Bernanke Fights House Bill To Audit The Fed

[andrewjs18]

HR 1207 is up to 279 co-sponsors!!! I'm not surprised in the least that Bernanke is fighting this and I'd be really surprised if Barney Frank doesn't kill this bill.

http://www.cbsnews.com/blogs/2009/07...y5193539.shtml

Federal Reserve Chairman Ben Bernanke is strongly opposing a proposal in Congress, which enjoys the support of over half of the U.S. House of Representatives, to audit the Fed.

During an appearance on PBS's NewsHour, which will be aired this week on local PBS stations, Bernanke said the proposed legislation would interfere with the central bank's independence. "I don't think the American people want Congress running monetary policy," he said. "And I think that's very very critical for people to understand." (See transcript below.)

This is an odd claim. If you read the bill (H.R.1207), it simply amends existing law to say "under regulations of the Comptroller General, the Comptroller General shall audit" the Federal Reserve Board and its member banks.

The Comptroller General is a Senate-confirmed official who's also the head of the Government Accountability Office (GAO), a legislative branch agency organized under the U.S. Congress. In other words, we're not talking about a political bomb-thrower, but a veteran civil servant tasked with important oversight responsibilities.

The argument for an audit has become stronger in the wake of the extraordinary and unprecedented steps the Federal Reserve has taken in response to the market turmoil that began two years ago. Among them: the Fed has printed hundreds of billions of dollars to purchase what are delicately called "troubled assets"; it has created mammoth Wall Street bailout funds with acronyms like CPFF and TALF; and it has done all of this without prior approval by the U.S. Congress.

As far back as 1977, the GAO was saying it needed the authority to conduct a full audit of the Fed. "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 (foreign currency purchases) that it has," its report to Congress said at the time.

If the Fed had stuck to its traditional role of setting interest rate targets and employing other monetary policy tools, it's unlikely this measure -- the Federal Reserve Transparency Act of 2009 -- would have drawn more than a modicum of public and congressional support today.

But because Bernanke and other Fed officials have been bailing out financial institutions, such as providing up to $30 billion to let JPMorgan buy Bear Stearns last year, and because the national monetary base has recently doubled, public interest in the topic has spiked.

Bernanke can thank (or blame) Rep. Ron Paul, the libertarian-leaning Texas Republican and longtime Fed critic, for focusing so much attention on this topic. Paul was the original author of the Audit-The-Fed bill, which can now claim 277 sponsors, up from 170 two months ago. It's been spurred along by concerns about the way the government is responding to what has become an unusually severe recession -- and public opinion turning against the Federal Reserve.

"Since its inception, the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight of its operations," Paul said in a February 2009 speech announcing the bill. "While the conventional excuse is that this is intended to reduce the Fed's susceptibility to political pressures, the reality is that the Fed acts as a foil for the government. Whenever you question the Fed about the strength of the dollar, they will refer you to the Treasury, and vice versa. The Federal Reserve has, on the one hand, many of the privileges of government agencies, while retaining benefits of private organizations, such as being insulated from Freedom of Information Act requests."

Paul points out that although Federal Reserve has the authority to enter into agreements with foreign central banks and foreign governments, the GAO is prohibited from auditing or even reviewing any of those agreements. (Current law says the GAO may not audit "transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization.")

The 2008 presidential candidate has been a longtime Fed critic, and even an advocate of its abolishment, saying for years that if the central bank keeps interest rates too low, bubbles are likely to form. In 2002, for instance, Paul correctly predicted that government policies would create "a short-term boom in housing" while increasing "the likelihood of a painful crash in the housing market." This represents a minority view among economists -- see a CBSNews.com review of a recent book on the financial crisis with a foreword by Rep. Paul -- but one that has found more adherents recently.

Here's an excerpt from the transcript of the PBS exchange:

PBS' Jim Lehrer: There's an effort in Congress, and in the House in particular, to audit what the Federal Reserve does, particiularly in monetary policy. How do you feel about that?

Bernanke: So that bill, people don't fully understand what that bill is about. It sounds like, audit the Fed, it sounds like "Let's look at the books." That's what it sounds like. Congress already looks at our books. We have many different levels of auditors. The GAO, the General Accountability Office, which is supposed to be doing this audit, already looks at virtually all of our activities. And the ones it doesn't, our financial books, financial loans, and the ones it's not looking at, and where the taxpayer needs some assurance, we're willing to work with Congress to make sure the GAO gets the information it needs.

Bernanke: What people don't understand is that this bill would give the GAO, the GAO, the authority to audit monetary policy. And what does that mean? That means if the Federal Reserve decided a year from now that because of incipient inflation it was time to raise interest rates, that the Congress would say, 'Ah, the GAO's going to audit that decision. It's going to subpoena your materials. It's going to demand information from members of the FOMC. It's going to evaluate your decision. It's going to report to Congress.' I don't think that's consistent with independence. We are completely open to providing any information Congress wants to make sure we're using taxpayer money safely and soundly, that we're meeting all our responsibilities. I don't think the American people want Congress running monetary policy. And I think that's very very critical for people to understand.

PBS' Jim Lehrer: You think that's what it would end up doing?

Bernanke: Exactly, that's exactly what it would do. There's a provision in that law, which, currently, current law, which carves out monetary policy. It doesn't give Congress authority, GAO authority to audit it. That was put in in 1978, at a time when we had a lot of inflation, which you might remember. After that the Fed became more independent, brought inflation down. But now, that's exactly what it would do. If that carveout was eliminated, Congress would have the authority anytime to ask the GAO to come in, and audit, and look at, and evaluate the monetary policy decisions made by the Fed. That's not consistent with independence.


Perhaps. Then again, the text of this proposal is not chiseled into granite. If the auditing authority granted to the GAO becomes too intrusive, Congress can always amend it.

While Rep. Paul's bill enjoys strong bipartisan support in the House of Representatives, the Senate version (S.604) has only 20 sponsors and was blocked from coming to a vote by the Democratic leadership earlier this month. Now we'll see if public concern about the Federal Reserve's recent activities is sufficient to overcome this last political hurdle.

[stephpd]

How independent can the Fed be if they had to come to congress and use scare tactics to rob the citizens of a trillion dollars? When sh*t hits the fan you should expect to get a little excrement on you.

I just have a hard time understanding the notion that you can screw things up royally and expect to continue business as usual.

[phillyd2]

Good for Bernanke. Let the House prove they even know what the term audit means by auditing their own books before looking at somebody else.

Afterwards, audit away!

[Morel42]

Honestly.. I don't think we want this, it would prolly mean the total and complete collapse of the world economy in about 4.3 seconds..

Though the proper method of using a CIA Wet team to take care of business the old cold war style prolly won't happen either... So Chaos it is then!

However I'm sure the CIA would really have no issues at all with cleaning house.. It's been done before with people who stepped over the line.. You have to understand something very important.

The US Government hasn't historically placed "Freedom and Justice" as it's main principles. STABILITY always has been and always will be the number one factor in when you get right to the raw facts. You threaten that stability by going to far. You're compost..

[phillyd2]

And all this time I had thought that the Fed was actually a CIA front organization to finance their crack operations in South Central LA. Could have sworn I saw in on the web somewhere....where is that bookmark.....

[Morel42]

And all this time I had thought that the Fed was actually a CIA front organization to finance their crack operations in South Central LA. Could have sworn I saw in on the web somewhere....where is that bookmark.....

Well the CIA organization and CIA Black Ops are totally different organizations.. lol It's the left hand telling the right hand to ignore everything or it will be chopped off.

[Chuck1981]

I remember Morel42 when you had posted soemthing similar to this a week or so ago (I believe it was you, my mistake if it wasnt). And the gist of the story was how they would have to raise the interest rate if this happened, and how this was blackmail.

While I agree it is blackmail, wouldn't they also have to do it in order to keep everyone from completely pulling all their money out of this country? Sort of like a catch 22, "I don't want to have to raise the rates, but I will have to in order to keep people involved with us, so do us a favor and put this audit shit off to the side burner for at least 20 years."

Bullshit I know, but it seems thats the situation we are in. I'm glad I have a nice big tent.

[dc dalton]

Sorry kids but the simple fact is the FED is a scam (not that congress isn't lately too ) ... Yes the audit could do some serious damage if it finds what I (as well as many others) think they will find BUT let's also remember the FED is a PRIVATE bank, a private bank that per our founding fathers is an abomination that should have NEVER been created.

Andrew Jackson killed off the first rendition of this, he KNEW that when a private bank controlled the monetary policies of our country we were at their mercy and he was 100% right, here we are at the mercy of those that attempt to manipulate the economy on a daily basis.

Let's ALL take a second to re-read the U.S. Constitution - Article 1 Section 8

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

To establish Post Offices and Post Roads;

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

To constitute Tribunals inferior to the supreme Court;

To define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations;

To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;

To provide and maintain a Navy;

To make Rules for the Government and Regulation of the land and naval Forces;

To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

To provide for organizing, arming, and disciplining the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings; And

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

[phillyd2]

I for one wish Congress granted more Letters of Marque

[velkly]

I for one wish Congress granted more Letters of Marque

I second this!