Re: ECB, the Fed and the FOMC

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

dear Barkley,

i believe that interest rate setting would be considered a
legislative/policy-making function, whether that was accomplished by open
market operations or by direct regulation of interest rates.  in the
Schechter Poultry case, the National Industrial Recovery Administration was
struck down for setting industry codes and prices.  in the Yakus v. U.S.
case, however, the Wage and Price Administration's price setting was upheld,
although that is often seen as a special case of the government exercising
war-time emergency powers.  in any case, the war-time price controls were
administered through a government agency lacking private interest
representation.

legislative function is usually seen by the courts to include any type of
regulation with wide, universal effect and application.  i suppose that if
Congress actually legislated a discount rate, then the Fed's open market
operations could be characterized as an executive function (i.e., executing
existing law).  but in light of the Congressional silence on what the
interest rate price should be, courts may very well characterize the Fed's
open market operations and discount rate setting as a legislative function
and not merely the execution of existing law.  at least one Federal district
court did essentially so hold, but was reversed by the U.S. Court of Appeals
for the D.C. Circuit on procedural grounds (i.e., lack of standing and
equitable discretion).

cheers,

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: J. Barkley Rosser, Jr. [mailto:rosserjb@xxxxxxx]
Sent: Friday, May 11, 2001 1:30 PM
To: Canova, Timothy
Cc: Post Keynesian Thought
Subject: Re: ECB, the Fed and the FOMC


Tim,
      I fully agree that the Fed responds to the
interests of the commercial banks, for reasons
made even clearer by your discussion.  But,
are open market operations or setting
discount rates "legislative powers?"  I doubt
it and I doubt any court would say so.
Barkley Rosser
----- Original Message -----
From: "Canova, Timothy" <CANOVA@xxxxxxxxxxxxx>
To: "'J. Barkley Rosser, Jr.'" <rosserjb@xxxxxxx>
Sent: Friday, May 11, 2001 10:51 AM
Subject: RE: ECB, the Fed and the FOMC


> Barkley,
> i agree that the Fed may not be the most independent central bank in the
> world.
>
> as for the constitutional issue, there would be a real one if the courts
> would hear the challenges on the merits.  it's precisely because the Fed
is
> privately owned that there is a constitutional issue.  Article I, Section
1
> of the Constitution mandates such democratic procedure when it reads:
"All
> legislative Powers herein granted shall be vested in a Congress of the
> United States."  The non-delegation doctrine holds that legislative powers
> cannot be vested in private interest groups and that such powers can be
> delegated to public agencies, but only if Congress provides sufficient
> policy guidance (the "intelligible principle").
>
> As for the Regional Fed Bank boards of directors (that nominate the
Regional
> Bank Presidents that sit on the FOMC):  "Each Reserve Bank has its own
board
> of nine directors chosen from outside the Bank as provided by law.  Three
> directors, designated Class A, represent commercial banks that are members
> of the Federal Reserve System.  Three Class B and three Class C directors
> represent the public."  However, "the member commercial banks in each
> District elect the Class A and Class B directors to their posts."
> Therefore, 6 of the 9 directors are chosen by the private commercial
banks.
> "The Board of Governors in Washington, D.C., appoints the Class C
directors
> to their posts."  (From: The Federal Reserve System: Purposes and
Functions,
> 8th ed. 1994, p. 11).
>
> No doubt the mechanisms of the Fed's capture by private creditor interests
> is a complex one.  But there should be little doubt that private
commercial
> banks exercise significant influence not just on Fed and FOMC policies,
but
> on the actual membership of the FOMC.
>
> The Fed was arguably made independent by an unconstitutional act of
> Congress.  Its independence should have required a constitutional
amendment,
> not an abdication of the judiciary's role to enforce the constitution as
it
> is written.
>
> Tim
>
>
>
> -----Original Message-----
> From: J. Barkley Rosser, Jr. [mailto:rosserjb@xxxxxxx]
> Sent: Tuesday, May 08, 2001 12:25 PM
> To: Canova, Timothy
> Cc: Post Keynesian Thought
> Subject: Re: ECB, the Fed and the FOMC
>
>
> Tim,
>       I did not say that the Fed completely lacked
> independence, merely that it is not the most
> independent in the world, certainly not definitely so.
>      I don't see any constitutional issue.  First of all
> there is the oddity that the Fed is not officially a
> government agency as it is privately owned, even
> if subject ultimately to Congressional control.  Also,
> the Reserve Bank presidents are selected by
> the Boards of their banks.  The members of those
> Boards in turn are subject to approval by the Board
> of Governors, if I am not mistaken, although it is
> certainly true that they are not directly appointed
> by the president or subject to confirmation by the
> Senate.  But then, I do not believe the Directors
> of the Lander Banks in Germany (equivalent to
> Fed District Banks) are appointed by the Chancellor
> or approved by the parliament either, even if the
> governing board is, as noted by Henry Liu.
>      And who the heck is selecting the board members
> of the ECB?  That one still looks more independent
> than the Fed.
> Barkley Rosser
> ----- Original Message -----
> From: "Canova, Timothy" <CANOVA@xxxxxxxxxxxxx>
> To: <pkt@xxxxxxxxxxxxxxxx>; "J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>
> Sent: Monday, May 07, 2001 7:30 PM
> Subject: RE: ECB, the Fed and the FOMC
>
>
> > 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
> >
> >
>