Audit the Fed Bill Already Stirring Up Debate

At the end of January, Senator Rand Paul re-introduced the “Audit the Fed” bill first promoted by his father, Ron Paul. If passed, the bill would hopefully make the Federal Reserve more transparent by opening it to a direct audit from the Government Accountability Office (GAO). The Fed has been legally exempt from GAO audits since 1978.

Of course, the Fed is terrified of opening its doors to the public. As Reuters reported:

The Fed fears that a full GAO audit would reveal too much detail of monetary policy decisions made by the Federal Open Market Committee. Fed officials have said such exposure would complicate their public communications, hurt their credibility and stoke financial market volatility. The central bank also fears that efforts to impinge on its independence would hurt U.S. monetary policy.”

Considering that the Fed’s policy hasn’t effectively changed in years (interest rates near zero, near-endless quantitative easing), it’s hard to imagine that its policy decisions are very detailed at all. It’s also laughable that the Fed continues to maintain the pretense that it is somehow independent of politics. Even Alan Greenspan rejected the idea that the Fed is an independent institution.

Nevertheless, the new bill is getting bi-partisan support as some politicians do recognize that the American people are growing more and more frustrated with economic policies that enrich the elite at the expense of Main Street. The bill is getting so much attention that individual Fed officials have started “firing back” at Rand’s proposal, according to The Hill. Here are a couple choice quotes:

Philadelphia Fed President Charles Plosser: “This runs the risk of monetary policy decisions being based on short-term political considerations instead of the longer-term health of the economy.”

Dallas Fed President Richard Fisher: “They simply find it convenient to create a boogeyman out of an entity that does its job efficiently — the Federal Reserve. To some outsiders the Fed appears to be some kind of combination of Hogwarts, the Death Star, and Ebenezer Scrooge — especially to those who don’t take the time to read the copious amounts of reports and speeches and explanations we emit.”

Is that so, Plosser? Do you really want to stick by those words, Fisher? The Fed is looking at the long game and has been doing its job “efficiently”? That must explain why eight years after the biggest financial tsunami since the Great Depression, the American economy is still floundering. The government and Fed officials like to position central banks as our great economic saviors, but refuse to take responsibility for any negative side effects. The truth is that the Fed is incapable of curing an economy without getting in the way of the free market and distorting it further.

By the way, Hogwarts is a relatively benign and friendly institution, and Scrooge ultimately submitted to an audit of sorts and changed his ways. The Death Star, on the other hand, is a fair analogy. Your words, Fisher, not ours. Americans don’t have the patience to read what you “emit,” because we already recognize it for what it is – hogwash.

Rand Paul aptly sums up the opposition: “[Fed officials] will say and do anything to keep their business hidden from the American people.” He goes on:

This secretive government-run bureaucracy promotes policies that have impacted the lives of all Americans. Citizens have the right to know why the Fed’s policies have resulted in a stagnant economy and record numbers of people dropping out of the workforce.”

Peter Schiff served as Ron Paul’s economic advisor in the 2008 presidential election and has long been a proponent of auditing, if not entirely dismantling, the Federal Reserve. The following in-depth lecture by Peter is a few years old, but an excellent resource for understanding what the Fed is really doing when it “helps” the economy.

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