The debate over monetary policy has started to spill over into foreign media. In an article Monday, the BBC noted voters’ negative outlook on the Federal Reserve:
Just a third of Americans felt the Fed was doing a good or excellent job, according to the last Gallup poll to check on the bank’s popularity. The only US federal agency with a consistently lower approval rating was the IRS, the Internal Revenue Service or tax collector.
BBC also noted a high (74 percent) support for auditing the central bank and tried to examine why the Fed has become so unpopular since the days of Alan Greenspan. In addition to our uneasy history with central banks in general, they cited two reasons:
1.) Possible Role of Loose Money in the ’08 Crash
Experts say many of the policies that helped the economy grow under President Clinton can really be credited to Mr Greenspan.
However, since the financial crisis politicians and economists have pointed to the loose monetary policies he championed as a factor leading to the crash.
2.) Bank Bailouts Following the Crash
Politicians on both sides of the aisle have criticised the bailout, saying it helped banks at the expense of the American tax payer.
“If big financial institutions know they can get cheap cash from the Fed in a crisis, they have less incentive to manage their risks carefully,” says Senator Elizabeth Warren, a Democrat who has built a reputation for challenging Wall Street.
BBC also pointed out a striking change in how the Fed plans to implement an expected interest rate raise this year, one that could reopen the controversy over whether Fed policy tends to favor big banks:
Traditionally, the Fed increases the amount of securities it sells to banks. This forces banks to charge higher interest rates to bring in revenue to pay for the securities they are buying.
This time, the Fed will pay banks a higher interest rate for storing reserves at the central bank. If banks make more money holding reserves at the Fed they have no incentive to charge low interest rates.
Nick Arnold is a researcher for the American Principles Project.
