Early in last night’s Republican primary debate, the ever-provocative, always-entertaining and occasionally astute Newt Gingrich launched a broadside against Fed Chairman Ben Bernanke: “Bernanke has in secret spent hundreds of billions of dollars bailing out one group and not bailing out another group. I don’t see anybody in the news media demanding the kind of transparency at the Fed that you would demand of every other aspect of the federal government. And I think it is corrupt and it is wrong for one man to have that kind of secret power.”
This assault builds on Gov. Rick Perry’s remark a few weeks ago that if the Fed undertakes any further financial maneuvers designed to add more money to the ailing economy, he would not be averse to seeing Bernanke tried for treason. Gingrich’s call was ardently endorsed by Congressman Ron Paul, who has been manning the barricades of the Republican war against the Fed for years. Paul admits that bubbles rise and fall for multiple reasons, but he puts the Federal Reserve accountable for what he believes are egregious and secretive bailouts of Wall Street and now European banks. On that score, not only the Republican base but the Wall Street protesters would agree.
The Fed’s actions are often opaque, and Paul has done a service demanding more transparency. But all government agencies exercise some degree of secrecy, and frequently for good rather than pernicious reasons. Not everything should be exposed in real time to constant critique. That would be paralyzing. But the Republican assault on the Fed is one part of a narrative that holds that the current economic malaise is a product of the corruption of Washington in general and the Democrats in particular. In that story, Barney Frank forced banks to make bad loans to poor people, which created the housing bubble and then brought down those banks, which in turn were bailed out not just by Congress but by a Federal Reserve acting above the law and shrouded in secrecy to save Goldman Sachs.
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While the Freemasons, the Illuminati, Opus Dei, and the Trilateral Commission were not mentioned during the debate, the echo of what Richard Hofstadter termed the “paranoid style in American politics” was thundering this evening. It is an old populist saw that the puppet masters of Wall Street control the world in allegiance with their stooges in Washington, and that the two are working together to steal the hard-earned dollars of the working man. Those strains run deep in American society. They have never had much connection with reality, but the nerve that story touches is deep, and the wounds are real.
As the Wall Street protests make clear, the Republicans have not cornered the market of resentment, suspicion, and simmering rage that the past three years have seen the very industry that caused the financial crisis bolstered by government billions while tens of millions of working-class Americans struggle to move sideways and millions more descend.
The actions of Bernanke and the Fed may well have prevented an economic collapse the likes of which the modern world has never experienced: the complete seizing up of the electronically-connected global flow of money that would have amounted to an electronic run on every financial institution in the world. But saving that system entailed flooding the system with money, money, money, while real people had less and less of it. A thankless task, hard to explain, and Bernanke is not by temperament or mandate equipped to defend what was done and to some extent what is still being done.
And so the Fed makes an easy target: complicit, however necessarily, in a vastly unpopular system and unable or unwilling to answer its critics. The Republicans will continue that drumbeat, marrying Obama to a secretive Fed and a corrupt Congress, in a pied-piper ballad of increasing intensity. Romney stands above that fray, but he will surely not stand in the way of it benefiting him. The Democrats need an alternate story of equal passion. The Republican war on the Fed may be deeply wrong, but they have a story. For now, that is a real advantage.
