United Liberty

Federal Reserve Chairman Ben Bernanke testified before congressional committees over the last couple of days. This is always as interesting event since it gives some insight into the state of the economy, but also because you can always look forward to exchanges between Bernanke and Rep. Ron Paul (R-TX), a very vocal critic of the Federal Reserve.

These exchanges are, unfortunately, something I’ll miss since Rep. Paul has decided not to seek re-election. In what was likely his last chance to speak to Bernanke before he retires, Rep. Paul explained the problems with the Federal Reserve during yesterday’s hearing:

But while testifying before the House Financial Services Committee yesterday, Bernanke urged caution in passing Rep. Paul’s Audit the Fed legislation, which is supposed to come up for a vote before the summer recess:

Testifying before the House Financial Services Committee, Bernanke pushed back against efforts to subject the Fed to full audits by the Government Accountability Office (GAO), cautioning that doing so would subject the politically independent institution to the whims of lawmakers and render the Fed ineffective.

“The nightmare scenario that I have is one in which some future Fed chairman would decide to say, raise the federal funds rate by 25 basis points, and somebody in this room would say, ‘I don’t like this decision and I want the [Government Accountability Office] to go in … and give us an independent opinion of whether or not that would be the right decision,” he said.

Establishing a system in which the Fed’s monetary policy moves could be immediately called into question by lawmakers would have a “chilling effect” on the institution and generally reduce its ability to help steer the economy, he warned.

“There’s a lot of evidence that an independent central bank … will deliver lower inflation and better economic results,” he said.
[…]
He went on to indicate that Paul’s bill is not being accurately sold to the public, contending that the Fed is already being audited under common understanding.

“I think the term ‘audit the Fed’ is deceptive. The public thinks auditing means checking the books … making sure you’re not doing special deals,” he said. “All of those things are completely open.”

Congress already have oversight on monetary policy to some degree. Remember, Rep. Paul chairs the House Financial Services Monetary Policy Subcommittee. And while it’s true that the Federal Reserve is already subject to audits by the Government Accountability Office, this was a watered down version of Rep. Paul’s Audit the Fed language.

This line of attack given yesterday Bernanke isn’t new. He;s been trying to get Congress to back off from its calls for transparency for some time. But it’ss simply not true that Audit the Fed would allow Congress to either dictate monetary policy (he didn’t specifically say that yesterday, but he has before). The legislation would open up certain information to the Government Accountability Office currently excluded from audits in subsection (b) of 31 USC 714, including agreements and transactions with foreign central banks and discussions between the Treasury Department.

Thanks to audits already conducted, we now know that some $16 trillion was loaned by the Federal Reserve during the financial crisis to corporations and financial institutions. What else has the Fed done that Americans should know about? It’s a legitimate question, but if Congress, specifically the Senate, buys into these scare tactics, we may never know.