| Story Views | |
| Now: | |
| Last Hour: | |
| Last 24 Hours: | |
| Total: | |
What Happened to the Anti-Federal Reserve Left?
TND Guest Contributor: Paul-Martin Foss |
Two disappointing items of news in recent days make it look as though the anti-Federal Reserve left has disappeared as thoroughly as the antiwar left. First, longtime Fed critic Senator Bernie Sanders called for the Federal Reserve to pressure the European Central Bank to bail out the Greek government. Then, “progressive” darling Senator Elizabeth Warren came out in opposition to Senator Rand Paul’s Audit the Fed bill. What is going on?
Bernie Sanders is perhaps the more disappointing of the two, since he has always been a staunch critic of the Fed. Yet now he is writing to Janet Yellen to ask her to use the Fed’s leverage via its currency swap arrangements with the ECB to pressure the ECB not to continue its current, heavily conditional bailout policy towards Greece. Indeed, it seems that he wants the ECB to bail out the Greek government with no strings attached. You would think that someone who has been so critical of Fed policy, and who undoubtedly understands that the Fed’s agreements with foreign governments and central banks are opaque and exempt from audit, would seek to end the currency swaps altogether, rather than use a policy tool he disagrees with as leverage to influence foreign governments.
Elizabeth Warren’s stance isn’t terribly surprising, as she’s always postured as a progressive but voted like an Establishment liberal. She talks a good game about breaking up banks, but when the rubber meets the road, she inevitably opposes reform efforts that have any teeth, thus her opposition to Audit the Fed. Mrs. Warren was quoted as saying:
I strongly support and continue to press for greater congressional oversight of the Fed’s regulatory and supervisory responsibilities, and I believe the Fed’s balance sheet should be regularly audited – which the law already requires.
…
But I oppose the current version of this bill because it promotes congressional meddling in the Fed’s monetary policy decisions, which risks politicizing those decisions and may have dangerous implications for financial stability and the health of the global economy.
It would have helped her position had she actually read the law, and then read the sections of law that Audit the Fed seeks to change, namely 31 U.S.C. 714(b).
Audits of the Board and Federal reserve banks may not include-
(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.
That right there means that pretty much everything the Fed does with relation to monetary policy is exempt from audit. Those trillions of dollars of securities the Fed purchased? Too bad, GAO, you can’t audit them. As Deputy Comptroller General Ellsworth H. Morse, Jr.testified in 1977 when the bill that introduced these restrictions was being debated [emphasis added]:
The bill provides authority to make comprehensive audits of the operations of the three named bank supervisory agencies. Two restrictions are provided:
1. The audits will not include transactions conducted on behalf of foreign central banks.
2. The audits will not include monetary policy deliberations and open market transactions conducted to promote
maximum employment, production and purchasing power.
…
H.R. 2176 provides that our auditing would not include open market transactions conducted by the Federal Reserve System. We strongly suggest that this restriction be modified. The open market transactions are the largest category of financial transactions carried out by the System.
…
We do not see how we can satisfactorily audit the Federal Reserve System without authority to examine the largest single category of financial transactions and assets that it has. It is our understanding that the restriction in the bill that we would not audit monetary policy deliberations and open market transactions grows out of concern that our auditing would somehow undermine the independence of the Federal Reserve System with respect to its monetary and credit operations and damage the Nation’s monetary policymaking system. Needless to say, as we have testified on previous occasions, we do not concur in this view.
As Mr. Morse alluded to right there in his testimony, Comptroller General Elmer B. Staatstestified in 1975 on an earlier Fed audit bill that contained no such restrictions and addressed some of the concerns of GAO’s critics:
The bill provides no restrictions of any kind on the scope of the GAO audit or on access to records for audit purposes. This is satisfactory to us. In fact, if we are to be authorized and directed to audit the Federal Reserve System, we would recommend that the authorizing law contain no restrictions.
Last year when legislation on this subject was being considered, charges were made that a GAO audit would undermine the independence of the Federal Reserve System with respect to its monetary and credit operations and damage the Nation’s monetary policymaking system. Needless to say we do not concur in this view.
Should the Congress wish to restrict the audit to take into account this criticism, one restriction that could be written into the law would be to specifically provide that our audit reports to the Congress or its committees shall not contain conclusions or recommendations with respect to the economic effects (as opposed to the efficiency and economy) of open market and discount operations.
There you have it. The objections on the part of Mrs. Warren and the various Federal Reserve Presidents are not new, they’ve been debated for over 40 years. These statements from GAO addressing Mrs. Warren’s concerns aren’t hidden, they’re freely available on the GAO website for anyone who wants to take the time and effort to search them out and read them. Either she and her staff haven’t bothered to study the legislative and historical record, or she is intent on carrying the Fed’s water (or both).
The Fed knows exactly how thorough a full GAO audit could be, which is why it and its defenders in Congress such as Mrs. Warren are so vehemently opposed to Audit the Fed. Anaudit of financial statements, which is already required under law, is not the same as auditing the actual assets on the balance sheet. Congress wants to know who the Fed is helping, and to what extent they are helping them.
As the financial crisis showed, big Wall Street firms and large foreign banks received an inordinate amount of financial support. Had there not been a push for transparency and resulting legislation to force transparency, the Fed never would have released details on those transactions. But going forward, Congress is still largely in the dark. Based on Mrs. Warren’s objection to Audit the Fed, it appears that she would rather it stay that way, maintaining the crony capitalist status quo.
# # # #
About Paul-Martin Foss:
Paul-Martin Foss is the founder, President, and Executive Director of the Carl Menger Center for the Study of Money and Banking, an Arlington, VA-based think tank dedicated to educating the American people on the importance of sound money and sound banking.
Prior to founding the Menger Center, Mr. Foss worked in the U.S. House of Representatives for seven years, including six years as Congressman Ron Paul’s legislative assistant for monetary policy and financial services, and one year as Deputy Legislative Director for Congressman Thomas Massie.
As Congressman Paul’s legislative assistant, he assisted the Congressman in his duties as Chairman of the Subcommittee on Domestic Monetary Policy by helping to develop hearing topics, agendas, and briefing Congressmen and their staffs on monetary policy topics. Mr. Foss also was responsible for the management of Dr. Paul’s monetary policy and financial services legislation, including the “Audit the Fed” and “End the Fed” bills, and was co-editor of Ron Paul’s Monetary Policy Anthology, a multi-thousand page compilation of hearing transcripts, lecture transcripts, and other documents related to Dr. Paul’s chairmanship.
Mr. Foss received his Bachelor’s degree from The University of the South (Sewanee), and Master’s degrees from the London School of Economics and Georgetown University’s Edmund A. Walsh School of Foreign Service.
This article appeared on the Carl Menger Center for the Study of Money and Banking and is reprinted with permission, “Creative Commons 4.0.”
Source: http://thenewsdoctors.com/what-happened-to-the-anti-federal-reserve-left/
