MONEY MATTERS

Federal Reserve chairman, Ben Bernanke, and other regulators along with the Obama administration are pushing the congress to give the FED more authority over financial firms. Mr. Bernanke and other regulators have not still explained the reason for the failure to recognise the last bubble. This has made the congress lose faith in the FED officials. There was once a marginal proposal for the congress to have the power to review interest rate decisions and now the senate is thinking over this idea. But economists are horrified by this idea, if the congress could force FED officials to answer questions about every interest rate move, the process could easily become politicized. A politicized central bank is a first step toward runaway inflation. But politicizing monetary policy is not the only mistake Congress could make. It could also end up in the handing FED officials more power without asking them to grapple with their failures.
Nobody is able to recognise a bubble till it pops to the surface but the recent housing bubble could have been noticed, if only you were willing to look at economic fundamentals. From the debate over financial re-regulation a discussion of, how to reduce the odds of the next bubbles, was missing. The first step for Mr. Bernanke to take is to discuss the FED’s recent failures. But FED seems to be the best agency to regulate financial firms.

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