Bill to audit Federal Reserve passed in committee

Source: InvestorCentric Blog

For the first time in history, the Federal Reserve Bank may be facing an audit. On Thursday, the House Finance Committee passed a bill (HR 1207) that authorizes the Government Accountability Office (GAO) to conduct a wide-ranging audit of the Fed's secretive deals with foreign central banks and major U.S. financial institutions.

HR 1207, sponsored by Rep. Ron Paul (R-TX), currently has 313 co-sponsors in the House from both sides of the aisle, which is a veto-proof majority. A companion bill in the Senate (S 604) has 30 co-sponsors.

Glenn Greenwald, an investigative reporter writing for Salon.com, points out what may be the most significant aspect of the passage of HR 1207:

Our leading media outlets are capable of understanding political debates only by stuffing them into melodramatic, trite and often distracting "right v. left" storylines.  While some debates fit comfortably into that framework, many do not.  Anger over the Wall Street bailouts, the control by the banking industry of Congress, and the impenetrable secrecy with which the Fed conducts itself resonates across the political spectrum, as the truly bipartisan and trans-ideological vote yesterday reflects.  Populist anger over elite-favoring economic policies has long been brewing on both the Right and Left (and in between), but neither political party can capitalize on it because they're both dependent upon and subservient to the same elite interests which benefit from those policies.

HR 1207 faced fierce last-minute opposition from Federal Reserve executives and centrist Democrats, including Rep. Barney Frank (D-MA), who is the Chairman of the House Finance Committee.

Rep. Mel Watt (D-NC) introduced an amendment that would, according to Rep. Paul, "fully obliterate everything 1207 is intended to do." Barney Frank, after initially expressing support for Paul's bill, did an about face and backed the Watt amendment. Backers of the Watt amendment pressed their case on Wednesday by sending a letter from a "political cross section of prominent economists" backing a measure like Watt's. Ryan Grim, writing for the Huffington Post reported that those economists might well be prominent, but they certainly aren't a "political cross section." Seven of the eight economists in question have extensive connections to the Fed and half of them are currently on the Fed payroll. Those affiliations were not noted in the letter.

Opponents of HR 1207 argue that it could be perceived as influencing monetary policy, which can have inflationary pressure. Reps. Paul and Alan Grayson (D-FL), however, made it clear that is not the intent by adding an amendment that expressly blocks Congress from interfering with the independence of monetary policy decision-making. Ron Paul made that very clear in a speech before the committee.

After that, Federal Reserve Vice Chair Don Cohn and General Counsel Scott Alvarez spent much of the day calling committee members, urging them to oppose the Paul-Grayson amendment in favor of Watt's. Opponents of Paul's bill went as far as violating House rules by placing a letter from former Fed chairmen Alan Greenspan and Paul Volcker on the seats of every committee member. Rep. Grayson, also a strong advocate of auditing the Fed, was able to have the letters removed before the vote.

The actions of Federal Reserve officials and the centrist "Blue Dog" democrats in their wallets should leave no doubt that the Fed has something to hide from Congress and the American people.

Whenever the government needs to have money printed, or spend our tax dollars, it issues treasury bonds to the Federal Reserve, which in turn prints the Federal Reserve notes to back those up. The catch, however, is that money is issued with interest charged to the federal government (a.k.a. the taxpayers). According to CNN, the interest alone on U.S. debt is projected to grow to $4.8 trillion in the next decade. According to Ron Paul, since the Federal Reserve was given control over U.S. currency in 1913, the purchasing power of the dollar has fallen by over 95%.

The Federal Reserve is a private bank, yet it controls all currency and debt in the United States and all national banks are required to join the Federal Reserve system. Since the big bank bailout last year, taxpayers are now stakeholders in many of these banks. The Federal Reserve has used TARP bailout funds to enter into agreements with foreign central banks and foreign governments, and the GAO is prohibited from auditing or even seeing these agreements.

Ben Bernanke, the Chairman of the Fed, could (or would) not account for $500 billion of those funds when questioned earlier this year by Rep. Grayson. In essence, the Fed has been using taxpayer money to invest in foreign banks and large Wall Street firms that deal with derivatives on the world market, while at the same time neglecting to invest funds in smaller banks that could loan money to consumers and small businesses. The end result is mega-profits for the big banks while the rest of the economy stagnates and unemployment continues to rise. Anger over the pillaging of America's economic security by the financial elite is found on both ends of the political spectrum.

Despite its immense powers, the Federal Reserve has never had a real audit in its history and little is known of what it does with the trillions of dollars at its disposal. And it seems, for some reason, that the Fed does not want congress or the American people to know what goes on behind their vaults.

While the passing of this bill in committee is a huge hurdle overcome, it must still come to a full vote in the House and a companion bill must be passed in the Senate, where there seem to be many more obstacles in getting any sort of populist legislation passed.

But a victorious Rep. Grayson said, "Today was Waterloo for Fed secrecy."