Today, Congress is grilling the Federal Reserve Chairman, posturing and pointing out obvious errors (and there are many) at the Fed. But, much of this 'Monday morning quarterbacking' does little good.
The key point is the level of independence of the Fed and the related process by which decisions are made.
"The Fed must be independent of political forces in its decisions, else the politicians will always decide on favoritism and economic growth at any expense, including hyper
inflation," according to Cogert. "So, it is important that the Fed maintain its independence."
"But, that is certainly not the case at this point. The Treasury and Fed tend to move in lock step, captured by the largest banks they regulate," warns Cogert.
"Like any good Board of Directors, Congressional focus should be on independence and the decision making process used by the Fed."
"The parallel is seen with an insurance company's investment process. Its investment strategy must be part of a strong investment process. And, for the Fed, its decisions and related strategies must be part of a strong process. And, the only way we can begin to determine if that process is strong is by opening it to scrutiny," recommends Cogert.
"All the focus on 'auditing the Fed' misses the point. We should focus on independence and auditing the process by which decisions are made, not simply the books and records. But, we should not ask politicians to influence the decisions that come out of that process."
Cogert notes that "Solid investment results require a solid investment process, something that is outlined in my book, Uncertain Times: A Chief Investment Officer's Journey. And for the Fed, that means we all must have a better understanding of its process, else the results will, at a minimum, be problematical."
"Uncertain Times" is published by CB Woodbridge Publishing and is available on Amazon.com (http://www.tinyurl.com/
Alton R. Cogert, CFA, CPA, CAIA, is President and Chief Executive Officer of Strategic Asset Alliance (www.saai.com)
