North Korean Money and the Fed

Kevin Hassett, Director of Economic Policy Studies at the  American Enterprise Institute, asks, “Why did the Fed help North Korea launder money?”  I’m no economist, so I’m interested in how the transaction  could affect the Federal Reserve system.  Hassett thinks  this transaction simultaneously  inseminated the Fed with dirty money and politics, and he doesn’t think we’re going to like what we see at the end of the gestation.  You ought to read the whole piece, but here’s a graf:

It may or may not have been sound foreign policy to make this concession to the North Koreans. The problem for the Fed is that there are enough people in Washington who think it was a catastrophic error. There will almost certainly be a lengthy investigation into the matter. If that investigation turns up legal technicalities that go against the Fed, then hearings will happen, and heads may roll.

The worst outcome is this: If somebody in Congress disagrees with the Fed’s monetary policy, they now have a weapon they can use against the central bank. That can’t be good for monetary policy.

Back in 1993, Alan Greenspan, Fed chairman at the time, was widely criticized for attending President Bill Clinton’s first State of the Union address, allowing himself to be photographed sitting next to Hillary Clinton. He was rapped because Americans rightly expect the Fed to focus on monetary policy, and stay out of the political fray.

By allowing the New York Fed to be a pawn of the State Department and the North Koreans, Chairman Ben S. Bernanke has introduced the Fed into a complicated diplomatic game that has nothing to do with its legal responsibilities.

He isn’t sitting next to Hillary Clinton; he is sitting next to Kim Jong Il. It is hard to imagine why anyone at the Fed would think that is a good idea.

See also:

*   Chris Hill talks about AF 2.0 and timing, starting with the shutdown of North Korea’s most expendable nuclear facility, and moving on to its least expendable ones:

“Our sense is we will be down to a matter of weeks,” he said. “We are not talking about months.

In the next phase, the North would declare all its nuclear programs and disable all facilities in return for a further 950,000 tons of fuel oil.

Mr. Hill said that from a “technical point of view” it would be possible to conclude this part of the agreement by the end of the year.  [NY Times]

“Weeks not months” is one of Hill’s favorite stock phrases,  but  truth has always  been closer to “months, if not years.”   Even taking Hill’s most optimistic estimate at face value, it  brings us to the very eve of 2008, when everyone  including Kim Jong Il  will  watching the primaries, and when Bush’s term will be a year from expiration.   Who really thinks that Kim Jong Il will feel a sense of urgency  to move quickly toward compliance under those circumstances, thus handing  a  lame-duck president he  despises  the biggest cards in his deck?   Who really believes that Kim would pass up the chance  to try his luck with President Obama or another President Clinton,  from  whom he’d undoubtedly get  a whole new round of concessions and payoffs?

*   Your Chongryon/Chosen Soren death watch continues here.