Representative Mel Watt (D-NC) is out to protect the independence of the Fed from the risk of an intrusive audit from the Government Accountability Office (GAO). The risk comes in the form of a bill initiated by Ron Paul and Alan Grayson that calls for an audit of the Fed. The bill, which now has more than 300 co-sponsors, would allow Congress to find out who the Fed lent more than $2 trillion to through its special lending facilities, and under what terms. Congress would also be able to find out which countries were allowed to take advantage of dollar swaps at the peak of the financial crisis last fall.

Allowing our elected representatives to know what our central bank (the Fed) is doing with our money might seem reasonable, but not to Mr. Watt. He has proposed an alternative which would keep this information secret. According to Mr. Watt, the prospect of a full GAO audit poses a huge risk to the Fed’s independent conduct of monetary policy.

It is not clear how a GAO audit precludes Fed independence, but we should know exactly what we could be putting at risk. As a result of the Fed’s independent conduct of monetary policy, Federal Reserve Board Chairman Ben Bernanke ran to Congress last September and said that if Congress did not immediately approve $700 billion in TARP money, then the economy would collapse. We may not have been in this situation without the Fed’s independent monetary policy.

The Fed also funneled tens of billions in handouts of taxpayer dollars through AIG to Goldman Sachs and other major banks. This may also not have been possible had it not been for the Fed’s independent monetary policy. In fact, Wall Street’s current high profits and high bonuses may not have been possible without the Fed’s independent monetary policy.

The Fed deserves responsibility for the other side of the equation as well. We would not be sitting here in the wreckage of an $8 trillion housing bubble, with 10.2 percent unemployment and 2 million foreclosures a year, without the Fed’s independent monetary policy. We would not have seen the projections of debt soar by $6 trillion at the end of the next decade without the Fed’s independent monetary policy.

Representative Watt is exactly right, we should think very carefully before we let Congress do anything that interferes with the Fed’s independent monetary policy. Who knows where that could lead us?