- The Washington Times - Monday, October 10, 2005

President Bush last week said the right thing about the requisite political independence of the person he will soon nominate to replace Alan Greenspan as chairman of the Federal Reserve Board. “It’s important that whomever I pick is viewed as an independent person from politics,” he said. “It’s this independence of the Fed that gives people — not only here in America, but the world — confidence.”

Mr. Bush appropriately included “the world.” The world’s confidence in the person principally responsible for directing U.S. monetary policy has been crucial since Congress established the U.S. Federal Reserve System in 1913. Today world confidence is arguably more crucial than ever. Foreign investors, including foreign central banks, have financed more than $1 trillion of the $1.3 trillion in cumulative U.S. budget deficits that the Bush administration has recorded during the past four years (fiscal years 2002 through 2005, which ended Sept. 30).

American private investors have been net sellers of Treasury securities since the end of 2000, while the Fed itself has purchased a little more than $200 billion of Bush-era federal debt. When President Reagan left office, foreign investors owned less than 20 percent of the roughly $1.9 trillion in U.S. Treasury debt that was not held by the Fed or by U.S. government accounts. Nearly 17 years later, overseas investors own nearly 55 percent of that Treasury debt, which has more than doubled to approximately $4 trillion.

Mr. Greenspan is expected to step down at the end of January, when his non-renewable 14-year term as one of the Fed’s seven governors comes to an end. The president said he had not yet seen names of prospective nominees. For what will certainly be the most important economic appointment of his second term, time is running out. The Senate must hold hearings, and the successful nominee, who will receive the customary four-year, renewable term as chairman, must be confirmed by the Senate.

The president said that “a group of people inside the White House,” which includes the influential contribution of Vice President Cheney, “will bring forth nominees.” Mr. Bush said part of the process is to “reach outside the White House and solicit opinions.” For this extremely technical position, if Mr. Bush is considering another surprise appointment, which could come from the business sector, he should recall the disaster that befell the U.S. economy when President Carter, relying upon the suggestions of major industrialists, nominated G. William Miller, the chairman and CEO of Textron, Inc., as Fed chairman in 1977. Outside suggestions are good. The unorthodox selection of an unqualified nominee is not.

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