad intervention of all financial markets. Gone are the spheres of autonomy that once animated this great Republic.
That is what underwrites new Constitutional challenges. But more on that another time.
How exactly is the Federal Reserve to achieve this kind of regulation?
By micromanaging capital standards, liquidity, margins, security transactions, credit underwriting. TRY NOT TO LAUGH. . . .
This is not traditional regulation where principals permit spheres of autonomy to operate along well tread rules that eliminate opacity.
I didn’t even get to the politics of this yet. . .
Interest rate policy will be used to manipulate a broad array of asset prices, financial regulation will be used to articulate social goals consistent with an elected Executive.
Wait it gets better. . .
This Federal Reserve in its omnipotence, will extend to itself the prudential wisdom to discern and control policy relating to credit instruments, maturity (regardless of its legal form), and numerous other pension, asset related transactions that make up individuals accounts.
Feeling better. . .
Gone is the wisdom that underwrote much of the previous success that was America, a rules based tacit understanding that autonomy, freedom along with rules based policy alloyed from within the Republics ethics of a Union of liberty in equality; meaning social mobility (capital/equity formation) outside the omnipotence of any centralizing authority.
Have we thrown out TACIT understanding that underwrote all of Fredrick Hayek’s corpus?? What of the requisite humility known to those who possess prudence that no centralized office can do what this policy seeks?
And what of IMPACT? I can foresee that this policy will induce wild instabilities throughout the entire financial system. Won’t the Federal Reserve be whipsawed by politically connected groups seeking both representation and interested outcomes??
What of those whose credit is restricted? How about those who are responsible for innovating lending outside the confines of banks feel when their turf is gone?
There will be those who benefit from this power grab, and those cut off from such grostesqe authority.
Welcome to Weimerika! The home of opacity.