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Audit The Fed

A Commentary By Howard Rich

Wednesday, May 20, 2009

I’ll be the first to admit that the notion of Washington politicians auditing the Federal Reserve initially struck me as a little bit kooky – and more than a little bit backward.

Shouldn’t the financial geniuses be auditing the politicians, not the other way around?

In fact, one of the reasons that the Fed has been given such wide latitude throughout its history is the widely-held belief that our nation’s monetary policy should be conducted free from political “interference.”

And so the Fed has existed as “an independent entity within the Federal government" for decades. Encompassing “both public purposes and private aspects,” our nation’s central bank claims that it is not “owned” by anyone and “is not a private, profit-making institution.”

From its founding in 1913, the Fed has existed as an island of almost total independence – setting interest rates, managing inflation and regulating banks according to the will of its Chairman and seven-member Board of Directors.

It cannot be audited. Its ledger is not disclosed. Its meetings are private. Its decisions are not up for debate.

Of course, this ongoing shroud of secrecy ignores the fact that the Fed – as it exists today – is a completely different animal than it was even two years ago.

No longer merely a “regulatory” agency, the Fed has used the current economic crisis as an excuse to dramatically expand its role. With zero transparency, accountability and effectiveness, it has printed and loaned trillions of dollars since mid-2007 in a costly and unsuccessful effort to mitigate fallout from the sub-prime mortgage crisis.

“The Federal Reserve’s recent and unprecedented actions in the realm of monetary policy have provoked a backlash among the American people,” Rep. Ron Paul wrote recently. “Trillions of dollars worth of loans and guarantees have been provided to Wall Street firms, while Main Street Americans suffocate under harsh taxation, the prospect of higher debt levels and increasing inflation.”

Rep. Paul has sponsored a bill to “audit the fed,” H.R. 1207, which has attracted a surprisingly strong bipartisan coalition of 170 lawmakers. Companion legislation has also been introduced by Sen. Bernie Sanders, while Rep. Dennis Kucinich has introduced separate legislation that would specifically audit the Fed’s response to the current economic crisis.

“The Federal Reserve has been operating in a governmental netherworld, free from scrutiny or oversight,” Kucinich said last week. “We know the Fed has printed and loaned trillions of dollars, but we don't know where the money went.”

Obviously, Ron Paul, Bernie Sanders and Dennis Kucinich seldom agree on anything – but they all subscribe to the simple logic of having a public accounting of this massive cash outlay.

Similarly, Americans of all political persuasions deserve to know where all of this money went – just as they deserve to know whether or not the government entity that is tasked with keeping inflation low is in fact passing it on down the line and depressing economic growth.

Put another way, America deserves to know whether or not the Fed is worth keeping around anymore.

Not surprisingly, supporters of the Fed’s failed policies – most of whom are lifelong champions of government intervention – have quickly seized on a familiar refrain.

For once, they are bemoaning the “intrusion” of government into the private sector.

“The very boldness of its actions has put the independence of the Fed at risk,” an op-ed published last week in Forbes noted. “Congress is now clamoring to audit the Fed, and some of the policy proposals currently under discussion at the Federal Reserve will only increase the threat to its independence.”

Frankly, the Fed’s “independence” should be the least of our concerns.

Locating the trillions of dollars it has blown in the last year-and-a-half with absolutely no oversight or accountability?

Now that’s something worth worrying about.

Howard Rich is Chairman of Americans for Limited Government .

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