The Federal Reserve is starting to feel some heat from both the right and the left about how secret its activities deserve to be from American taxpayers. The fact that next year is a presidential election year and the heat is being brought by two candidates for the Oval Office may mean that the pressure may amount to something this time.
On January 28 Sen. Rand Paul, R-KY, reintroduced his "Audit the Fed" bill that would subject the Fed's monetary policy discussions and decisions to audits by the Government Accountability Office (GAO).
"This secretive government-run bureaucracy promotes policies that have impacted the lives of all Americans," Paul said. "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."
Previous versions of Paul's bill – originally sponsored by his father, former presidential hopeful Ron Paul, and others – have gotten nowhere, largely because Democrats controlled the Senate. Now, of course, that body is now controlled by the Republicans. Paul got 30 co-sponsors to his bill.
Then last week Sen. Elizabeth Warren, D-MA, herself a presidential wanna-be on the Democrat side and a member of the Senate Banking Committee, which oversees the Fed, wrote a scorching letter to the Fed's General Counsel Scott Alvarez. She and Rep. Elijah Cummings, D-MD, are demanding "a briefing and additional information" about an internal Fed investigation into leaked information from the Fed's September 2012 monetary policy meeting.
"Although the investigation reportedly reached the highest levels of the central bank, the Federal Reserve did not acknowledge it publicly for over two years, and neither you nor any other Federal Reserve official has made public any information about the conduct of the investigation or its outcome," the letter said. "We are disturbed by this lack of transparency regarding such an important topic. This leak contained key market-moving information, violated Federal Reserve policy on disclosure, and may have represented a violation of federal law."
"We believe that the public has the right to know whether the Federal Reserve is taking appropriate action to address leaks of confidential and deliberative information and to prevent them from occurring in the future," the letter continued. "Congress also needs this information to ensure accountability at the Federal Reserve."
The public has a right to know, and the Fed needs to be accountable. Imagine that.
Fed Chairwoman Janet Yellen will likely have something to say about Paul’s bill and Warren’s letter when she testifies before Congress in two weeks.
The Fed is subject to various financial audits, but since 1978, its monetary policy discussions have been legally exempt from GAO audits.
The Fed fears that a full GAO audit would reveal too much about how it conducts monetary policy. More importantly, perhaps, it fears that congressional audits would intrude on its supposed independence.
But that independence is largely a myth. How "independent" can you be when your members are nominated by the president and confirmed by Congress? And why shouldn’t we know more about how it conducts monetary and regulatory policy?
Is it so much to expect that a government agency – "independent" or not – with a $4.5 trillion balance sheet and counting, which is larger than the entire federal budget – be accountable to the taxpayers who fund it? The Fed is no different than the Department of Defense or any other federal government body funded by taxpayers and should be held to the same standards.
Maybe even more so. "As someone who previously staffed the Senate Banking Committee, let me say there are few areas less understood by Congress than monetary policy and macroeconomics," Mark Calabria, now Director of Financial Regulation Studies at the Cato Institute, wrote recently. "Hence there are few areas more in need of a GAO audit than the Fed."
He also takes issue with the Fed's supposed independence. "The Fed's authority to regulate the value of money is one delegated to it from Congress," Calabria wrote. "As Congress can and has, legislated changes to the Fed, it should be clear beyond a doubt that the Fed is not 'independent' of Congress. It is a creature of Congress."
While everyone treats the Fed as having saved humanity from the financial crisis, we're quick to forget that it was that same Fed that was one of the leading players in creating the housing bubble that caused the crisis, first by keeping interest rates unreasonably low for too long, then doing nothing about overly liberal mortgage underwriting by the banks it was supposed to be regulating, then finally pricking the bubble and creating the fallout that the Fed is still, more than seven years later, trying to clean up.
Since then it's created a massive bubble in stock and bond prices that it’s too afraid to deflate by raising interest rates. But, of course, no one wants the party to end, so why inconvenience the Fed with a little thing like taxpayer oversight? No wonder this issue is getting so little attention.
But now that we have some serious politicians behind it, and the pressure is growing, maybe it will gain more traction in the coming months. Let's hope so.
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INO.com Contributor - Fed & Interest Rates
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.