Fed Chairman Bernanke's report to Congress

Ben Bernanke

Federal Reserve Chairman Ben Bernanke met today with Congressional leaders of the Financial Services Committee to report on the Federal Reserve's take on the state of the economy and Federal Reserve actions in that regard.

In an introductory statement Mr. Bernanke made it clear that the fiscal policy that legislators have chosen to take has been a detriment to the economic recovery.  In an effort to acknowledge the impact that a dysfunctional Congress has on the economy, he highlighted that tight fiscal policy will restrain economic growth.  He warned that political fights over raising the debt ceiling as has happened in the past would hamper the recovery.  Although a few of the Congressmen on the committee appeared to understand the importance Congress has in assisting in the recovery, it is still to be seen if Congressional Republicans take this guidance into consideration as they enter discussions about raising the debt ceiling, ending sequester or resurrecting the American Jobs Act.

Bernanke believes the economy is recovering at a moderate pace.  He cited the improvements in the housing market as contributing to economic gains and predicted this would continue to improve notwithstanding recent mortgage interest gains.

He believes the labor market is improving gradually and contributed a 0.1% drop in the unemployment rate to the Fed's policies of buying assets.  He admits that job growth has a long way to go to be considered satisfactory.  As I have stated in previous blogs, I question the impact that buying assets really has on the job market especially because it does nothing to increase demand for products and services.  It does have an important impact on the stock market as we have seen investors sell off stocks and bonds when Bernanke hinted that the asset purchase program was going to be discontinued.

Understanding the emotional nature of the stock market, Bernanke was careful not to repeat the mistake of hinting at a change in the asset program at the committee meeting.  He emphatically stated that the current asset purchase program will continue and monetary policy will be "accommodative" for the foreseeable future.  As of noon today the US markets appeared to be unaffected by Bernanke's comments.

In order to help prevent another Bush era financial collapse of the big banks, Fed policy is to prevent  collapse by increasing the requirement for cash reserves under what is called Basel III capital reforms.

 In summary, Bernanke explained three mechanisms that the Fed is using to support economic growth.  These are mortgage asset purchases, forward guidance on Fed plans for the federal fund rate target and Basel III capital reforms.

Based on the comments at the committee meeting, it appears obvious that the Fed needs a lot of help from Congress to revitalize the economy.  Bernanke's warning about Congressional actions around fiscal policy may have been his cry for help.

Why Republicans in Congress are Guilty of Conspiracy to Obstruct Justice

In 2010 Congress passed the Dodd-Frank Act which establishes the Consumer Financial Protection Bureau (CFPB) as the agency with enforcement power over the Financial industry.  This agency has an important role in preventing another financial disaster as created by a financial industry that enjoyed excessive liberation from regulations during the Bush administration.  The Act is now the law.  

Republicans, in their carefree joy for obstruction of all of President Obama's policies, have decided to take on the CFPB and the Dodd-Frank Act by preventing the approval of Richard Cordray as the CFPB Director.   You may ask, how is this conspiracy to obstruct justice?

We know that crimes were committed that caused the meltdown of financial markets prior to the 2008 crash.  The white collar criminals who committed those crimes are still free.  Although their criminal methods may have become dormant, there is still a public outcry that justice be done by finding and   incarcerating these criminals.  The CFPB is the agency that could make that happen, but their enforcement power is nullified without a Director.  It is the Republicans who are obstructing the actions of the CFPB.  

Congressional Republicans who have sent a letter to President Obama explaining their demands, admit that they are taking the action to reject the President's choice of a Director because they want to weaken CFPB's power.  In using their power to reject the Director, they have lied about their real intentions.  They don't disapprove of Richard Cordray.  They have stated that they will not approve of any Director until the powers of the CFPB as are legally established by the law are changed.  They have conspired to create this fraud against the CFPB and the United States with the admitted intention of obstructing it's legal authority.  This is conspiracy to obstruct and conspiracy to defraud.

The following is the legal explanation of "Conspiracy to Obstruct" (18 U.S.C. 371).

If two or more persons conspire either to commit any offense against the United States or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.

The following is the legal explanation of "Conspiracy to Defraud" 

Section 371 contains both a general conspiracy prohibition and a specific obstruction conspiracy prohibition in the form of a conspiracy to defraud proscription. The elements of conspiracy to defraud the United States are: (1) an agreement of two or more individuals; (2) to defraud the United States; and (3) an overt act by one of conspirators in furtherance of the scheme.  The "fraud covered by the statute ‘reaches any conspiracy for the purpose of impairing, obstructing or defeating the lawful functions of any department of Government” by “deceit, craft or trickery, or at least by means that are dishonest.” The scheme may be designed to deprive the United States of money or property, but it need not be so; a plot calculated to frustrate the functions of a governmental entity will suffice.

It is true that Congress has immunity from prosecution for acts they commit in the normal operation of their duties as legislators.  It does not protect them from committing crimes or violating existing laws.  A case could be made for this obstruction being a criminal act where the department they are obstructing is a federal agency and the actions these Republicans are taking is protecting criminals from prosecution and has done so now since 2010.  These Republicans have certainly over-stepped their normal authority and entered the realm of disobedience of law.

At the very least, every one of the 43 members of Congress who signed Mitch McConnell's conspiracy letter should be fined.  But wouldn't it be great if we could end this obstruction by putting them all in jail.  

How Republicans plan to transform the President's budget into the Paul Ryan budget

Republicans in Congress still can't seem to realize that their Party did not win the Presidency in 2012.  And by that I mean they still do not understand and do not represent the expectations of the American people.

One example of this is HR 444 REQUIRE A PLAN Act that was discussed today in the House.

Parenthetically the Act also adds the insulting attack remark erroneously directed towards the President, that it can also be called the "Require Presidential Leadership and No Deficit Act."  My guess is that the Republicans see leadership as making strong cuts into social programs to hurt the Americans who can least afford it and who most depend on it.  This would follow right in step with the Ryan budget and Republicans misguided thinking that revenue is off the table in budget talks.

Mr. Price

The Act introduced by Republican Mr. PRICE of Georgia (for himself, Mr. RYAN of Wisconsin, Ms. JENKINS, and Mr. SESSIONS) requires that, "if the President’s fiscal year 2014 budget does not achieve balance in a fiscal year covered by such budget, the President shall submit a supplemental unified budget by April 1, 2013, which identifies a fiscal year in which balance is achieved, and for other purposes."

It goes on to require that the supplemental budget include budget information required by US code but also include the Republicans wish list of items.  These are (a) An estimate of the fiscal year in which the supplemental budget is not expected to result in a deficit; (b) a detailed description of additional policies needed to accomplish no deficit; and (c) detailed description of the differences between the President's FY 2014 budget and the FY2014 supplemental budget requested.

There is no constituional requirement for a President to offer a budget which will balance by some future date.  Since the 1920's there have only been about three occassions where a budget actually did balance.  However Republicans appeared to be confused about the President's intentions.  They made it seem that this was a simple request that would help them understand where the President stands on balancing the budget.  But what are they really trying to do?

The reason that the Republicans imply they are proposing this Act is because the President's actions during his first term have shown he is not a good financial stewart.  The Act's section on "Findings" indicates that the President can't keep to his promises and has caused the deficit to rise during his term.  It's almost as if the President has authority over financial and budgetary policy and total control of the money that he was charged to spend and spent it unwisely.  Oh wait, that is the job of the Congress!

So what are the Republicans really trying to do by placing this Act into consideration?  I think they have a somewhat sinister plan in mind indeed.

CBO estimates of deficit causes

First, they are trying to create an image in the eyes of Americans that removes themselves from any blame they may have for the country's financial condition.  They won't admit  that it was their Party's administration that got us into the financial situation we are in and largely responsible for the deficit.  The graph at the left is the Congressional Budget Office's estimates of the factors leading to the deficit.  One can see that the largest contributors to our present deficit are the wars and Bush era tax cuts.  But deficits were not that important to Republicans when their guy was President.

Republicans pretend to be the only Party concerned with future generations who will be responsible for the deficit's payback.  While he was Mitt Romney's running partner, Paul Ryan's first budget plan would not balance the budget for thirty years.  And that one was considered harmful to the poor in society and the economy because of the magnitude of its cuts to social programs while at the same time cutting taxes for the rich.  Recently Ryan has been tasked by John Boehner to write a budget that will be balanced within ten years. Without considering revenue increases (as the Republicans believe), Ryan's new budget would start hurting people immediately.

It seems to me that with HR 444 and the previously passed HR 325 that temporarily raises the debt limit with stipulations for "No Budget/No Pay", Republicans are trying to force the President into cutting the social safety net, voucher-izing medicare and medicaid and making changes to social security that would not benefit the American worker.  All of these were Romney-Ryan policies that Americans rejected when they ended Romney's political career in the last election.

Ryan's Budget paves the path to
increased Prosperity for the wealthy

Republicans are really putting the cart before the horse if they think that the President can create a supplemental unified budget without Congress first acting on modifying the tax code and closing loop holes. The President cannot know the impact that new revenue will have to paying down the deficit  until Congress acts on tax law.  So once again Congress needs to understand that tax revenue must be considered and they have a more urgent role in addressing that than the President has to give them a supplemental unified budget.

Fortunately some Democrats understand that Republicans are trying to force a budget that looks like the Ryan budget and have added amendments to the Act to counteract this intention.  Unfortunately none of them was allowed during the actual rules committee session.

Mr McGovern of Massachusetts, a member of the committee made it clear that the members were only made aware of HR 444 on Thursday and the act was not entered until Friday last week.  He felt that there was not enough time to enter amendments.  He also made the point that the rules committee did not have any meetings, markups or open discussion around the need for the act and requested that it was entered into open rules.  That was voted down.

Mr Connelly of Virginia had submitted an amendment that prohibits "additional solutions" in the unified supplemental budget to include conversion of Medicare into a voucher program. However that amendment was not allowed.

Mr. Deutch of Florida submitted an amendment that removes social security from the definition of "Unified Budget" however that amendment was not allowed.

Jackson Lee of Texas submitted two amendments.  One protects the safety net of the most vulnerable in society.  It was not allowed.  The other proposes ending the estate and tax provisions so the applicable exclusion amount is allowed to revert to $1 million and the tax rate is allowed to be 55%.  It was not allowed. 

Chris Van Hollen from Maryland submitted an amendment to replace the entire sequester for 2013 which would cause deep cuts to domestic priorities and defense with a savings from specific policies that reflect a balanced approach to deficit reduction.  He wants to protect the most vulnerable and asks people making over $1 million to contribute more.  He wants to eliminate agriculture direct payments and cut subsidies to large oil companies.  Because he was not present due to his father's death, his substitute for sequester was voted down.

An amendment was submitted by Mark Takano of California which makes changes to the "Findings" section of the act.  He wants clarification that Congress holds responsibility for passing budgets and appropriating funds.  A responsibility that some Republicans have attempted to side-step.  That one was allowed.

Four Republican amendments were approved.  All of them require additional work from the Presdient to present more detail in the supplemental unified budget.

President Obama

As the President has stated publicly, like the Republicans, he also understands that the deficit should be brought under control.  Actions taken since his administration started have reduced the Bush deficit each year and the CBO expects that the deficit will be below $800 Billion by the end of 2013.

But in the President's case, his concern is that deficit reduction be done in a balanced approach with revenue increases and program cuts that do not harm the economy, that do not hurt Americans and are done fairly.

The divergence in the President's policies and Republican policies are fairly obvious to middle class Americans.

That's why he won the election.

McConnell partners with Crapo and other obstructionist Republican Senators hoping to flush CFPB down the toilet

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) was created as a new government bureau in 2010 and is tasked with the important role of enforcing laws in the financial industry.  Its founding is the recommended cure for the recklessness in the financial industry that caused the financial disaster of 2008.  Its enactment is legislated through the Dodd-Frank Act.

Crapo (rear) and McConnell

It appears that the Republican obstructionists in Congress do not believe that they have demonstrated well enough their lack of support for the American consumer.  Led by Mitch McConnell and Mike Crapo (pronounced cray-po), forty-three Republican Senators have signed a letter to President Obama indicating that they will not approve Richard Cordray as the Consumer Financial Protection Bureau's Director unless their demands are met.  (Sounds like something a terrorist group might say.)  According to Senator Crapo, it is not Richard Cordray that they oppose, it is the Consumer Financial Protection Bureau (CFPB) in general.

This same scenario happened last year.  The Republicans blocked Richard Cordray so the new Bureau operated without a Director.  But the bureau has no enforcement power under the Dodd-Frank Act unless it has a Director.  So  President Obama assigned Richard Cordray as Director once again, but this time while the Senate was in recess.

A President is constitutionally entitled to make such recess appointments and many of both Parties have done so in the past.  The controversy this time is about the Republicans claim that they were really working and in session at the time of the appointment.  To prevent President Obama from making this appointment, on their way out the door for intersession vacation, Republicans indicated that they were in a "pro-forma" session.  That supposedly means that they are in session and working so they must approve Presidential appointments.  But no one was present or working in the Senate.  It was simply a tactic that Republicans used to block the President's constitutional authority.

In a similar case concerning the National Labor Relations Board appointments, the US District Court of Appeals for the District of Columbia Circuit ruled that the President can not be allowed to make a determination that the Senate is in recess because it could allow him to make recess appointments at any time.  It is my opinion that this decision proves our judicial system is fallible.  Perhaps they do not follow politics, but it should have been obvious or very easy to check that the Senate was in recess.  The mere statement of a "pro-forma" session does not make it so.  The court's decision actually gives license to another example of Republican obstruction tactics where the constitutional rights of a President can be blocked by intentionally lying about being in session.  The decision is expected to be reversed in future court appeals.

To be fair, Republicans have two major demands that would change the autonomous intent of the bureau.

First, they are demanding that the structure of the CFPB be changed.  They believe that there is too much power in the control of one person, namely the Director.  Republicans would prefer to see a board or commission in charge.  My guess is that the Republican's goal for the commission would be to staff it with the same financial experts who helped bring on the financial crises or at least staff it with people whose business interests conflict with the bureau's autonomous role.  Sort of like having gangsters run the Federal Bureau of Investigation.

Second, they want Congress to have oversight of the Bureau's budget.  They claim that the Director can tap into the Federal Reserve System to get any money he feels necessary at any time.  In actual fact however, the Director must submit a budget request to the Federal Reserve with justification and evidence of actuals from prior years.  Legislators have approved this procedure as acceptable when passing the Dodd-Frank Act.  In passing Dodd-Frank they have also approved a discretionary $200 million in Fed funds to be available if necessary, but that discretionary amount must be approved by the  Congressional appropriations process.  Perhaps Republicans don't like Dodd-Frank, but it is the law and they can't simply not abide by its rulings.

In summary, here is my assessment of the situation.  The Republicans do not disapprove of Richard Cordray, yet they are willing to reject him or anyone that the President selects so that they can accomplish their primary political goal of bending the structure of the CFPB into one that benefits their wealthy supporters instead of the American consumer.  I wouldn't expect anything less.