The Guest Blog

Busch: 'BENigans' Part II

Today, the US Senate Banking committee will likely vote to recommend current Federal Reserve chairman for another four year term.

This is not interesting.

What is interesting is the increasing number of senators that are saying they will vote against him. Clearly, the American public needs a villain or several villains for what happened over the last 2 years. GoldmanSachs is one of them. The other appears to be Bernanke. Someone needs to take the blame for the 10% unemployment rate. Middle income voters feel that Bernanke & Co. bailed out Wall Street over Main Street. The banker bonus situation further fans these flames of distrust.

Ben Bernanke

Oregon Democrat Jeff Merkley is the latest to join this camp. " "We need to have leadership that understands the goal is not Wall Street profits. The focus should be on how do you enable families to thrive and prosper."

Also, the American public is nervous over the amount of power Bernanke/Paulson wielded during the crisis. As I've written (and others), the meeting in September between Paulson, Bernanke, and Congress where they asked Ben how much money he could bring ($800 billion) to support the financial market crisis was an eye opener.

It underscored that the Fed was the fourth and unelected branch of government with freedom to access the taxpayers pocketbook via the Fed's balance sheet.

Essentially, no one has granted the Fed the explicit authority to expand the balance sheet from $800 billion to the now gargantuan $2.2 trillion.

This is why it's very likely the financial regulatory bill that is winding through the US Senate will reduce the Fed's ability to do this unsupervised. Also, there is strong agreement within the Senate Banking committee that the Fed should lose its authority to regulate the financial industry. Both of these actions underscore the public's distrust and anger towards the Fed.

This will fulminate during the vote to confirm in front of the full senate in January. Normally, the vote will be very strongly in favor of confirmation with the yeas at 70+. This time, we could see a vote as low as 65. For the markets, this will create further questions over the independence of the Federal Reserve and whether the they will act to raise rates before the unemployment rate drops significantly.

I would expect the Fed to completely telegraph their moves before they act because of this predicament. They don't want to surprise anyone in Congress (or the the markets) and want to mitigate the political fallout that will come from reducing the monetary stimulus.

Andrew B. Busch is Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and

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