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The following letter was sent to Federal Reserve Chairman Ben Bernanke from Congressional GOP leaders Mitch McConnell, John Boehner, Eric Cantor, and Jon Kyl regarding the Fed's recent move to purchase additional Treasury bonds, the so-called QE2.
"We write to express our deep concerns over the recent announcement that the Federal Reserve will purchase additional U.S. Treasury bonds, the so-called Quantitative Easing 2 (QE2)," they wrote.
This move comes two weeks after the central bank announced that it will buy $600 billion in long-term Treasuries over the next eight months and that it would reinvest additional funds with the proceeds of its earlier investments. The QE2 is estimated to total around $900 billion and is aimed at stimulating the economy.
The text of the letter is below:
The Honorable Ben S. Bernanke
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, D.C. 20551Dear Chairman Bernanke:
We firmly believe that monetary policy decisions by the U.S. Federal Reserve must be free and independent from political pressures. At the same time, the Federal Reserve should be open to receiving input and data from a wide range of sources. This combination preserves confidence in the credibility and effectiveness of decisions made by the Federal Reserve.
It is with that understanding that we write to express our deep concerns over the recent announcement that the Federal Reserve will purchase additional U.S. Treasury bonds, the so-called Quantitative Easing 2 (QE2). While intended to improve the short-term growth of the U.S. economy and help maintain a stable price level, such a measure introduces significant uncertainty regarding the future strength of the dollar and could result both in hard-to-control, long-term inflation and potentially generate artificial asset bubbles that could cause further economic disruptions.
The Federal Reserve's recent move has also generated increased criticism and action from other central banks and governments. We appreciate that such comments must be examined within the context of which they have been offered. However, any action taken by our nation or foreign nations that impairs U.S. trade relations at a time when we should be fighting global trade protection measures will only further harm the global economy and could delay recovery in the United States.
Perhaps most damaging, we believe that QE2 is giving the impression that the Federal Reserve will keep making new and different attempts to boost the short-term prospects for the economy. Our long-term growth depends on restoring confidence and certainty in our fiscal, regulatory, and trade policies -- and not on government's willingness to engage in additional stimulative measures. When asset prices increase due to anticipated Federal Reserve policy rather than economic fundamentals, it increases the potential for speculative action and erodes confidence in the economic outlook, making it more difficult to generate sustainable growth.
We hope you and the other Board Members will keep these concerns in mind as you review and discuss these issues in the coming months.
Sincerely,
Mitch McConnell
U.S. SenatorJohn Boehner
Member of CongressJon Kyl
U.S. SenatorEric Cantor
Member of Congress
Leave a Comment:
Okay belly flopping republican/Tea Baggers what about the Volcker Rule
http://economix.blogs.nytimes.com/2010/11/04/the-volcker-rule-after-the-midterm-elections/
I Canada and most indistrialized nations if the Prime Minister challenges the Fed, the Fed chain must resign. This is done specifically to protect against political interfering. Does no such rule exist in the US. The Fed under most inudstrizied countries is non partisan and independant of politics. This is highly unusual and may be unconsititutional
What has the Volker rule to do with QE2?
The only thing the Feds trillion dollar farce is going to stimulate is the testicles of a few extremely wealthy crooks, but hey that's what America seems to be all about, guess who is on the hook for this trillion? I guess this country is only broke when it come to keeping commitmentsmade to it less affluent citizens.
This "stimulus" is really a way for the Fed to finance the interest on the Federal deficit. This is in light of the fact that the Chinese have stopped buying U S bonds (about 2 months ago, I hear). This news has not been commented on by any politician so far. Im sure that it has skipped their minds . Outside countries are now unwilling to buy our debt!!!! My guess is that the other shoe will drop soon.
I mentioned something similar to that on another post yesterday, people seem to refuse to acknowledge that this whole "quantitative easing" scam is an act of desperation for the most part, things are going to get uglier for most, the clock is ticking.
I am with the FED on this one they have done an awesome job keeping this country going. We need low rates for the next three to four years. Everyone thinks they know better than the FED, however everyone needs to chill and let the Fed do it's job!
Despite all of the noise, very few have actually thought about the FED's reasoning.
Many are complaining about inflation and the weakening dollar.
This does two things that could be immediately benifitial to this country. First, it stands to increase exports. Second, bussiness is sitting on $2 trillion in capital. I may force them to invest it.....for if they don't, they will lose money.
That's fine if you have plenty of spare dollars, but for a hell of a lot of people that have no dollars left at the end of the month now because of rising costs it will be a death blow, which I believe it was meant to be, what's the greatest nation on Earth for most of it's population? It ain't this one anymore. Starve that beast, and the people right along with it.
Clay-1242149,
Please don't leave comments that make innocuous statements such as "This is in light the Chinese have stopped buying U S bonds (about 2 months ago I hear)" without posting where in the world you heard it! These type of comments from you and others just perpetuate rumors and falsehoods. You are not helping discourse in this country. You are only contributing to dragging it the country down.
Please understand I don't care what your politics are. I am just getting tired of whomever does this this type of thing. Do your homework! Free speach is responsible speech! This is not responsible.
Ray-MD
Clay-1242149,
Please don't leave comments that make innocuous statements such as "This is in light the Chinese have stopped buying U S bonds (about 2 months ago I hear)" without posting where in the world you heard it! These type of comments from you and others just perpetuate rumors and falsehoods. You are not helping discourse in this country. You are only contributing to dragging it the country down.
From a report dated April 2009, so its really nothing new. They have slowed in the purchase of US bonds. Use the Google key once in awhile.
But America may not be able to rely on China for much longer. “China is beginning to behave like a normal creditor,” warned Setser. The Financial Times details how China is thinking of investing its vast sums of money elsewhere (emphasis mine throughout):
China’s near $2,000 billion (£1,380 billion, €1,560 billion) in reserves, the world’s largest, are often viewed outside the country as a great strength—an insurance policy against economic turbulence. But within China, they are increasingly seen by the public and even some policymakers as something of an albatross—a huge pool of resources not being used at home that will plunge in value if the U.S. dollar collapses. Why, people ask, should such a relatively poor country bankroll such a rich one?
Thank you,
This is exactly what I was talking about. With your references and your comments people can have a real discussion. Thank you.
Now specific to the issue, indeed I have "googled" "China US Bonds" and noticed your reference plus newer ones. The discussion is all over the map. Some discuss a slowing due to potential devaluation of China's asset (US bonds). Others mention people in China wanting to punish the US over its Taiwan policy. But the most current mention China has increased its position in US bonds for 3 consecutive months. The bottom line is this is a very volatile set of positions on this topic.
So, in my opinion, whether one agrees with the FED's latest action or not, it does not seem to be the main impetus to to their actions as to buying US bonds. We will constantly have articles on this topic expressing various reasons for China's actions. We need to look elsewhere to determine if the FED did the right thing.
I will do some investigation on your provocative question "If other countries are investing in America and buying its bonds, why would the FED have to make a move like this at this time?"
Again thanks for creating a good discussion.
Ray-Md, ask yourself (and if you have an answer please share it with me)....
If other countries are investing in America and buying its bonds, why would the FED have to make a move like this at this time?
This letter to the Fed from Congress was way too concilliatory. They should have said, if you do not stop with the insanity, we will shut you down!! The Federal Reserve(about as Federal as Federal Express) has held too much power for too long!! It is time to shut them down with force if necessary. The Fed will stop at nothing to further implode the economy!! End the Fed now!!