Saturday, September 8, 2012

The Federal Reserve in Pop Culture and Mainstream Politics?

photo by wallyg via PhotoRee

It is really quite interesting how the Federal Reserve ended up so squarely in the limelight in recent years. Sure, US Presidents, candidates, and other politicians have argued for and against national banks since the days of Andrew Jackson and Alexander Hamilton, but monetary policy has not been so close to the mainstream of political discourse in recent years as it is today.

Consider the Google Trends data for search queries, especially the frequency of news references to monetary policy.

Queries and News References for "Bernanke"

Queries and News References for "FOMC"

Queries and News References for "Monetary Policy"

Previously, the "Audit the Fed" and "Abolish the Fed" position was held by only a few including Ron Paul and documented in his book End the Fed . In recent years, even more mainstream candidates such as Rick Perry voiced pretty strong feelings about this largely shrouded public-private institution. And now we know that "Auditing the Fed" has even become a plank in the GOP platform. Even in the days of Paul Volcker, the Fed chairman appointed by President Jimmy Carter, to rescue the country from the stagflation of the 1970s, public interest in the Fed was muted. William Greider's book Secrets of the Temple: How the Federal Reserve Runs the Country was my initial introduction to the subject during high school. It is really a good read if one wants to get up to speed on the operation of Volcker Fed during its tumultuous tenure. Before the Bernanke Fed, the FOMC has largely stayed out of the public attention, issuing only opaque decisions without a thought of the "transparency" that Fed chairman Bernanke has now introduced with press conferences and Q&A sessions after each FOMC announcement.

The country during Fed Chairman Volcker's tenure was quite different from today, though the some would dispute this claim at least from the perspective of fundamentals. By 1981, annualized inflation reached 13.5% and an unemployment rate of 7.6%. The Volcker Fed's extremely hawkish policies would eventually manage to control inflation at the cost of letting unemployment peak at 9.7% in 1982 (oh for the halcyon days of the 1950s with ~3.0%?). In contrast, today we have a highly dovish Fed implementing Zero Interest Rate Policy (ZIRP) and a succession of quantitative easing programs.

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