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Will Fed Marginalize Regional Bank Presidents To Monetize Debt?

|Includes: ProShares UltraShort 20+ Year Treasury ETF (TBT), TLT

A Wall Street Journal article dated May 23rd contains an interesting nugget about the potential marginalization of regional bank presidents who are members of the Federal Open Market Committee. Some FOMC members, including Richard Fisher of the Dallas Federal Reserve Bank, have criticized Fed Chairman Ben Bernanke's policy of "monetizing the debt," i.e., using electronically printed money to buy Treasury bonds, thereby essentially converting government obligations into dollars in circulation.

Such a policy has obvious inflationary consequences, something Fed officials have been loath to acknowledge. As the above-referenced article explains, there has apparently been some consideration of excluding officials such as Fisher from membership in the FOMC. Writes the Wall Street Journal's Mary O'Grady:

Voices like Mr. Fisher's can be a problem for the politicians, which may be why recently there have been rumblings in Washington about revoking the automatic FOMC membership that comes with being a regional bank president. Does Mr. Fisher have any thoughts about that?

This is nothing new, he points out, briefly reviewing the history of the political struggle over monetary policy in the U.S. "The reason why the banks were put in the mix by [President Woodrow] Wilson in 1913, the reason it was structured the way it was structured, was so that you could offset the political power of Washington and the money center in New York with the regional banks. They represented Main Street.

"Now we have this great populist fervor and the banks are arguing for Main Street, largely. I have heard these arguments before and studied the history. I am not losing a lot of sleep over it," he says with a defiant Texas twang that I had not previously detected. "I don't think that it'd be the best signal to send to the market right now that you want to totally politicize the process."

When we read stories like this one, it seems only logical that investors have started dumping Treasuries.

Disclosure: Short 30-year Treasury bond futures.