Tag: rand paul

Does Fed Leverage and Asset Maturity Matter?

Debate over whether to subject the Federal Reserve to a policy audit has occasionally focused on the size and composition of the Fed’s balance sheet. While I don’t see this issue as central to the merits of an audit, it has given rise to a considerable amount of smug posturing. Let’s step beyond the posturing and give these questions some of the attention they deserve.

First the facts. The Fed’s balance sheet has ballooned over the last few years to about $4.5 trillion. And yes, the Fed discloses such. No argument there. The Fed, like most central banks, has traditionally conducted its open-market operations in the “short end” of the market. The various rounds of quantitative easing have changed that. For instance the vast majority of its holdings of Fannie & Freddie mortgage-backed securities ($1.7 trillion) have an average maturity of well over 10 years. Similarly the Fed’s stock of treasuries have long maturities, about a fourth of those holdings in excess of 10 years.

Now the leverage question. We all get that the Fed cannot go “bankrupt” like Lehman. But that’s because “bankrupt” is a legal condition and one from which the Fed has been exempted. Just like Fannie and Freddie cannot go “bankrupt” (they are considered legally outside the bankruptcy code). The eminent economist historian Barry Eichengreen tells us the Fed’s leverage doesn’t matter as “the central bank can simply ask the government to replenish its capital, much like when a government covers the losses of its national post office.” Some of us would say that’s a problem not a solution, just like it is with the Post Office.

Others would suggest the Fed’s leverage doesn’t matter because “the Fed creates money”. Again that misses the point. Any losses could be covered by printing money, but isn’t that inflationary?  And that, of course, is just another form of taxation. So it seems Senator Paul’s primary point, that the Fed’s balance sheet exposes the taxpayer to some risk has actually been supported, not discredited, by these supposed rebuttals.

Let’s get to another issue, the maturity of the Fed’s assets. There’s a good reason central banks generally stay in the short end of the market. It avoids taking on any interest rate risk.  When rates go up, bond values fall. Yes the Fed can avoid recognizing those losses by simply not selling those assets. But that creates problems of its own. If we do see inflation, normally the Fed would sell assets to drain liquidity from the market. But would the Fed be willing to sell assets at a loss? At the very least there would be some reluctance. And yes they could cover those losses by printing money, but that’s hardly helpful if the Fed finds itself in a situation of rising prices.

The point here is that the Fed’s balance sheet does raise tough questions about its exit strategy.  Perhaps the economy will remain soft for years and the Fed can exit gracefully.  Perhaps not.  I raised this possibility before Congress a year ago.  I don’t know anyone with a crystal ball on these issues.  But one thing is certain, this is a debate we should be having.  Its the “nothing to see here, move along” crowd that poses the true risk to our economy.

Fact Checking the Fed on “Audit the Fed”

With the introduction of bills in both the House (H.R. 24) and Senate (S.264) allowing for a GAO audit of the Federal Reserve’s monetary policy, officials at both the Board and regional Fed banks have launched an attack on these efforts.  While we should all welcome this debate, it should be one based on facts.  Unfortunately some Fed officials have made a number of statements that could at best be called misleading. 

For instance Fed Governor Jerome Powell recently claimed “Audit the Fed also risks inserting the Congress directly into monetary policy decisionmaking”.  I’ve read and re-read every word of these bills and have yet to find such.  H.R. 24/S.264 provide for no role at all for Congress to insert itself into monetary policy, other than Congress’ existing powers.  I would urge Governor Powell to point us to which particular part of the bill he is referring to, as I cannot find it.

Jeb Bush and Rand Paul on a Broader GOP

Both Jeb Bush and Rand Paul are talking about broadening the appeal of the Republican Party as they move toward presidential candidacies. Both say Republicans must be able to compete with younger voters and people of all racial backgrounds. Both have talked about the failure of welfare-state programs to eliminate urban poverty. But they don’t always agree. Bush sticks with the aggressive foreign policy that came to be associated with his brother’s presidency, while Paul wants a less interventionist approach. Bush calls for “smarter, effective government” rather than smaller government, while Paul believes that smaller government would be smarter. Perhaps most notoriously, Bush strongly endorses the Common Core educational standards, building on George W. Bush’s policy of greater federal control of schooling.

Meanwhile, Paul promises to bring in new audiences by talking about foreign policy and civil liberties. As Robert Costa reported from an Iowa rally this weekend:

Turning to civil liberties, where he has quarreled with hawkish Republicans, Paul chastised the National Security Agency for its surveillance tactics. “It’s none of their damn business what you do on your phone,” he said. 

“Got to love it,” said Joey Gallagher, 22, a community organizer with stud earrings, as he nursed a honey-pilsner beer. “It’s a breath of fresh air.”

But the rest of Paul’s nascent stump speech signaled that as much as he wants to target his father’s lingering network, he is eager to be more than a long-shot ideologue.

Paul cited two liberals, Sen. Bernard Sanders (I-Vt.) and Rep. Alan Grayson (D-Fla.), during his Friday remarks and said he agrees with outgoing Attorney General Eric H. Holder Jr. on curbing federal property seizures and softening sentencing laws for nonviolent drug offenders — all a nod to his efforts to cast himself as a viable national candidate who can build bipartisan relationships and expand his party’s political reach.

“Putting a kid in jail for 55 years for selling marijuana is obscene,” Paul said.

Alan Grayson and Eric Holder? That’s pushing the Republican comfort zone. And what was the reception?

“Just look at who’s here,” said David Fischer, a former Iowa GOP official, as he surveyed the crowd at Paul’s gathering Friday at a Des Moines winery. “He is actually bringing women, college students and people who are not white into the Republican Party.”

That’s his plan. It’s a real departure from the unsuccessful candidacies of old, hawkish John McCain and old, stuffy Mitt Romney. It just might create the kind of excitement that Kennedy, Reagan, and Obama once brought to presidential politics. The question is whether those new audiences will show up for Republican caucuses and primaries to join the small-government Republicans likely to be Paul’s base.

Could Rand Paul Spark a Libertarian Political Surge?

At TIME I write about the rise of libertarianism, Rand Paul, and my forthcoming book (Tuesday!) The Libertarian Mind:

Tens of millions of Americans are fiscally conservative, socially tolerant, and skeptical of American military intervention….

Whether or not Rand Paul wins the presidency, one result of his campaign will be to help those tens of millions of libertarian-leaning Americans to discover that their political attitudes have a name, which will make for a stronger and more influential political faction.

In my book The Libertarian Mind I argue that the simple, timeless principles of the American Revolution—individual liberty, limited government, and free markets—are even more important in this world of instant communication, global markets, and unprecedented access to information than Jefferson or Madison could have imagined. Libertarianism is the framework for a future of freedom, growth, and progress, and it may be on the verge of a political breakout.

Read the whole thing. Buy the book.

How Hawkish Are Republican Voters?

William Kristol tells the Washington Post that Sen. Rand Paul is a “lonely gadfly” on foreign policy:

“Rand Paul speaks for a genuine sentiment that’s always been in the Republican Party, but maybe it’s 10 percent? 15 percent? 20 percent? I don’t think he’s going to be a serious competitor for guiding Republican foreign policy.”

At the Huffington Post I suggest that Kristol read the polls. They show rising non-interventionist sentiment among Republicans and especially among independents. I argue:

Americans, including Republicans, are getting tired of policing the world with endless wars. Support for the Iraq war is almost as low as approval of Congress.

On Corrupting the Constitutional Order

Michael Gerson, former speechwriter to Bush the Younger and perennial libertarian antagonist, has denounced Rand Paul’s foreign policy views. That should surprise no one, but the manner in which he did so bears discussing.

Gerson’s bill of particulars is as follows:

The younger Paul has proposed defense cuts, criticized foreign aid, led opposition to U.S. involvement in Syria, raised the possibility of accepting and containing a nuclear Iran and railed against “possible targeted drone strikes against Americans on American soil.”

Each of these is its own argument, but what’s more interesting is how Gerson broadens the discussion in an attempt to paint the younger Paul in a conspiratorial light:

His libertarian foreign policy holds that America is less secure because it has been “too belligerent” and that decades of international engagement have both corrupted our constitutional order and corrupted other nations with our largess or militarism.

Reasonable people can disagree about the extent to which U.S. foreign policy has gone off the deep end in recent decades. Also, with due acknowledgment of the victims of U.S. “engagement” in places from Laos to Iraq, people could also disagree about the extent to which our militarism has “corrupted other nations.” But nobody with a lofty perch like Gerson’s should dispute the idea that international engagement has corrupted our constitutional order.

You could fill a library with the volumes that demonstrate how war and preparation for war—which is what Gerson means by “engagement”—have contributed to the growth of the state and the evolution of American political, economic and legal institutions. As that last link shows, influential American legal scholars are hailing Nazi jurist Carl Schmitt as “our hero” in providing the legal case for an unchecked presidency, with James Madison playing the republican bad guy.

And it is the height of irony that Gerson holds up for ridicule the idea that our foreign policy has corrupted our constitutional order the very same week that a U.S. Senator—who is a strong partisan of the CIA—gave a 40 minute speech lambasting the Agency for spying on the legislature in the context of the latter’s investigation of the CIA’s use of torture, or if you prefer, “enhanced interrogation techniques.”

Warrantless NSA spying on Americans, senior Executive Branch officials baldly lying to Congress about it with no consequences, the tortured legal reasoning that led to Guantanamo Bay, the American president claiming the power to assassinate a US citizen with no meaningful legal or legislative oversight on the grounds that he’s talked it over with his legal team, the internment of more than a hundred thousand American citizens for the crime of having had the wrong ancestors… One could go on.

The people who framed our constitution were the sort of people who opposed forming a standing army at a time when European empires were mucking around in the Western hemisphere. So whatever his disagreements with Rand Paul on foreign policy, Gerson could stand to consider—or better yet, do some reading—about how war and militarization have “corrupted our constitutional order.” It’s a bit of an open-and-shut case.

NSA Spying on a Gazillion Americans

Today’s widespread outrage over reports that the National Security Agency is conducting widespread, untargeted, domestic surveillance on millions of Americans reminds me of this post from July 2012, in which Sen. Rand Paul reported on a private briefing he’d received. He couldn’t reveal what he’d learned, but he was able to report that the number of Americans subject to surveillance was closer to “a gazillion” than to zero. Now we have a bit more information. As I wrote then:

Sen. Rand Paul (R-KY) gave a great speech on surveillance last week at FreedomFest. Actually, he gave two good speeches, but the one embedded below is his short 6-minute talk at the Saturday night banquet. He talks about our slide toward state intrusion into our phone calls, our emails, our reading habits and so on. You know how big the surveillance state has gotten? The answer is “a gazillion.” Watch the speech—complete with high-falutin’ references to Fahrenheit 451 and the martyr Hugh Latimer!

Pages