Friday, August 30, 2013

Wherein the CatFish Writes With Total Naivety and...

as though he never heard of the relationship between Richard Nixon and Arthur Burns.

The CatFish writes:
If Obama nominates Summers to the Fed, the message will be the exact opposite: that he’s not going to be comfortable unless he can install his own man to run the show. Obama, it seems, can’t trust Yellen to do the right thing — or maybe he worries that her actions will reflect the consensus of the board as a whole, and will therefore be less predictable and controllable. So he’s going to pass her over, and put a political operative in charge instead, albeit a political operative with genuine economic chops.
That’s a move even Clinton would never have dared make: he kept Greenspan at the Fed for his whole presidency. And it sets a horrible precedent: the next Republican president will henceforth have no compunctions whatsoever about appointing a party hack to the post. From here on in, if Summers gets the job, we won’t just be voting for president in presidential elections. We’ll be voting for Fed chair, too. And the Fed will become just as politicized as the Supreme Court has become.
In other words, a political Fed chair seems to be an utterly new concept to the CatFish.

Here's Burton Abrams in The Journal of Economic PerspectivesVolume 20, Number 4—Fall 2006:

The fact that President Nixon pressured Arthur Burns to run an expansionary monetary policy in the run-up to the 1972 election is well-known (for example, Tufte, 1978, pp. 45–50). As another example, John Ehrlichman (1982, pp. 248 – 49) describes a meeting between Nixon and Burns on October 23, 1969, just after Burns’s nomination to the Fed had been announced.
Although Arthur Burns was an eminent economist, Nixon was probably more impressed that he was a sympathetic Republican loyalist[...]Evidence from the Nixon tapes,recently made available to researchers, clearly reveals that President Nixon pressured Burns, both directly and indirectly through Office of Management and Budget Director George Shultz, to engage in expansionary monetary policies prior to the 1972 election[...]

October 10, 1971 (Conversation No. 607-11)
Nixon, Burns, and an unknown person who does not speak are in the Oval Office. Nixon, speaking to Burns, expresses his concern about the economy: “I don’t want to go out of town fast,” he said, apparently referring to the possibility of losing his upcoming reelection bid. Nixon tells Burns that “this will be the last Conservative administration in Washington,” perhaps seeking to raise Burns’s concerns that Nixon might lose the election. Nixon claims that the “liquidity problem,” by which he seems to mean the problem of too much liquidity in the system, is “just bullshit.” Burns states that monetary policy has produced “lots of liquidity” in the banking sector, suggesting that there may be a problem of too much liquidity. Burns discusses the various critics of the Fed’s monetary policies, whose views of those policies range from too tight to “gone wild.” Burns seems to side with not needing much change in monetary policy: “I don’t want to see interest rates exploding on the next... [garbled]. I could lose control of my Board.” “Does this mean we’re stuck then with a recession next year?” asks Nixon. “No, I predict recovery,” replies Burns[...]

December 10, 1971 (Conversation No. 16-82)
With fewer than eleven months until the election and four days until the next meeting of the Federal Open Market Committee, Burns and Nixon have a private telephone conversation. Burns states that “I wanted you to know that we lowered the discount rate . . . got it down to 4.5 percent.” “Good, good, good,” replies Nixon. Burns indicates that the announcement of the discount rate reduction would be accompanied by the usual statement that it was done in order to bring the rate into line with market conditions, but with an added statement that it was done to “also further economic expansion.” Burns exclaims that he also lowered the rate
to “put them [the Federal Open Market Committee] on notice that through this action that I want more aggressive steps taken by that committee on next Tuesday.” “Great. Great,” replies Nixon. “You can lead ‘em. You can lead ‘em. You always have, now. Just kick ‘em in the rump a little.”

December 24, 1971 (Conversation 17-5)
In a telephone conversation between Nixon and George Shultz, Nixon said to Shultz, “Do you feel, as far as Arthur [Burns] and the money supply, we got that about as far as we can turn it right now, have we? I mean as far as my influence on him, that’s what I’m really asking.” Shultz: “Yeah. Well, you know he said that he, that they voted to increase it [the money supply].”
Nixon: “I know. And he said, ‘I . . .’ What was his view, his words?”
Shultz: “‘And I’m on the line on that.’”
Nixon: “Well, you watch it and remind me. If I have to talk to him again, I’ll do it. Next time I’ll just bring him in.”
Shultz: “I’m sure we’ll have to keep after him on it, but I think you hit it just about right, the other day. He was heading for the Virgin Islands [Nixon laughs] and wasn’t going to do any good anyway to... because he wasn’t going back to his Board at all.”
Nixon: “Right.”
Shultz: “I think it was good to have that discussion about the procedures for
appointment [to the Board] so that he sees that he doesn’t have complete control.”
Nixon: “Well, he’s just got to realize that it’s, uh, like it is with [Supreme Court
Chief Justice Warren] Burger . . . I’m not going to let him name his people.”
The Fed chair position has always been a political position, it always will be such.  The CatFish may think this view is part of, as he writes, "the craziest conspiracy theories of Ron Paul," but that's because it is clear he hasn't studied any economic history.

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