By Brandon Moseley
Alabama Political Reporter
On Thursday, the Senate Banking Committee voted on President Obama’s nomination of Janet Yellen to be the Chairman of the Federal Reserve. Senator Richard Shelby (R) from Alabama firmly opposed the nomination. Yellen’s nomination was approved by the Committee by a vote of 14-8. Senator Shelby has been a harsh critic of the aggressive economic stimulus policies of outgoing Federal Reserve Chairman Ben Bernanke and opposed the Yellen nomination because she supports continuing those policies.
Sen. Shelby said, “Since 2008, the Fed’s printing presses have generated a backdoor stimulus nearly four times greater than the $787 Obama stimulus. The Fed is the world’s largest holder of U.S. Treasury bonds and the biggest enabler of our exploding debt. These actions also present massive risks for sharp price increases on every single product that Americans buy. I voted against President Obama’s nominee because I have no confidence that she will change course.”
Since the Great Recession began, the Federal Reserve has attempted to protect the American economy by buying U.S. Treasuries as well as outstanding debts including derivatives. The Federal Reserve does not actually have any real assets or tax dollars to do this with. Instead, under Ben Bernanke’s leadership the Federal Reserve has simply purchased this with currency it creates through it’s power as the controller of the American money supply. Since the dollar is not backed by gold, silver, land, or anything limited, when the treasury announces it needs another half trillion or so in new revenues because the government is spending far more than it takes in the treasury announces that it is going to auction off that debt. The largest buyer of that debt for the last several years has been the Federal Reserve who can just will the money into existence.
This also artificially keeps interest rates low because the Treasury is not having to raise rates to attract new buyers to the bond market. None of this has led to rapid job growth, but it has allowed federal workers, social security recipients, food stamp beneficiaries, healthcare providers, etc. to continue getting paid even though the federal government has been spending over a trillion a year above and beyond what it takes in in the form of taxes, tariffs, and fees.
Senator Richard Shelby has been a critic of this new monetary policy. Sen. Shelby said, “On July 17th, Federal Reserve Chairman Ben Bernanke told members of the House Financial Services Committee, “If we were to tighten policy, the economy would tank. He was referring to the Fed’s aggressive use of non-traditional monetary policy to prop up markets since the financial meltdown of 2008. The implied message is striking: The Fed is taking big risks through monetary policy because administration policy is not helping the economy.”
Sen. Shelby continued, “The Federal Reserve’s balance sheet quantifies just how big of a risk Chairman Bernanke feels he must take with so-called monetary stimulus. It currently stands at $3.5 trillion, and continues to grow by $85 billion a month under the Fed’s “quantitative easing” program. Among the assets included in the Fed’s balance sheet are $2 trillion in U.S. Treasury securities and $1.2 trillion in federal agency mortgage-backed securities.”
Sen. Shelby explained, “To put the acceleration of the Fed’s balance sheet into perspective, it took 95 years from the Fed’s creation in 1913 to reach $1 trillion. The Fed then added the second trillion in just six weeks, followed by the third trillion this past January. Under the current quantitative easing program, the Fed’s balance sheet will reach four trillion dollars in less than six months.”
Sen. Shelby said, “Where does it end? Five trillion? Six trillion? Ten trillion? As with fiscal policy, Mr. President, we are in uncharted monetary policy waters. The Fed’s unprecedented measures carry substantial risk and uncertainty. Should inflation increase, the Fed would have to tighten monetary policy to contain it. However, should the Fed tighten monetary policy, it risks stalling an already weak economy. As deep as our fundamental economic challenges already are, the thought that one wrong monetary policy move by the Fed could cripple our entire economy is deeply troubling.”
Senator Shelby is the former Chairman and is a current member of the Senate Banking Committee. He met with Janet Yellen in his office on October 31 for about 40 minutes and was ultimately not convinced that she should be Bernanke’s replacement. Bernanke replaced longtime Fed Chairman, Allan Greenspan during the George W. Bush administration.
Yellen’s nomination currently awaits a vote before the full Senate, but under the new Senate rules for Presidential nominees passed on Thursday her nomination should pass the Senate easily.