16 per cent of Americans want to abolish the central bank

FT notices gold's rise in favor, Fed's fall, if ever patronizingly

Submitted by cpowell on Wed, 2011-03-23 21:13. Section: Daily Dispatches

Utah Raises Standard in Anti-Fed Campaign

By Robin Harding and James Politi
Financial Times, London
Wednesday, March 23, 2011

http://www.ft.com/cms/s/0/906b7668-557a-11e0-a2b1-00144feab49a.html

Shops in Salt Lake City will soon be able to accept gold Buffalo and Eagle coins (no foreign-minted Napoleons or Krugerrands allowed) after a bill to make gold and silver legal tender passed Utah's House and Senate.

The state does not trust the US Federal Reserve. However, visitors need not weigh down their pockets just yet.

The bill, which is under review by the governor, ends state taxes on the transfer of gold -- they currently treat it as an asset and not as money -- but until the federal government does the same, its green paper will have the edge.

This proto-gold standard in the American west is a rebuke and challenge to the Fed, and a reminder that easy monetary policy since 2007 has won the central bank many more enemies than friends.

"They’ve been a disaster," says Jeff Bell, policy director of the American Principles Project, a conservative lobby group that has helped the Utah legislators and favours a return to the gold standard. "Mr [Ben] Bernanke, ever since he got on to the Fed, has been a force for fighting deflation and bringing interest rates down to the disappearing point."

Some conservatives believe this has devalued the dollar.

The Fed is unpopular with the US public, and several other states have recently been considering -- with varying degrees of seriousness -- legislation similar to Utah's.

From 2003 to 2009 the percentage of people saying the Fed does a "good" or "excellent" job fell from 53 to 30 per cent, according to Gallup. A Bloomberg opinion poll last year found that 16 per cent of Americans want to abolish the central bank outright -- although it did ask a leading question.

The Fed's popularity is unlikely to increase any time soon. Rising fuel and food prices make inflation feel high to the public. At some point it will have to sell the extra bonds on its balance sheet and in the process it may suffer accounting losses. Such losses have little real meaning but the disgust of opponents will be no less heartfelt.

"There is a lot of public anger at the Fed and politicians are trying to channel that anger, though they don't always do it in a coherent way," says Vincent Reinhart, a former Fed official at the American Enterprise Institute, a conservative think tank.

"The Fed is seen as a vehicle for unfairness. When people see 'too big to fail' they see 'I'm too little to be helped.'" In addition, Mr Reinhart says in reference to the disproportionate impact on poor and middle-class Americans, "quantitative easing as a design principle is generating some inflation. It's an unfortunate fact that the prices that are most sensitive have some uneven incidence."

The question is whether Fed unpopularity matters. One reason that politicians created an independent central bank was to soak up the blame for economic pain. Fed officials sigh and shrug about public opinion but say their duty is to the bank's dual mandate on employment and inflation.

They have, however, been trying to become more engaged and communicative about monetary policy than in the past. But that outreach does not always turn out as intended.

This month Bill Dudley, president of the New York Fed, travelled to Queens, a borough of New York City, to discuss the economy and the workings of the central bank. But the audience was unimpressed with his assurances that, even as food and energy costs were rising, "today you can buy an iPad 2 that costs the same as an iPad 1 and is twice as powerful." One attendee quipped: "I can't eat an iPad."

Nevertheless, the Republican leadership seems to have rethought the value of an "end the Fed" crusade by U.S. Rep. Ron Paul, an outspoken critic of US foreign and monetary policy, now that they have won the House of Representatives. Stirring up libertarian votes while in the minority was helpful; calling secessionists to testify to Congress is not the message they want to send. It appears that Mr Paul's subcommittee on monetary policy will not be allowed to summon Mr Bernanke to testify.

But even if public dislike does not affect immediate monetary policy decisions, unpopularity leads to politicisation, which is a greater danger to the Fed. That is shown by Republican Sen. Richard Shelby's determined effort to block the appointment of Nobel-prize winning economist Peter Diamond to the Fed Board of Governors.

And the wave of discontent with the Fed may have its limits. In the American west, Jay Kaplan, an economics instructor at the University of Colorado at Boulder, says he is not witnessing much anti-Fed fervour in his money and banking class of 160 students.

"There's no big discussion of the evils of central banking," Mr Kaplan says.