Many conservatives were elated when, on May 21, 2011, Herman Cain announced he’s running for the presidency in 2012.
In spite of Cain’s many impressive achievements and credentials, however, some of us are wary because of his close association with that strange hybrid creature called the Federal Reserve System. Cain was a former deputy chairman (1992–94) and chairman (1995–96) of the civilian board of directors to the Federal Reserve Bank of Kansas City.
The Federal Reserve System (FDS) was conceived in secrecy in 1910 on Jekyll Island, New York, then created in 1913 via the Federal Reserve Act. It is a strange public-private hybrid of privately-owned banks that act as America’s central bank with limited government supervision. As America’s central bank, the FDS supervises and regulates the banking system, manages the country’s money supply through monetary policy, maintains the stability of the financial system, and attempts to prevent and contain banking panics.
The importance of the Federal Reserve and its public-private nature have provoked many a conspiracy theory, which is not helped by its Inspector General Elizabeth Coleman’s admission in May 2009, that the FDS could not account for $9 Trillion in “off-balance sheet transactions,” whatever that means.
Coleman’s admission provoked outrage among the American people, who demanded Congress to audit the Federal Reserve. The Fed, in turn, resisted every effort. Its chairman, Ben Bernanke, at one time even resorted to fear tactics, darkly warning that an audit by the General Accounting Office “would be highly destructive to the stability of the financial system, the dollar and our national economic situation.”
All of this was made worse when, in December 2010, a limited one-time peak into the Federal Reserve revealed a secret taxpayer-funded bailout of foreign banks in the amount of a mind-boggling $12.3 Trillion – and Congress wasn’t even informed, not to speak of being consulted.
When asked about auditing the FDS, Herman Cain at first was defensive but eventually allowed that he is not opposed to auditing the Federal Reserve System. Below is more information on Cain and the FDS.
Herman Cain and the Fed
By Joseph Lawler on 5.27.11
Joshua Green at The Atlantic takes note of an interesting situation: Herman Cain, currently undertaking a populist and Tea Party-based campaign for the presidency, is a former Kansas City Federal Reserve chairman.
There are elements of the Tea Party, especially those influenced by Ron Paul, who are against the Fed in general. And the Tea Party has led the wider trend in Republican thought against loose monetary policy. For Cain to have been a member of the Fed and defend it some cases is an obstacle in his attempt to present himself as the Tea Party favorite.
Cain was appointed as a Class C director of the Kansas City Fed board in 1992. In that capacity, he provided advice to the president of the KC Fed (the conservative Thomas Hoenig) about conditions for private, non-bank businesses. According to Green, that particular bank was very conservative at the time, and so was Cain:
I had better luck with Drue Jennings, a Kansas City lawyer who served with Cain on the Federal Reserve Board and succeeded him as chairman. Jennings is quite fond of his old colleague. “Herman was a pleasure to work with,” he told me. “His views were pretty consistent with those of the Fed at the time. Alan Greenspan was, of course, chairman and Herman was in lock stop with the policies of the Fed.” Jennings added that this was not atypical; he could not recall a single dissent from anyone during this three-year term. Still, he said, Cain was no pushover. “He’s a guy you’ll never find in a gray area,” Jennings said. “He’s intelligent, well spoken, and very assertive to the point of almost being aggressive. He’s anything but shy.”
Jennings said Cain fit the profile of the Kansas City Fed. “Inflation was always the big bugaboo,” he told me, “and when it comes to monetary policy, he was an inflation hawk. I’ll tell you, that’s the most conservative bunch of guys I’ve ever met.”
At a recent Spectator press event I had the opportunity to ask Cain about his views on the Federal Reserve. His view is that the Fed’s current dual mandate is overbroad, and that it should not be tasked with promoting maximum employment. He argued that the only role of the Fed should be to stabilize the price level, and suggested that as president he would try to end the dual mandate.
While keeping inflation expectations stable doesn’t necessarily entail a specific Fed stance (for instance, during a downturn it would be necessary for the Fed to engage in very loose monetary policy to avoid deflation), Cain made it clear that he favored tighter money for the current economy. In other venues, he’s expressed approval of some kind of gold standard or other asset backing for U.S. currency. And he’s not impressed by current Fed chairman Ben Bernanke’s management of the crisis and weak recovery — he said flatly that he wouldn’t reappoint Bernanke in 2014 if he were president. Cain declined to suggest who he would replace Bernanke with, however. Although he had a few candidates in mind, he chuckled that he wouldn’t want to invade their privacy just yet.