Even the farsighted Founding Fathers could not have foreseen this–the Fed is now on Twitter! Just think of the possibilities– one fine Friday any Fed functionary could foment a world crisis in 140 characters or less! It could be as simple as a typo.
For example, the Fed's second tweet was: "Watch a video of Chairman #Bernanke explaining the structure of the Federal Reserve. #fed #economy"
What if it accidentally read: "Watch a video of Chairman #Bernanke exploding the structure of the Federal Reserve. #fed #economy"
Or even worse, what if a disgruntled Fed employee tweeted: "New Fed figures fuel inflation fears–discount rate will be set at 11% next week"
Get the idea?
Perhaps it's a laudable thing that the Fed wants to move into the 21st century by means of instant communication through Twitter. But I wonder–does anyone really need a "cool Fed" or a "fab Fed?" Remember the famous "briefcase theory" during the tenure of Alan Greenspan? That theory held that if Greenspan left his house (on a day when the Open Market Committee was meeting) with a bulging briefcase, it was because the Chairman had armed himself with a battery of statistical reports and planned to argue a rate change. However, a slimmer briefcase indicated that the FOMC would leave rates alone (this was, of course, in pre-iPad times.) If people actually resorted to measuring the thickness of a briefcase for a sign of policy change, how long would it be before almost anything that was tweeted acquired major significance? After all, just a couple weeks ago the price of gold dropped by a whopping four percent, evidently because Chairman Benrnanke made a comment about improving employment conditions. So, in a world where the images of the Virgin Mary regularly appear on tuna melts, it's a safe bet that someone somewhere will find Nostradamus-like predictions cleverly hidden in the verbiage of an otherwise banal tweet.
Moreover, why does the Fed feel the need to instantly communicate at all? Looking back, the only time that instant communication was really necessary was during the financial crisis of 2008. Therefore my conclusion is that the Fed opened a Twitter account because it is anticipating another even worse financial crisis in the very near future–must be, right? (See what I did there?)
Remember that during the crisis of 2008 the Fed decided to "open the window," a move which allowed non-banks such as Morgan Stanley and Goldman to borrow (at virtually no cost) directly from the Fed to cover their suddenly dire cash needs. A Twitter account opens a new kind of window directly into the Fed, and who knows who might be looking in. It's not exactly news that social networks can be hacked. Just imagine what could happen if someone with sub-prime intentions got control of The Fed's twitter account for all of 15 minutes. Worse than that, I wonder if it's a good thing to have the American public seeing, as they might through this new window, just what the Fed does and how it operates–and that it can more or less print money for any purpose at any time.
People are already responding to the Fed's tweets. In fact, @ronsupportsyou responded to that second tweet about the structure of the Fed with the following: "I would like you to explain (to me and to other American savers) why interest rates that you set can't be a little higher." So, how do you answer that one, Ben? Or maybe you don't answer at all? But if you don't answer, what will the markets read into your lack of a response? I can only hope that the good people of the Federal Reserve have thought this through.
Transparency is an important element of a democratic government, but nobody would want a transparent CIA, and I'm not sure that anybody really wants a fully transparent Fed. Remember what Tocqueville said:
"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy…"
That was written– before radio, telegraphs, telephones, fax machines, the Internet, and of course Twitter–in the 1830s!
This article originally appeared on Credit.com. @creditexperts