Pincer attack on Capitol Hill!

Everyone’s angry these days and the US Fed is becoming the object of widespread derision.  As the head of the whole shindig Ben Bernanke is the man who’s face adorns the dartboards of those seeking retribution.  The Fed’s enemies are diverse, and Bernanke finds himself fending off a two-pronged pincer attack.  Right now we are seeing a very strange alliance in the US Senate as Mr. Bernanke faces some very stiff opposition in his current confirmation hearings on Capitol Hill.  (Bernanke was nominated for a second 4-year term as Federal Reserve Chairman by Obama and now must be voted to stay by Congress).

Ron Paul is leading the charge from the so-called libertarian Right, while Senator Bernard Sanders, according to this Washington Post Op-Ed a self described democratic socialist, is applying the “Oust Bernanke” pressure from the Left.  Ben is truly feeling the heat in the hearings from these two camps.  It is an unlikely alliance and Ron Paul will no doubt be chuckling wriley to himself that he’s finally been able find common ground with the socialists!

The big irony though won’t be lost on Paul.  He knows he’s fighting not just Ben Bernanke but the entire Federal Reserve system, and his alliance of convenience with the left will only get him so far before the socialists realise his plan would bring about the biggest free market revolution since the collapse of Rome.

Bernanke has some friends in high places though.  His nomination was put forward by the president himself, and he does have the distinction, as did Greenspan, to have been nominated by both Republican and Democrat presidents to serve as Fed Chair.  He does also have the uncanny knack of being able to forge a distinctly bipartisan image, something which the powers that be cherish dearly in the Fed Chairman.  Perhaps more importantly, Bernanke has the support of a large centre political base, from orthodox Republicans to Blue Dog Dems to key Democrat party leaders like, Frank, Pelosi, Reed and others who will sing to Obama’s tune.  GOP Senator Judd Greg, who famously turned down Obama’s nomination for Commerce Secretary is one such politician on the Right who opposes the Ron Paul plans and believes the Fed should not be tampered with in any way.  If only Gregg understood that the Fed’s creation by government and commercial banks in 1913 was the epitome of interference in free markets as the central bank came to become the sole producer of money and setter of lending rates.

Most of the popular media narrative takes the Gregg line on this issue, and WaPo too reckons that “The wrong-headedness of this left-right pincer emphasizes the moderate wisdom of President Obama’s decision to offer Mr. Bernanke another term,” and urges that “to the extent that Congress is attempting to submit the Fed to a politicized caricature of “transparency,” through the Paul bill or other measures, Mr. Bernanke is absolutely right to use his nomination hearings as an opportunity to push back — hard.”

So for every enemy it looks like Bernanke and Fed have a friend, and maybe two or three.

But there’s another battleground where the PR stages of this war are being won by the anti-Fed crowd – Main Street.  Congressman Paul knows this and is playing a clever and powerful PR strategy with Joe Public. 

Paul’s ideas resonate with a deep understanding of justice, and the average man on the street is wisening up.  The central bank/commercial banks alliance is starting to manifest into some real anger on the street.  It may not be pitch-fork anger (yet?), but some 75% of Americans agree with having a full, no-holes-barred audit of the Fed.  If this groundswell gains enough traction then the GOP, if the right candidates get up and say the right things, could have some rich pickings in 2010.

For the left wing of the pincer, its about Bernanke, greed, capitalism, and more government oversight.  For Ron Paul and his backers, it’s about the entire Federal Reserve system invented in 1913 and the eventual relinquishing of its monopoly control over fiat currency and legal tender, and the fundamental restructuring of the commercial banking system as we know it.

Ron Paul’s critics on the Right and Left believe the Texan is messing with an institution that works.  They oppose what they term a governmentalisation the Fed, and believe that the monetary institution should be free from government audit and government persuasion.  These critics make three big mistakes: They fail to understand that 1) Fed independence from government is a joke and myth, 2) that more power opaquely centralised in the Fed is worse not better for freedom and efficient functioning markets, and 3) they make a major error when they group Ron Paul with the scrappy and opportunist agenda’s of the lefties. 

Can the pincer attack alliance last?  I don’t think very long.  But it may last long enough for Paul to get his Fed audit, which forms just one strategic step in his mission to End The Fed.  Will Bernanke serve another term as Fed chief?  Almost certainly.  It is going to take a lot to dispose of him, and the machine politics is starting to rally around the Fed Chairman as the pincer closes in.