In recent weeks, the Federal Reserve and its apologists in Congress and the
media have launched numerous attacks on the Audit the Fed legislation. These
attacks amount to nothing more than distortions about the effects and intent
of the audit bill.
Fed apologists continue to claim that the Audit the Fed bill will somehow
limit the Federal Reserve's independence. Yet neither Federal Reserve Chair
Janet Yellen nor any other opponent of the audit bill has ever been able to
identify any provision of the bill giving Congress power to dictate monetary
policy. The only way this argument makes sense is if the simple act of increasing
transparency somehow infringes on the Fed's independence.
This argument is also flawed since the Federal Reserve has never been independent
from political pressure. As economists Daniel Smith and Peter Boettke put it
in their paper "An Episodic History of Modern Fed Independence," the Federal
Reserve "regularly accommodates debt, succumbs to political pressures, and
follows bureaucratic tendencies, compromising the Fed's operational independence."
The most infamous example of a Federal Reserve chair bowing to political pressure
is the way Federal Reserve Chairman Arthur Burns tailored monetary policy to
accommodate President Richard Nixon's demands for low interest rates. Nixon
and Burns were even recorded mocking the idea of Federal Reserve independence.
Nixon is not the only president to pressure a Federal Reserve chair to tailor
monetary policy to the president's political needs. In the fifties, President
Dwight Eisenhower pressured Fed Chairman William Martin to either resign or
increase the money supply. Martin eventually gave in to Ike's wishes for cheap
money. During the nineties, Alan Greenspan was accused by many political and
financial experts -- including then-Federal Reserve Board Member Alan Blinder
-- of tailoring Federal Reserve policies to help President Bill Clinton.
Some Federal Reserve apologists make the contradictory claim that the audit
bill is not only dangerous, but it is also unnecessary since the Fed is already
audited. It is true that the Federal Reserve is subject to some limited financial
audits, but these audits only reveal the amount of assets on the Fed's balance
sheets. The Audit the Fed bill will reveal what was purchased, when it was
acquired, and why it was acquired.
Perhaps the real reason the Federal Reserve fears a full audit can be revealed
by examining the one-time audit of the Federal Reserve's response to the financial
crisis authorized by the Dodd-Frank law. This audit found that between 2007
and 2010 the Federal Reserve committed over $16 trillion -- more than four
times the annual budget of the United States -- to foreign central banks and
politically influential private companies. Can anyone doubt a full audit would
show similar instances of the Fed acting to benefit the political and economic
elites?
Some fed apologists are claiming that the audit bill is part of a conspiracy
to end the Fed. As the author of a book called End
the Fed, I find it laughable to suggest that I, and other audit supporters,
are hiding our true agenda. Besides, how could an audit advance efforts to
end the Fed unless the audit would prove that the American people would be
better off without the Fed? And don't the people have a right to know if they
are being harmed by the current monetary system?
For over a century, the Federal Reserve has operated in secrecy, to the benefit
of the elites and the detriment of the people. It is time to finally bring
transparency to monetary policy by auditing the Federal Reserve.
