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Putting the Republican attempt to hobble the Fed in perspective: important to realize that financial crises have been a defining feature of the world economy these past 25 years 1/ https://www.nytimes.com/2020/12/17/us/politics/closing-in-on-stimulus-deal-lawmakers-clash-over-feds-role.html?action=click&module=Top%20Stories&pgtype=Homepage
The run arguably began with Mexico's tequila crisis in 1995; then there was the Asian crisis of 1997-8, the horrifying global crisis of 2008, the euro crisis of 2010-12, and a brief but very scary breakdown in March 2020 2/
I generally think of these crises in terms of the framework Shleifer and Vishny offered in 1997, explaining how it's possible for some assets to become massively underpriced; why don't buyers rush in? 3/
The answer is that the people/institutions who have the knowledge to buy also tend to already own a lot of the assets in question. When prices crash, they're left without cash or the collateral to borrow, so they can't play their usual stabilizing role 4/
That's where the Fed and other central banks come in. When the financial system seizes up, they can step in — because they can print cash! — and prevent a self-reinforcing downward spiral. Often the promise that they will intervene if necessary ("whatever it takes") is enough 5/
Has the Fed ever abused this power? No. Right-wing complaints about the Fed's role have tended to be along the lines of "We're supposed to be having a crisis but the Fed is preventing it" which is not exactly a bad thing. 6/
But Republicans are trying to ensure that the Fed can't do its job if there's a crisis under Biden. They're barely even trying to offer a coherent rationale. And this attempt at sabotage may scuttle a Covid relief bill 7/
