From Mike Roman, Senior Fellow, American Council for Capital Formation, Washington, DC, US
Gillian Tett’s recent column (“Threats to the Fed go beyond firing Powell”, Opinion, July 19) offers a timely warning. The suggestion by the blogger Curtis Yarvin that the Federal Reserve be placed under Treasury control may sound extreme today, but it could also be a harbinger of increasingly desperate efforts to manage America’s spiraling debt.
Tett asks if Yarvin’s suggestion is mad. She rightly notes that most economists will howl “yes”. Yet, as time goes on, the US is running the risk of becoming more captive to its creditors.
The demand for higher interest rates in exchange for continued borrowing will not only squeeze fiscal policy but also challenge our economic sovereignty.
The tough decisions that lie ahead, from necessary spending cuts to politically fraught tax increases, will be made under mounting pressure from markets and lenders, not made on our own terms.
Worse still, a radical idea like subordinating the Fed to the Treasury would erode confidence in the institutional independence that has long underpinned America’s global financial leadership and stability. Compromising the independence of the Fed risks weakening the dollar’s reserve status, impeding capital formation, and jeopardizing the very investments we need to sustain growth, competitiveness and our economic viability.
Let us hope that desperation does not trump norms. And let’s seriously think through any plans that could damage the pillars of trust and the independence of our financial system, as tinkering with the Fed risks undermining the long-term credibility that has made America an economic catalyst for the world.
Mike Roman
Senior Fellow, American Council for Capital Formation,
Washington, DC, US
