Feed the beast, watch the Fed, but localize
The Fed’s centennial and other events, both nationally and locally, remind us all politics wind up being local and the world is more shrinkwrapped with each passing day.
On Monday, the nation’s Federal Reserve System marks 100 years of operation.
“The Federal Reserve is a joke that you must take seriously,” Forbes Magazine once charged in a headline atop a critical article. So central banking has detractors who take it seriously. But it also has ample supporters, so critics are unlikely to make the Fed vanish.
The Fed runs the U.S., author William Greider asserted in his 1987 book called “Secrets of the Temple: How the Federal Reserve Runs the Country.” At a minimum, the Fed runs the banking system via money supply.
In the 1980s, then-Fed Chairman Paul Volcker let interest rates soar to fight inflation in the period Greider wrote about. Tall Paul later became the Obama administration adviser whose name went on the new Volcker rule to curb banks trading for themselves, tweaking their too-big-to-fail status. The goal is to nudge them toward merely too-big-to-fail-us-all-into-economic-oblivion status.
Current Fed Chairman Ben Bernanke, who leaves his post in January, now strives to fight deflation via miniscule Fed Fund interest rates and massive treasury bond buying he is just beginning to taper. Deflation can stir economic problems, as can runaway inflation. So by turns, the Fed feeds the banking/economic beast with massive amounts of money or starves it by cutting money supply to tame alternating but bestial bad times.
Where is the local angle, you ask? Carson City, whipsawed of late, now exits the Werner era. City Manager Larry Werner retired Thursday after helping steer this consolidated city around the pileup called the Great Recession, though not without dings from roller-coaster rides through some unavoidable ditches.
Greider’s “Secrets of the Temple” reported that Volcker’s father was city manager of Teaneck, N.J. Tall Paul grew up, Greider said, to assume a much larger but similar government managerial role in the 1980s.
“City managers would ‘depoliticize’ municipal government by promoting sound managerial solutions,” Greider cited as the concept behind the government managerial reformers’ movement a century ago and since. “Their reforms were intended, fundamentally, to protect government from the people.”
Yet there’s a kicker.
“A professional city manager still had to deal in politics, however, pacifying and persuading the mayor and the city council, just as the Federal Reserve constantly must soothe and cajole Congress and the White House,” wrote Greider. “This necessarily required artful manipulation and produced an uneven relationship …”
Substitute Board of Supervisors for mayor and city council to square the circle. As Carson City’s governing board searches for a new city manager, such insights from Greider may prove worth contemplating.
John Barrette covers Carson City government and business. He can be reached at email@example.com.