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More Opposition To Auditing The Fed – Paul-Martin Foss
TND Guest Contributor: Paul-Martin Foss |
“Audit the Fed” failed to pass the Senate yesterday, failing to gain the 60 votes needed to invoke cloture. There should have been far more Senators voting in favor of bringing the bill up for a vote, but such is life. There will certainly be other opportunities in the future. But one thing that needs to occur is for Establishment opposition to be overcome. In advance of yesterday’s vote, there was a lot of opposition voiced to Audit the Fed from Washington insiders. Two examples that we’d like to point out are from Fed Chairman Janet Yellen and from the US Chamber of Commerce.
Chairman Yellen wrote a letter last Friday to Senate Majority Leader Mitch McConnell and Senate Minority Leader Harry Reid in opposition to Audit the Fed. She makes some of the same mistaken arguments as Ben Bernanke does, namely that the Fed is already audited.
The “Audit the Fed” bill currently pending before the Senate is based on a false premise–that the Federal Reserve is not subject to an audit. To the contrary, under existing law, the financial statements of the Federal Reserve System are audited annually by an independent accounting firm under the supervision of the Inspector General for the Board. These audited financial statements are made publicly available and provided to Congress annually. In addition, the Congress and the Government Accountability Office (GAO) can conduct financial and operational audits of the Federal Reserve and have done so on many occasions. In particular, for non—monetary policy activities undertaken by the Federal Reserve, such as banking supervision and regulation, the GAO already has full audit review authority. The Federal Reserve has always fully cooperated, and will continue to fully cooperate, with any financial or operational audits of the Federal Reserve that the Congress deems necessary.
What she glosses over and hopes the non-critical reader fails to pick up on is that GAO cannot audit anything related to monetary policy. Per 31 USC 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.
Want to find out how many Treasury securities the Fed purchased from Bank of America last year? Sorry, GAO isn’t allowed to find that out. Want to find out how many mortgage-backed securities the Fed purchased from Goldman Sachs last year? Sorry, that’s off-limits too. Want to find out how much financial assistance the Fed provided to US branches of foreign banks last year?. Guess what, that stays a secret too. Do you detect a pattern here? The Fed wants to keep its operations a secret from Congress. That is the crux of the issue, and Audit the Fed is the crowbar that would pry open the Fed’s secrets.
Of course no self-serving letter from a bureaucrat to Congress would be complete without Chicken Little hyperbole about how the world will end if Congress doesn’t let the bureaucrats run amok.
This bill risks undoing the steady progress that has been made on the economic recovery over recent years in an environment with low and stable inflation expectations; progress that was made in part because Federal Reserve [sic] is able to make independent decision in the longer-term economic interests of the American people.
To those who know better, that’s just laughable. The “economic recovery” has been a years-long economic stagnation, threatened now by ever-increasing economic bubbles. That underlying economic weakness is going to show its face in the next year or two and make 2008 look like a cake-walk. Will the Fed accept the deserved blame for that too, just as it tries to take credit for the little bit of less-than-horrible economic growth that’s taking place now?
Then there’s the other part of the Establishment that hates Audit the Fed, the lobbying groups. The US Chamber of Commerce sent a letter on Monday to the members of the US Senate urging them to vote against Audit the Fed. As the Chamber stated:
Independent Federal Reserve authority is necessary to develop stable monetary policy, devoid of political interference, in order for markets to operate efficiently and spur economic growth. Stable monetary policy is an essential element for businesses to access the capital needed to grow and create jobs. Creating outside pressures that could politicize monetary policy decisions would likely harm the market foundations needed to fuel the free enterprise system.
The Chamber remains committed to sound, workable, financial regulatory reform. However, S. 2232, the Federal Reserve Transparency Act of 2015,” has the potential to harm policy making necessary for free markets to operate efficiently. The Chamber opposes S. 2232 and urges you to vote against it.
Since when do free markets require the existence of a politically-privileged monopolist in order to function? The Federal Reserve System is not a market creation, it is a creature of Congress that inhibits the free market operation of banks, stifles the free market provision of currency, and imperils the continued existence of free markets through the booms and busts of the business cycle which it causes through its monetary policy operations. This is where you have to be very careful with organizations that claim to support free markets, especially when they also claim to be “pro-business.” What they really mean is that they want to maintain the status quo, in which big banks gain the first access to the Fed’s easy money and large corporations get first crack at borrowing that money at below-market interest rates. What the Chamber really is worried about is that if the Fed is held accountable and can’t engage in its usual shenanigans, or if the Fed were to cease to exist, that the Chamber’s largest members would see their businesses eaten away by smaller businesses who now would be able to compete against them on a more-level playing field.
This is why it’s going to continue being a tough battle to audit the Fed. There are many established special interests who benefit from the Fed’s policies and have the money to lobby strongly against it. But ultimately I have to believe that the forces in favor of an audit will prevail. When we first started this fight seven years ago, we had no idea that we would come so far. It took a lot of hard work and a little bit of luck, but progress continues to be made in the push for Federal Reserve transparency. Nothing is as powerful as an idea whose time has come.
Image: Daniel Kinpara
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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/more-opposition-to-auditing-the-fed-paul-martin-foss/
