Re: ECB, the Fed and the FOMC

["Canova, Timothy" <CANOVA@xxxxxxxxxxxxx>]

Just because Burns jumped to his friend Nixon's tune (as suggested by Henry
C.K. Liu) doesn't prove that the Fed is normally so accountable to the
wishes of the President or Congress.  I find it hard to believe that the Fed
is "constantly apprehensive of being abolished, either by Congress or by a
White House campaign."

It's far more likely that any particular President or members of Congress
are in constant fear of losing their jobs because of the Fed's actions.
George Bush Sr. was not able to do anything to get the Fed to loosen
monetary policy in time and he went down in defeat.  During Clinton's first
two years in office, a Democratic Congress made no serious attempt to crack
down on the Fed's independence.  Henry B. Gonzalez, the late Texas populist
and Chair of the House Banking Committee, did raise the issue but it never
got to the House floor.

Barkley, as for the Fed's structure, it is just plain wrong to focus on the
Board of Governors and the fact that they are "appointed by the president
subject to approval by the Senate."  It's the Fed's Open Market Committee
(FOMC) that makes decisions on monetary policy and interest rates.  That
Committee includes the 7 Governors, plus the presidents of the 12
privately-owned regional Federal Reserve Banks (only 5 of the 12 vote; the
remaining 7 are still in the meetings and have a voice).  Those regional Fed
Bank presidents are not appointed by the U.S. President, nor confirmed by
the Senate, although Gonzalez made such a proposal.

It is very doubtful whether permitting private interests to vote on such a
government board is even constitutional.  The FOMC is the poster child for
an unconstitutional delegation of law-making/policy-making to a private
interest group -- the kind of delegation struck down in the Schechter
Poultry case.  The FOMC also probably violates the appointments clause of
the constitution.  But all challenges have been dismissed by the U.S. Court
of Appeals for the D.C. Circuit because the court said private citizens had
no standing (could not show that they were harmed by the FOMC's decisions to
buy or sell securities in the open market).  When U.S. Senators have sued,
the same court has dismissed on grounds of "equitable discretion", a
doctrine made up out of thin air to permit the courts to dodge the issue
completely.

Tim



Timothy A. Canova
Assistant Professor of Law
University of New Mexico School of Law
1117 Stanford Drive N.E.
Albuquerque, New Mexico  87131

Tel:  (505) 277-5654
Fax:  (505) 277-0068
e-mail:  canova@xxxxxxxxxxx


-----Original Message-----
From: Henry C.K. Liu [mailto:hliu@xxxxxxxxxxxxxx]
Sent: Monday, May 07, 2001 4:45 PM
To: J. Barkley Rosser, Jr.; pkt@xxxxxxxxxxxxxxxx
Subject: Re: ECB and world-wide recession




"J. Barkley Rosser, Jr." wrote:

>> Henry,
>>      OK.  I stand corrected.  I believe my remarks
>> were accurate regarding the structure of the bank
>> prior to 1957, when, as your message indicated
>> there was a two tier structure, and that the top
>> structure was derived out of the lower and original
>> Lander banks that predated the DB.
>>      From your description, I see no reason to
>> claim that the Fed is more independent than was
>> the DB or is the ECB.

>That is also my position. Most central banks that claim political
independence
>is merely indulging in an exercise of self delusion. Fed Board meetings are
full
>of self restraint about what the White House and the treasury might think.
The
>Fed is constantly apprehensive of being abolished, either by Congress or by
a
>White House campaign.  Reagan openly threatened Volcker and Nixon, during
the
>ceremony to appoint Burns, said: "I respect his independence. However, I
hope
>that independently he will conclude that my views are the ones that he
should
>follow."  The White House audience laughed knowingly and applauded. "You
see,
>Dr. Burns," Nixon said, "that is a standing vote for lower interest rates
and
>more money."
>Burns delivered promptly.

>I know because I was in the audience.

Henry C.K. Liu