United Liberty

Due to HR 1207, the Audit the Fed bill, being wrapped up in the financial reform package that passed the House today, Rep. Ron Paul (R-TX) was forced to vote against his own bill.

Dr. Paul explained his vote to the Wall Street Journal:

You are expected to vote against the bill on final passage, but will there be some silver lining if this bill passes because it has your provision?

Paul: Yeah, I think so. I think it’s not final, and there’s a long way to go. But it sends a very powerful message. Not only did we pass it in the House, but we keep getting new cosponsors on the bill. I think its 316 now. It keeps going up, and the momentum is there. And hopefully the grassroots will direct their momentum towards the Senate.

Did you consider voting for the broader bill to support your amendment?

Paul: For some people who work in a conventional way, it would be, but not for me. People have asked me, and I say I’ll just do what I usually do. I’ll look at the whole bill, and try to make the bill as good as possible but if it’s still something I can’t endorse, then I’ll vote against final passage. But I always try to support all the amendments that I think will improve it, but I treated my amendment like I treat every other amendment.

While I’m glad the Audit the Fed provision passed, it doesn’t change the fact that this financial overhaul is likely going to do damage to the economy.

Sen. Jim DeMint (R-SC) has joined Sen. Bernie Sanders in placing a hold on Ben Bernanke’s confirmation to a second term as Chairman of the Federal Reserve. DeMint says that his hold will remain in place until S. 604, the Senate version of the “Audit the Fed” legislation, has passed.

From DeMint’s press release:

Over at Cafe Hayek, Don Boudreaux responds to Ben Bernanke’s editorial from the Washington Post:

I had to down an extra mug of coffee this morning to be certain that I read your op-ed in today’s Washington Post correctly.  Sure enough, you claim to be worried about a recent House-committee vote to, as you say, “repeal a 1978 provision that was intended to protect monetary policy from short-term political influence.”

Ummm….  What guided Fed “policy” over the past couple of years if not short-term political influence?

Working hand-in-glove with the political branches, you now have the Fed performing activities – such as direct lending to what, in an April 2009 speech, you called “ultimate borrowers and major investors” – that are utterly outside of the Fed’s traditional role.

As my colleague and celebrated monetary historian Larry White wrote earlier this year, “The Fed’s new activities deserve to be called a bailout program because they seek to channel credit selectively at below-market interest rates, or purchase assets at above-market prices, in hopes of rescuing, or enhancing profits for, favored sets of financial institutions.  The Fed’s new lending facilities are not parts of a central bank’s traditional ‘lender of last resort’ role.”

Sorry, Mr. Bernanke, any independence that the Fed might have once had from “short-term political influence” has already been trampled to death – chiefly by you.

In an editorial at the Washington Post, Federal Reserve Chairman Ben Bernanke defends actions taken during and after the economic downturn and argues against legislation working through Congress, such as HR 1207:

For many Americans, the financial crisis, and the recession it spawned, have been devastating — jobs, homes, savings lost. Understandably, many people are calling for change. Yet change needs to be about creating a system that works better, not just differently. As a nation, our challenge is to design a system of financial oversight that will embody the lessons of the past two years and provide a robust framework for preventing future crises and the economic damage they cause.

These matters are complex, and Congress is still in the midst of considering how best to reform financial regulation. I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions. Notably, some leading proposals in the Senate would strip the Fed of all its bank regulatory powers. And a House committee recently voted to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States. The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.

After beating back efforts to weaken it substantially, H.R. 1207, the bill first proposed by Congressman Ron Paul to authorize a General Accounting Office audit of the Federal Reserve System, has passed a crucial House committee vote:

WASHINGTON — In a display of populist anger toward the Federal Reserve, a House panel voted on Thursday to let Congress carry out sweeping new oversights of the central bank’s policy decisions and operations.

The House Financial Services Committee approved a measure proposed by Representative Ron Paul of Texas that would allow Congress to order audits of all the Fed’s lending programs as well as of its basic decisions to set monetary policy by raising or lowering interest rates.

If the measure becomes law, it would expose the Federal Reserve to far more political pressure than it has faced for decades. Fed officials have adamantly opposed the measure, saying it would undermine the central bank’s political independence and gravely threaten its credibility as a bulwark against inflation.

The vote on Thursday occurred despite the opposition of Representative Barney Frank, Democrat of Massachusetts, who had wanted to shield the Fed’s decisions on monetary policy from political pressures.

Despite 308 co-sponsors, H.R. 1207 - the Federal Reserve Transparency Act of 2009 - is functionally on life support. Arguably the single greatest measurable impact from the Ron Paul Revolution, the bill, which has garnered strong bipartisan support due in large part to grassroots efforts from Paul’s Campaign for Liberty, has apparently been “gutted” by Mel Watt (D-NC).

Barney Frank (D-MA) who chairs the House Financial Services Committee promised his constituents at a health care town hall on August 27 that the bill would not die in committee and would be brought to the floor (see the Huffington Post article here and a YouTube clip here). Frank has not co-sponsored the bill. Frank held hearings on the bill in a move to begin the process of moving it towards the floor on September 25. Author and Austrian economist Thomas Woods had the opportunity to testify. Watt was downright hostile.