There is no question that the recession of 2007-2009 is the worst economic crisis America has seen since the Great Depression of the 1930s. According to the Bureau of Labor Statistics as of September we have lost over 6.9 million jobs since the recession began. With so many failed businesses, lost homes and lessened personal wealth, it is hard to find anyone who has not been directly affected by the recession. It’s hard to tell just how much worse the crisis could have been and how far-reaching the effects could have been if the government not issued the highly criticized $786 billion stimulus plan. Though it’s been slow going, unemployment is slowly starting to stabilize and the remainder of that stimulus money will be given out in the first half of 2010.
As America continues the slow climb out of the economic hole we found ourselves in, the question on everyone’s mind is: how do we prevent this from happening again?
There are a few plans being considered to help protect America form falling down another economic rabbit hole. The timing is important, because though the U.S. may be slowly showing signs of economic recovery, we are far from recovered and it would not take much to send us hurling back.
The first and most high profile pieces of legislation on the table are by Rep. Ron Paul (R-Texas) and Sen. Chris Dodd (D-Conn.). Senator Dodd, chairman of the Senate Banking Committee, created a stir when he first introduced his plan, which included stripping the Federal Reserve of its power to oversee banks. This would make setting monetary policy as the only real function of the Federal Reserve. Dodd would instead create a consumer-protection agency to over see banks.
Rep. Ron Paul already has overwhelming support in the House for his legislation that would require the Government Accountability Office (GAO) to audit the Federal Reserve annually and disclose the results to the public. Federal Reserve Chairman Ben Bernanke has publicly spoken out against both plans in an op-ed in the Washington Post. "Independent does not mean unaccountable. In its making of monetary policy, the Fed is highly transparent, providing detailed minutes of policy meetings and regular testimony before Congress, among other information," Bernanke wrote. "Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation."
While Rep. Paul and Sen. Dodd focus on revamping the roll of the Federal Reserve Senator Bernie Sanders (I-VT) is looking to revamp the role of banks in the United States, especially the large that have been deemed “too large too fail.” In an effort to end taxpayer bailouts that were all the rage at the end of 2008 and beginning of 2009, Sanders has introduced legislation that would give Treasury Secretary Timothy Geithner 90 days to list the commercial, investment banks, hedge funds, and insurance companies that have been deemed too big too fail.
These banks would then be broken within one year so that the country economic stability will no longer be dependent on the handful of banks on the list. Rep. Paul Kanjorski (D-PA) is considering a similar measure in the House that would also break up large financial firms. “Nowhere in the world in the future will there be gigantic tsunamis coming out of nowhere and striking the entire world’s economy,” said Kanjorski.
While stripping the Federal Reserve of its power is by far the riskier of the ideas being discussed, insiders say that Senator Dodd purposely started out with the most ambitious plan possible so that he could scale back from a far-reaching point. Dodd is now working with Republican and Democratic groups to scale back aspects of Dodd’s plan. Dodd is working with Banking Committee ranking Republican Richard Shelby to find a middle ground. While Shelby does agree with Dodd that there should be a consolidated regulator for banks, he opposes Dodd's plans for eventually doing away with Federal Reserve.
A compromise should be reached between Shelby and Dodd that would scale back the power of the Federal Reserve without stripping it of power completely. The Federal Reserve is a non-partisan independent entity that is made up of the foremost economic experts in the country. That being said, I strongly feel that no one entity should be holding too much power when it comes to the country’s economic well being. The fallout of those policies having become obvious to almost every American family in the last year.
There is some comfort that while the media focuses more on the health care debate that seems to being widening the partisan divide in Congress, that there are efforts being made from both sides of the aisle to prevent another economic crisis from happening.
