The Dangers of a Fed Audit

[Oddball]

Why do you trust the Fed with the money supply?

Because they are isolated from political pressures.

How is a person who is appointed by the POTUS (the fed chairman) "isolated" from political pressures?

There's no isolation from politics in government. To think otherwise is naive to say the least.

That's our Polkie!

 

[Toro]

Ron Paul's bill threatens the Fed's independence and Congress would have more influence on the setting of interest rates, a horrible idea.

The Federal Reserve Transparency Act sounds like something everyone should support. But the legislation, introduced by Rep. Ron Paul (R-Tex.), is not really about transparency. The implications of H.R. 1207 are suggested more accurately by the title of Paul's best-selling book: "End the Fed." If enacted, this bill would subject the Fed's monetary policy decisions and its dealings with foreign central banks to audit by the Government Accountability Office (GAO) -- which normally acts on requests from Congress. Under current law, these aspects of Fed business have been explicitly ruled off-limits (though the rest is auditable).

Is this extension of the GAO's reach, and hence that of Congress, a good idea? If you believe we'd get better monetary policy with decisions made by Congress in open debate, or heavily influenced by congressional opinion, it certainly is. But how many actually believe that? Very, very few.

H.R. 1207 seems innocuous enough. The overall question it raises sounds fair: After all, why should the Fed be immune from audit? In fact, it is not. The Fed already gets its books examined regularly. Let me assure you, Chairman Bernanke is not flying in private jets or lunching on caviar. Furthermore, the GAO is already authorized to examine most aspects of Fed operations. It can audit the Fed's special financial arrangements for Bear Stearns, AIG, Citigroup and Bank of America -- to name the most prominent examples.

In addition, the chairman and other Fed officials testify frequently before congressional committees, including on monetary policy -- precisely the area in which it is independent of (but accountable to) Congress. And the Fed's monetary policy decisions are dissected and evaluated by markets and the media in excruciating detail on a virtually continuous basis. The Fed gets plenty of scrutiny -- as it should.

But a congressional audit of monetary policy -- remember, the GAO works for Congress -- could easily develop into something quite different. Here is a not-very-hypothetical example:

In all likelihood, the Fed will begin the process of exiting from its current hyper-expansionary monetary policy next year. When it does so, interest rates will start rising even though unemployment is still high. It is entirely predictable that some in Congress will be unhappy with the Fed's decisions, maybe even livid. Would we welcome a critical GAO audit of monetary policy, which members of Congress could use to browbeat, perhaps even to intimidate, members of the Fed's rate-setting body, the Federal Open Market Committee? Would we like to see the FOMC members called on the congressional carpet to explain why they are "killing jobs"? Would we like Congress to override the Fed's decisions and set monetary policy -- which is its constitutional right? I think and hope not.

An independent monetary policy, designed and executed by the Federal Reserve, is one of the great and enduring achievements of the Progressive Era. It has enabled the long time-horizons of technocrats to triumph over the short-term perspectives of politicians, bringing us low inflation over the decades. Because of this, and because technocratic monetary policy seems to be more skillful than political monetary policy, the Fed's independence has been admired and imitated by country after country. Passage of the Paul bill would be a step away from independent monetary policy and a step toward ending the Fed as we know it.

That is a step we should not take.

Alan Blinder: Danger lies in threat to Fed independence - washingtonpost.com

 

[Neubarth]

Under the present circumstances, I do not know of another organization that could do better than the Fed.

Unfortunately they are hand tied in what they can effectively do.

Everyone that I talk to in my journeys across the nation seems to think that the Fed is all powerful. In actuality they are very limited in what they can do, BUT what they can do can have awesome impact on our economy.

Unfortunately, the present administration is not taking concrete measures to put people back to work. For a year now I have been calling for a CCC type program that could be extended to our cities with the hiring of ORCS and other similar positions. Why in the hell are we not putting people to work rather than trying to deceive the people about the massive degree of this Depression? Why?

 

[Polk]

Why do you trust the Fed with the money supply?

Because they are isolated from political pressures.

How is a person who is appointed by the POTUS (the fed chairman) "isolated" from political pressures?

There's no isolation from politics in government. To think otherwise is naive to say the least.

Because, once appointed, they can't be removed from the position. Same reason Supreme Court justices are isolated from political pressures.

 

[Neubarth]

Because they are isolated from political pressures.

How is a person who is appointed by the POTUS (the fed chairman) "isolated" from political pressures?

There's no isolation from politics in government. To think otherwise is naive to say the least.

Because, once appointed, they can't be removed from the position. Same reason Supreme Court justices are isolated from political pressures.

That is not correct.

 

[Neubarth]

The chair is subject to Senate confirmation to a four-year term. Consequently, the Senate has some oversight every four years.

 

[Toro]

Under the present circumstances, I do not know of another organization that could do better than the Fed.

The Fed has a lot to answer, given its roll in the financial crisis. Dismantling it and creating another central bank would certainly be an option. However, removing politicians as far away from the money supply is nothing but a good thing.

Some possible changes.

The Senate Banking Committee is considering legislation to strip the Fed of its role supervising big banks -- despite the Fed's insistence that doing so would cripple its ability to prevent and manage financial crises. ...

Both chambers are moving toward altering the Fed's governance, particularly reducing the role that private bankers play in overseeing the 12 regional Fed banks created in 1913 as a counterbalance to the Fed board in Washington. And both houses are likely to embrace President Barack Obama's proposal to shift the Fed's financial consumer-protection duties to a new agency, arguing that the Fed failed to protect consumers during the housing boom.

http://online.wsj.com/article/SB125876136781358287.html#mod=todays_us_page_one

More from the same article.

The legislative provision that would allow the congressional Government Accountability Office to audit Fed monetary policy, pushed successfully in the House Financial Services Committee by Rep. Ron Paul (R., Texas), is causing particular alarm. Ms. Rivlin deemed it "quite dangerous with respect to the independence of the Fed."

"I think it is going to be seen as weakening the independence of monetary policy with consequent negative implications," Mr. Frank said, criticizing the Paul provision. "I think people will be worried about the impact on the dollar, on the interest rate -- and I think that one may be revisited when we get to the floor."

 

[Neubarth]

Well spoken and quoted Toro. I can not see that change in the Fed will solve any of our problems.

Seventy percent of our economy is service sector. The measures taken by the Obama administration are not solving the problem of our collapsing economy.

We need to create Jobs, not richer bankers.

What we need for the time being is a rebirth of the CCC that Roosevelt used to some effect in the 1930's to get young men out of the cities and into a working environment and in a position where they could help support their stay at home family members.

This time we need to create jobs in the Big Cities. We should have ORCS (Outside Refuse Control Specialists) who have a flat shovel, a fifty gallon barrel on wheels and a broom to clean up the streets in an assigned area. If their streets are not cleaned, they do not get paid. Simple issue, but it would put people to work and help clean up America.

I can see the ORCS chasing kids down the streets with their flat shovels in the air because the kids littered the street just before afternoon inspection.

 

[Truthmatters]

Funny how the right who hate government want government to control the fed.

 

[Kevin_Kennedy]

Funny how the right who hate government want government to control the fed.

Well that's not what this bill does, and that certainly isn't what Ron Paul wants at all. He wants the market to take care of the things the Fed does, not just a different central planner.

 

[CrusaderFrank]

I know!

Let's audit the Fed, then burn it to the ground.

 

[Polk]

Funny how the right who hate government want government to control the fed.

Well that's not what this bill does, and that certainly isn't what Ron Paul wants at all. He wants the market to take care of the things the Fed does, not just a different central planner.

Yeah, Paul wants it turned over to Congress.

 

[Truthmatters]

Funny how the right who hate government want government to control the fed.

Well that's not what this bill does, and that certainly isn't what Ron Paul wants at all. He wants the market to take care of the things the Fed does, not just a different central planner.

Show me the the time in history where the market took care of things?

 

[Kevin_Kennedy]

Funny how the right who hate government want government to control the fed.

Well that's not what this bill does, and that certainly isn't what Ron Paul wants at all. He wants the market to take care of the things the Fed does, not just a different central planner.

Yeah, Paul wants it turned over to Congress.

No, he doesn't. He wants the market to handle it.

 

[CrusaderFrank]

Funny how the right who hate government want government to control the fed.

Well that's not what this bill does, and that certainly isn't what Ron Paul wants at all. He wants the market to take care of the things the Fed does, not just a different central planner.

Yeah, Paul wants it turned over to Congress.

You mean like it says in the Constitution before we got fucked over?

Oh, repeal the 16th Amendment while we're at it

 

[Kevin_Kennedy]

Funny how the right who hate government want government to control the fed.

Well that's not what this bill does, and that certainly isn't what Ron Paul wants at all. He wants the market to take care of the things the Fed does, not just a different central planner.

Show me the the time in history where the market took care of things?

Show me a time in history where government decided to limit it's own power to let the market take care of things.

 

[Truthmatters]

The market unfettered will never happen and would never work.

Its all an Idea and has NO basis in fact.

Its a fantasy.

 

[Kevin_Kennedy]

The market unfettered will never happen and would never work.

Its all an Idea and has NO basis in fact.

Its a fantasy.

Thinking that the government can make everything all better is a fantasy, but a fantasy that must be tried time and time again. And it fails time and time again.

 

[Toro]

Well that's not what this bill does, and that certainly isn't what Ron Paul wants at all. He wants the market to take care of the things the Fed does, not just a different central planner.

Yeah, Paul wants it turned over to Congress.

You mean like it says in the Constitution before we got fucked over?

Oh, repeal the 16th Amendment while we're at it

Nancy Pelosi, Chairperson of the Federal Reserve Open Market Committee.

Has a nice ring, doesn't it?

 

[Truthmatters]

The market unfettered will never happen and would never work.

Its all an Idea and has NO basis in fact.

Its a fantasy.

Thinking that the government can make everything all better is a fantasy, but a fantasy that must be tried time and time again. And it fails time and time again.

Of, by and for the people.

Its the people trying to improve their lives.

Who the fuck told you anything was ever perfect?

Nothing is perfect and our founders never promised it would be.

Unfettered markets are a myth, they never have been unfettered and never will be.

Learn to discuss what fetters and how they will work instead of acting like a child and insisting the impossible be done.