Without even looking at the bill (or perhaps simply not caring to report the truth), rumors abound that the bill will purposely interfere with the Fed's monetary and interest rate policy.
Please consider Why the "Audit the Fed" Movement Is Dead Wrong by Hale "Bonddad" Stewart. Here is a summary of points Bonddad, followed with my rebuttal.
Bondad asks:
�So -- we already have an audit every year. Why do we need another one?�
�There are two answers to that question. The first is downright scary: the Texas Republican's proposal requiring audits of the central bank's interest-rate decisions is getting traction.�
Mish Reply:
If there is nothing to hide, why object?
Bear in mind there are many things the Fed does not report on but should. There is is no marked-to-market reporting of what is on the Fed�s balance sheet nor is there accounting for currency swaps to foreign central banks.
Moreover, Ron Paul explicitly put wording in his bill to not question the Fed�s interest rate decisions or monetary policy, and Ron Paul himself has concerns about the Fed's independence from politics.
Please consider the New York Times article Ron Paul Defends His Plan for Fed Oversight.
Defending himself against critics, Representative Ron Paul of Texas played down continuing concerns on Friday that his amendment to give Congress sweeping new oversight powers over the Federal Reserve would compromise the central bank�s political independence. He asserted that the Fed was not truly as independent as it would like the public to believe.What Would Ron Paul's Bill Do?
�There is already a tremendous amount of political pressure on the Fed,� Mr. Paul, a libertarian Republican, told DealBook. �The Federal Reserve Board chairmen have notoriously been sympathetic to the presidents who might be reappointing them and there has been evidence to show that.�
Mr. Paul also asserted that the Fed was beholden to pressures beyond the government from special interests, including Wall Street. �It�s not like the banks and Goldman Sachs doesn�t have influence over the Fed,� Mr. Paul said. �Every time the Fed says it wants its independence, what they are really saying is we want to keep our secrets.�
Mr. Paul also said the amendment specifically barred Congress from intervening in any aspect of monetary policy and that any audits of the Federal Reserve�s decisions to raise or lower interests rates would be made available to Congress on a six-month time lag.
Please consider the Wall Street Journal article What Fed-Audit Legislation Would Mean.
What would Ron Paul's bill do?
The Federal Reserve Transparency Act of 2009, H.R. 1207, simply directs the comptroller general (who heads the GAO) to complete an audit of the Fed system�the Board and regional banks�before the end of 2010 and report his findings to Congress.Sadly, many are swept up in the Fed hype without reading what the bill actually says or understanding the reason for it.
Mr. Paul, in an interview, said he expects the audit to detail who the Fed lends to, how much it lends and what agreements it has with foreign central banks and financing organizations. Mr. Paul said he wants the Fed to be audited at least annually.
Should Anyone Question The Fed's Decisions?
Bondad goes on to say �The absolute last thing we need is for anyone to second guess the Fed's interest rate decisions.�
I strongly disagree. It is entirely correct to second guess the Fed�s interest rate policy. The reason is the Fed has done nothing but blow bubbles of increasing magnitude for decades.
It should be crystal clear to everyone that the Fed held interest rates too low, too long spawning off the world�s biggest credit bubble as well as the world�s biggest real estate bubble.
Amazingly, Bondad does not want anyone questioning Fed policy, no matter how bad it is. Apparently the Fed is God, who cannot be questioned or make a mistake.
There is a distinct difference between independence and secrecy. There is also a distinct difference between interfering in monetary policy and questioning monetary policy.
Suppressing comments is a dangerous thing, it's just a little thing called "freedom of speech". I have a right to question (second guess) Fed policy, and so does everyone else. It would be a sad day indeed for that right to be lost.
Sadly, Bondad, George Will, and others wittingly or unwittingly have become pawns for the Fed's power grab.
Irrational vs. Irrational Exuberance
Image thanks to Matson at the New York Observer
Pawns For The Fed
- George Will (Washington Post): Rise of the Fed bashers
- Time Magazine: Time Magazine's Kiss of Death: "You!"
- Bondad (Huffington Post): Why the "Audit the Fed" Movement Is Dead Wrong
- Catherine Dodge (Bloomberg): Ron Paul�s Fed-Bashing Wins Over Lawmakers Wary of Bank�s Power
- Robert J. Samuelson (Washington Post): Fed 'reform' we don't want
Getting It Right
The Ludwig von Mises Institute gets it right. Please consider Auditing the Fed will Audit the State
If Ron Paul succeeds in getting the Fed audited, the consequences could be far-reaching. Assuming the audit isn't rigged to protect the guilty, as a similar bill was in 1978, the Fed will need every obfuscating Keynesian to testify and write editorials on its behalf, to reassure the public that monetary matters really are best left to the gods who rule us, such as Ben Bernanke and Timothy Geithner. Monetarists, too, would likely join the "Save the Fed" crusade, perhaps arguing that even a great free market economist like Milton Friedman considered the Fed useful for preventing and curing recessions.Audit The Fed - Then Abolish It
But the really appetizing part of auditing the Fed is knowing what stands behind it. The Fed is a racket at heart, a con game writ large � what else can you call an organization with the exclusive privilege of printing money in the trillions and handing it over to friends? But if this is true, what does that say about the state, the organization that created and sanctions it? Is the Fed an honest mistake in the state's otherwise undying efforts to preserve our liberty, or might it be a key component of a bigger racket?
Without the power of the state, there would be no proposal to audit the Fed because there would be no Fed to audit. Like any cartel, it exists to protect its members from market retribution, and only the police power of the state can make us shoulder that burden. A bill to audit the Fed could by force of logic become a state audit, much like the investigations of the 1972 Watergate burglary exposed the grinning skull behind the government's public persona. During a Fed audit, for example, would it not be reasonable to ask why the people's elected representatives continue to support a banking system that secretly steals wealth from their countrymen and other dollar holders? Or are we to take the na�ve position that most elected officials really are clueless about the Fed's policy of currency debasement and the effects such policies have had in history?
The last thing we need is to give still more powers to the Fed. Instead we should get rid of it.
Please see Thoughts on Fed's Exit Strategy: Stephen Roach vs. Mish for a case that the Fed is fatally flawed, cannot be fixed, and should be phased out along with fractional reserve lending.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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