Representative Ron Paul, Republican of Texas, announced on Thursday the passage of an amendment to HR 3996, a bill to combat to systemic risk in the financial markets, that would allow the General Accounting Office to audit "every item on the Fed's balance sheet, all credit facilities, all securities purchase programs. etc." Some commentators are asking whether such a step would result in the loss of the Federal Reserve's independence to conduct monetary policy. On first blush it looks that way.
Let's face it. Part of an auditor's job is to ask why someone is doing something. According to the amendment, the GAO would have the authority to ask questions about why the Federal Reserve has purchased certain securities. Buying securities such as Treasury bills is one of the tools the Federal Reserve uses in carrying out monetary policy.
By monetary policy, we are referring to the use of money and credit controls to influence macroeconomic outcomes. In less technical terms, its about influencing the supply of money so that we can either grow our economy or slow it down. When the Federal Reserve buys securities, it injects cash into the system. This increase in the money supply drives down the price of money, or interest rates. When interest rates fall, money becomes cheaper to borrow. The hope is that as money gets cheaper, more people will borrow to buy more cars, homes, and flat screen TVs. Businesses will hopefully buy more plant and equipment and hire more labor.
The Federal Reserve does the opposite when it is trying to cool off the economy and slow down inflation. It will sell securities which leads to less cash floating around in the system. As cash gets scarce, the price for money increases. Loans become more expensive. Consumers buy fewer goods and services. Businesses hire fewer employees.
It is inevitable that once the GAO starts asking questions, particularly about securities purchases, that it will comment on what it doesn't like and report its recommendations to Congress. The fear is that once Congress starts tinkering with what it does not understand (and Congress has consistently demonstrated that it does not understand the economy), Fed decision making will become politicized. Politicized decisions will only lead to less than optimal outcomes.
Take for example our current level of interest rates. There is a strong argument for raising rates now but if it were left up to Congress, they would probably use whatever information the GAO dug up to keep rates low and continue the dollar's continuous drubbing in the global markets. Even though Mr. Paul's amendment is not be construed as interference in monetary policy, the minute the GAO asks why and the Congress starts to cry, we will have interference. Do you really see Barney Frank and Maxine Waters resisting the opportunity to interfere?
On the other hand, this type of auditing, if properly timed, may have had some impact on whether the Federal Reserve should have facilitated a bailout of Bear Stearns in March of 2008. A showing of exigent circumstances, called for by section 13(3) of the Federal Reserve Act, is required before the Fed lends money to non-banks. An audit of the Federal Reserve's process for determining these circumstances would have been helpful to the public and a great precursor for the TARP debacle that ocurred seven months later.
The costs of Congressional interference in monetary policy is too great, however. The inquisitive nature of an auditor combined with Congress' penchant for time delaying hearings would weaken the Federal Reserve and severly weaken the process for making sound and effective monetary policy.
Comments
Bullsh...t!
First of all, the Fed has no independence and is already highly politicized, so your argument is weak and invalid. The President chooses the Fed chairman and the Fed is highly influenced by politicians and vice versa. Anyone that watched Barney Frank's display of hypocrisy on Friday's hearing can come to conclusion that he is bought and paid for, so he'll do what the Fed tells him.
The amendment specifically states that Congress will not monitor monetary policy. The only argument you are right about is Congress (other than Ron Paul) having no understanding of the economy. However, neither does the Fed (hence the financial crises the Fed caused).
You clearly represent the special interests, those who have destroyed our economy. Ron Paul is right and, for the sake of this country, the Fed MUST be completely audited.
This group of individuals you refer to as the "Federal Reserve" are not Federal and there is certainly no reserve.
Is Paul's amendment to audit the Fed first step to loss of independence? No, our independence was lost when the Federal Reserve Act was enacted in 1913.
Are we really independent now, that the Fed has unlimited power to just print a half a trillion dollars and swap this with other central banks? They have powers to print free money at 0% interest and give it to banks so that they can call these earnings is independent? They have the power to screw BAC shareholders by forcing their Board to acquire Merryl Lynch knowing they had losses in the 10s of billions?
The reason why interest rates will rise after an audit, is because the Fed was doing so much hanky-panky with our money supply and completely depleted our savings. In addition to distorting markets. You Keynesians are going to have a nice wake up call very soon!
A lot of politicians and media folks and newspaper columnists are going to take a hard hit to the wallet when their masters are pulled out from behind the curtain.
Skip the auditing and just End The Fed
Is Paul's amendment to audit the Fed first step to loss of independence? No, our independence was lost when the Federal Reserve Act was enacted in 1913.
Are we really independent now, that the Fed has unlimited power to just print a half a trillion dollars and swap this with other central banks? They have powers to print free money at 0% interest and give it to banks so that they can call these earnings is independent? They have the power to screw BAC shareholders by forcing their Board to acquire Merryl Lynch knowing they had losses in the 10s of billions?
The reason why interest rates will rise after an audit, is because the Fed was doing so much hanky-panky with our money supply and completely depleted our savings. In addition to distorting markets. You Keynesians are going to have a nice wake up call very soon!
The Federal Reserve is a criminal, terrorist organization - a banking cartel with private banks at the core, and Federal complicity. The Federal Reserve has enslaved Americans and committed genocide around the world by supporting endless "wars." The Constitution is no longer in force, and government gets larger and more intrusive. The Fed provides endless money to the government to pursue their goal of subjugation of the American people, and the peoples of the world. This country is not run for the benefit of the citizens. This country was enslaved in 1913 when the Federal Reserve was established. The currency - the dollar - is ruined and beyond any hope of repair. In 10 years the country will be in shambles - looted by the International Banking cartels and the power brokers. They are hoping to preserve order and maintain control by getting rid of human rights, establishing a police state (highest percentage of citizens incarcerated), and gutting the Constitution.
How can you be as old as you are and fail to know anything but establishment viewpoints on monetarty policy? Do you have a mind of your own?
I am amazed that there are educated people defending a banks position in such an amazing economic time. We've just heard how corporate banking greed caused our problems, but yet we will stand up to defend the biggest bank of them all. And this bill does not restrict power or politicize any fed actions whatsoever. It simply prevents the most powerful organization in the country from acting in secrecy. And it's such a shame because the American debt held by the fed was built on the basis of, is paid back by, and will always be the responsibility of THE AMERICAN TAXPAYER. I don't know how anyone can stake a claim at independence when they will accept the fact that the people paying this bill have no right to know what, why, and how that money is being used. The process is immoral.
The "National Debt" is bogus. The Fed creates money out of thin air, and then we owe interest on it to the banks. How nice - if you're a major bank. The Constitution says Congress must control money (not private banks masquerading as "the Fed"), and that money must be backed by silver. Hence, our current monetary system is illegal, i.e., unconstitutional. The Fed is a banking scam. Why do we owe interest (the National Debt), on money creted out of thin air by private banks. We don't really owe any interest. The "Federal Reserve" scam was illegal. Your income taxes go to pay a debt it was unconstitutional to create. Repudiate the debt. It's not our debt. It was created by international banksters to enslave the American population. It's not our debt. Ending the Fed is not enough. There should be retribution for the destruction of the American economy - for the destruction of America. Be a patriot. Develop a brain. Americans have been brainless, confusing obedience for patriotism.
Where on earth does the Federal Reserve get authority to inject and commit debt and create inflation when the Constitution requires all bills of Revenue to start in the House? There is SUPPOSED to be transparency, and Fed secrecy to favor one player over another is an 'independence' we can't afford.
Power of the Fed is something else:
when Government needs money to buy votes it can get it in three ways:
1. tax people - (usually the "rich"), but this is not enough. USA is already one of the countries with highest taxes. Measure is unpopular
2. Borrow money - deficit is already skyrocketing. Interest is enormous and this measure is also unpopular
3. Print money - invisible tax, the least unpopular
That's what Government gets.
What's in it for private bankers in Fed - the ability to print money and earn interest on nothing. Now, that's a business I would like to be in. Other people make computers, apples, cars and in Fed they just print money (they get something for nothing) and can loan it to their friends. The only thing important for their business is that there are enough of borrowers. If people are borrowing great; if not, then government will borrow. Bush will borrow for war, Obama for clunkers and health. Bigger the taxes, less capital formation, more loans.
"Mr. Paul"..
That is Dr. Paul to you. You sir are a tool!
Kudos to all of the comments by those who really know what is going. Maybe there is still "hope" for America. Not the Obama brand of hope, I mean REAL HOPE! Happy to see so many people opening their eyes!!
Do your Part! Educate the masses!!
Most people don’t know that the Federal Reserve Bank of New York is a privately owned bank. The shareholders are the Wall Street Banks. Timothy Geithner is their guy. Geithner shoveled bailout money to AIG as President of the Bank. AIG was a conduit for the money which ended up at Goldman Sachs and other Wall Street banks. Is this independence or crony capitalism or something more sinister?
The author of this article obviously has little understanding of the history of the Federal Reserve and does not understand the devastating effects the Fed has had on America. It is time for economists to accept the fact that Keynesian economics is a complete failure. I would encourage everyone to go to your nearest Federal Reserve Bank tomorrow, November 22nd, and participate in the END THE FED rallies being held nationwide. This is our country and WE THE PEOPLE are taking it back.
The jig is up !
Keynesism and fiat currency are a scam.
More politicians should be aware of the main facets of Austrian Economics.
Money should be commodity-backed (gold, silver, diamonds, ... whatever). This adds discipline to the market place and would force politicians to be fiscally responsible (not being able to easily deficit-spend using techniques like "printing money from thin air").
It is the people's money supply and the government should not have the ability to grossly de-value the money the people hold.
Massive "printing of money from thin air" without associated wealth creation (e.g. sale of goods, payment of services, etc.) is wrong and is a reflection of the gross disregard that many politicians have for the financial machinery that affects a nation's wealth. This in addition to non-reading of House bills should be criminalised and polticians should be made to account.
This article is crap, period.
I love this line..."Politicized decisions will only lead to less than optimal outcomes"..as opposed to what the current recession courtesy of the feds or how about an almost complete devaluation of the dollar since the fed was created in 1913 or how about an over 10% unemployment rate!! Aren't these all things the feds was created to help avoid?? Wow go back under your Keynesian rock..please!!
Alton you really need to study up on a subject before you write about it. You show a clear pattern and not having clue on anything you write.
Your pattern is simply of bad mouthing anyone who goes against Obama and his allies.
yes, the congress might screw up monetary policy, so lets just let the fed keep screwing it up!
"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
Thomas Jefferson
The Fed's chief role, per Greenspan and Volcker, is to foster price stability and full employment. It has been doing neither. Case closed.
We wouldn't want to take power from the FED, after all, they're doing such a great job...wait, nevermind.
I cannot express the thrill I am experiencing as I watch what I hope will ignite the American People to reclaim thier Capital from the Corperate Elite. I love Youtube! Watch the Committee Hearings HR1207 Audit the Fed.
Thank God it passed. It's about time the banksters' scams were exposed to the public.
I was going to take the time to write and ask why are you defending the Fed, and to tell you your article is bogus. But I read all 26 posts and they all agree that the Fed sucks and needs to be audited, so I really do not need to get into depth. Unanimous here in this post - down with the Fed! I would go as far as to say the Fed needs to be abolished and the nation's monetary system and banks all be nationalized. The Fed is truly at the hub of all of this nation's problems, seriously.
"We must not let our rulers load us with perpetual debt. We must make our selection between economy and liberty or profusion and servitude. If we run into such debts as that we must be taxed in our meat in our drink, in our necessities and comforts, in our labors and in our amusements, for our callings and our creeds our people must come to labor sixteen hours in the twenty-four, give earnings of fifteen of these to the government for their debts and daily expenses; and the sixteenth being insufficient to afford us bread, we must live.. We have not time to think, no means of calling the mis-managers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow suffers. Our landholders, too retaining indeed the title and stewardship of estates called theirs, but held really in trust for the treasury, must be contented with penury, obscurity and exile private fortunes are destroyed by public as well as by private extravagance." TJ
Do the Americans really think they can possibly regain control of their country from the central bankers??? Not a snowballs chance in hell.
Yes, the cost would be great. It would be much better to just get rid of the Federal Reserve altogether. Now if we were on a gold standard, there would be no Federal Reserve. Nor could Congress interfere with monetary policy. It would just be the free market.
But the first step to getting rid of the Federal Reserve is to audit it to get it to open its books. President Obama campaigned to make government more transparent. Let's see some of that transparency in the Federal Reserve.
Just exactly why is Alton Drew so trustworthy of Ben Bernanke? What has Bernanke done to warrent that trust? Has he averted inflation? The dollar is currently worth 5% of what it was worth in 1913. Is he boosting employment? We are currently at 10.2% unemployment. What has Bernanke done to warrent public trust to his monetary policy? Nada!!! It's time to revert to the gold standard. The Federal Reserve has betrayed the American people. It's time we, the American people, took back our cou
You see everyone in order to understand Alton, you have to understand who he is and what he represents. Alton Drew cares about his interests alone, he must protect his investors
(Alton Drew Group). This way he can protect his pockets, not the pockets of the general public or the real American People. Keep the money in the family, right Alton? Either that or Alton does not understand, that we the people have woken up and we are gonna fight to take our country back from the corporations and greedy pigs like himself. Alton you are gong down with the rest of the Wall Street pigs. In a way, you are showing symptoms of swine flu, be careful the vaccine might kill you. Oh I meant your stimulus package. Bye Alton. Death to the FED. God Bless America. Thank you Real Americans for waking up.
Unbelievable. Have you no understanding of economics? The Fed is a government created monopoly on currency and debt. The evil in this is that the currency is forced on us as a medium of exchange that has no value of it's own and no standard of unit measure. The debt, is our future productive capacity as individuals. The Wealth that must be created to give value to the valueless currency is the Wealth We as individuals create in our everyday lives. This manipulation of currency via the monopolistic action of interest rate change and currency production (printing, loans, etc.) redistributes the Wealth (What We the People created in our pursuit of happiness) to the holders of the debt that supposedly backs the currency. In other words, They are creating paper and receiving real wealth from us in exchange.
Total Rip-off. There is nothing more politicized than a government sanctioned, fiat money monopoly.
END THE FED!
You see everyone in order to understand Alton, you have to understand who he is and what he represents. Alton Drew cares about his interests alone, he must protect his investors
(Alton Drew Group). This way he can protect his pockets, not the pockets of the general public or the real American People. Keep the money in the family, right Alton? Either that or Alton does not understand, that we the people have woken up and we are gonna fight to take our country back from the corporations and greedy pigs like himself. Alton you are gong down with the rest of the Wall Street pigs. In a way, you are showing symptoms of swine flu, be careful the vaccine might kill you. Oh I meant your stimulus package. Bye Alton. Death to the FED. God Bless America. Thank you Real Americans for waking up.
You see everyone in order to understand Alton, you have to understand who he is and what he represents. Alton Drew cares about his interests alone, he must protect his investors
(Alton Drew Group). This way he can protect his pockets, not the pockets of the general public or the real American People. Keep the money in the family, right Alton? Either that or Alton does not understand, that we the people have woken up and we are gonna fight to take our country back from the corporations and greedy pigs like himself. Alton you are gong down with the rest of the Wall Street pigs. In a way, you are showing symptoms of swine flu, be careful the vaccine might kill you. Oh I meant your stimulus package. Bye Alton. Death to the FED. God Bless America. Thank you Real Americans for waking up.
Author: "... once Congress starts tinkering with what it does not understand (and Congress has consistently demonstrated that it does not understand the economy), Fed decision making will become politicized."
Three counterpoints:
1. The FED itself has shown that IT doesn't understand the economy. The FED is culpable in the current economic fiasco. Its unsound monetary policy of easy money led to a bubble economy in which savers are punished and debtors are rewarded.
2. FED decision making is ALREADY politicized. By making the system transparent to the people, through our legislators, we live up to the founding principles of our Republic: that a free people are capable of governing themselves. Bureaucrats believe that the people are too stupid to govern, and that the people must be led like sheep.
3. You see the economy as a mystery that only central bankers can understand. The bankers WANT you to think that way. Secrecy in government always leads to corruption.
Alton,
If we believed that the creation of fiat money by a central bank operating in secrecy ultimately led to a sound and effective monetary policy then we might buy the argument that exposing it to political scrutiny is a bad idea.
But at the end of the day it does not. Creation of new money to stimulate the economy only works in the long term if the economic growth that follows is large enough to offset the debt incurred.
Otherwise all you end up doing is either increasing the debt or debasing the currency ("monetizing the debt").
You can pay for government by debasing the currency for quite some time but in the long term you will only end up punishing your own citizens. As such it is immoral.
As it is in the current system all you end up with is a quasi-gov't banking cartel that caters to a small group of well-connected large financial institutions. These banks are guaranteed success - but it is done on the backs of the people.
Specie [gold and silver coin] as a National Resource. “In such a nation [as ours], there is one and one only resource for loans, sufficient to carry them through the expense of a war; and that will always be sufficient, and in the power of an honest government, punctual in the preservation of its faith. The fund I mean, is the mass of circulating coin. Everyone knows, that although not literally, it is nearly true, that every paper dollar emitted banishes a silver one from the circulation. A nation, therefore, making its purchases and payments with bills fitted for circulation, thrusts an equal sum of coin out of circulation. This is equivalent to borrowing that sum, and yet the vendor receiving payment in a medium as effectual as coin for his purchases or payments, has no claim to interest. And so the nation may continue to issue its bills as far as its wants require, and the limits of the circulation will admit… But this, the only resource which the government could command with cert
The sad part is gullible people read this junk and actually believe it. To say the FED is not already politicized is to suspend all commonsense. One shouldn't be blogging or writing articles when they don't understand what they are writing about. It is primarily the FED (and government) who got us in this mess, and make no mistake it's going to get much worse. The lengths people go to defend the FED is just pathetic. The notion that the people don't have the right to know where their hard earned money goes is an indefensible stand to take. It defies reason. Most people who take this stand either don't understand the FED or have an agenda.
The author probably thinks the Fed is actually a federal agency.
Let the US gov't control their own currency, instead of a consortium of privately owned banks; we might actually get something back in return. The state-run bank of North Dakota is a perfect example... and they have faired pretty darn well compared to other states during this recession.
"As cash gets scarce, the price for money increases. Loans become more expensive. Consumers buy fewer goods and services. Businesses hire fewer employees."
You write this as a reason FOR the Fed, yet this is the RESULT of the Fed. When the ease of getting money due to artificially low rates caused so many risky loans. This caused the housing bubble. If the market were setting the rates, there wouldn't have been risky lending to the effect of record defaults. Many of these people should have taken a smaller loan, taken a more modest house. Too bad, they got the house, they got the loans.. then lost their jobs. All while the Fed was doing it's thing.
Even with the Feds increasingly obscene infusion of money into the system now, we see lenders keeping the money tight as everyone is under scrutiny. They want to only lend to low-risk projects. So the net effect... money is scarce and devalued further.
This amendment increases transparency, a step in the right direction.
I guess I'll go ahead and mention I agree with the previous postings. Your article is a farse and if you know it your are a shill and if you don't you are a fool.
Fed and irs Owned. Freedom for people, we abolish them, like pre 1913
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