Federal Reserve

A movement to audit the Federal Reserve – the private institution that virtually controls U.S. interest rates, money supply and other economic influences – is gaining momentum in the House and Senate while the Fed ramps up its efforts to thwart scrutiny of its books.

House Resolution 1207, the Federal Reserve Transparency Act, now has 260 co-sponsors with many members of the House Financial Services Committee – where the bill currently resides – signed on already.

Likewise, Senate Bill 604, Federal Reserve Sunshine Act, orders a complete audit of the Federal Reserve Board of Governors and the Federal Reserve Banks before the end of 2010. The bill, sponsored by Sen. Bernie Sanders, D-Vt., has eight co-sponsors and remains in the Senate Committee on Banking, Housing and Urban Affairs.

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As WND reported, members of the Senate recently blocked efforts by Sen. Jim DeMint, R-S.C., to vote on his amendment to a spending bill that provides money for Congress' own budget. DeMint's plan was to add an amendment to the spending bill that would have provided for an audit of the Fed to include information about its funding facilities, market operations and any agreements with foreign banks and governments, DeMint told senators, according to Reuters.

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In a July 9 hearing, Rep. Ron Paul, R-Texas, questioned Federal Reserve Vice Chairman Donald Kohn about the Fed's transparency.

"I think the Federal Reserve has been quite transparent and has become much more transparent under Chairman Bernanke about what we're doing and why we're doing it," Kohn told Paul. "And I think we can retain our independence and your ability to trust what we're doing only by explaining to you what we're doing and why we're doing it."

Paul asked why the Fed cites "public interest" when it refuses to open up the central bank's most sensitive decisions to political scrutiny and release discretely recorded transcripts of its policy meetings in the next five years. Kohn made his case for continued Fed secrecy.

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"I would be very concerned that releasing those transcripts would inhibit debate," Kohn said. "I think it's in the public interest that we have an unfettered debate within the Open Market Committee, that we are able to speculate among ourselves … that there be no inhibition on the back and forth within the Open Market Committee. Frankly, I've been at the Federal Reserve for several decades now. In my view, publishing the transcripts themselves have had a somewhat inhibiting effect on the way the debate is carried out. … People would be very worried if their remarks were going to be made public very, very quickly. They'd be very worried about what they would say and they'd be much more careful about what they say, and that is not in the best public interest. …"

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Kohn said releasing details on the central bank's most sensitive decisions might create higher long-term interest rates and damage the U.S. credit rating.

The Federal Reserve has stepped up defense of its books by hiring Linda Robertson, former lobbyist for Enron and former adviser to three of the Clinton administration's Treasury secretaries, to counter Congress skepticism about its growing power and combat legislation requiring an audit of the central bank.

U.S. Rep. Ron Paul, R-Texas

In a recent Straight Talk commentary, Rep. Paul wrote, "Claims are made that auditing the Fed would compromise its independence. However, by independence, they really mean secrecy. The Fed clearly cherishes its vast power to create and spend trillions of dollars, diluting the value of every other dollar in circulation, making deals with other central banks, and bailing out cronies, all to the detriment of the taxpayer, and to the enrichment of themselves. I am happy to challenge this type of 'independence.'"

Recently, two expert economists on the Federal Reserve – Allan Meltzer, a professor of political economy, and John Taylor, a former Treasury official – warned Congress against expanding the Fed's power, the New York Times reported. They told a House panel that the Fed has routinely failed to recognize financial crises until after they happen.

"I do not know of any single clear example in which the Federal Reserve acted in advance to head off a crisis or a series of banking or financial failures," said Meltzer.

The Daily Paul names Democrats and Republicans in the House and Senate who have not signed on to co-sponsor H.R. 1207 or S. 604 in its "List of Shame."

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Paul long has opposed the power held by the Federal Reserve and its ability to manipulate the nation's economy. He has launched multiple proposals to get rid of the private banking powerhouse, without significant support.

But in light of the current economic downturn – the government takeover of the banking industry, the government's demands for various auto industry bankruptcies, the government's appointment of a "pay czar" – change apparently is coming.

"To understand how unwise it is to have the Federal Reserve, one must first understand the magnitude of the privileges they have," Paul said. "They have been given the power to create money, by the trillions, and to give it to their friends, under any terms they wish, with little or no meaningful oversight or accountability."

Paul has even said Congress should "reassert its constitutional authority over monetary policy."

"The only accountability the Federal Reserve has is ultimately to Congress, which granted its charter and can revoke it at any time," he wrote. "It is Congress' constitutional duty to protect the value of the money, and they have abdicated this responsibility for far too long. … It is very encouraging to finally see the issue getting some needed exposure and traction. It is regrettable that it took a crisis of this magnitude to get a serious debate on this issue."

Paul's bill would also make the Federal Reserve's funding facilities, including the Primary Dealer Credit Facility, Term Securities Lending Facility, and Term Asset-Backed Securities Lending Facility subject to congressional oversight.

Note: Concerned individuals may contact members of the House Committee of Financial Services in reference to H.R. 1207 and the Senate Banking, Housing, and Urban Affairs committee in reference to its companion bill, S. 604. They may also contact their respective representatives and senators.

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