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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?
20 Comments
Thanks for this, Dean, and great to have you here. Are there specific folks we should call to make sure the Fed gets audited?
Dean, do you have any insight into the why of the Watt’s amendment? Who put him up to it? Obviously, Watt doesn’t know squat, so who is greasing his palm? Or is this another of Rahm’s escapades?
His five top contributors in the 2007-2008 campaign were banks. He raises far less from all sources than the average amount raised by all house members. If his bill passes, I’m sure he will be raising far more than the average house member. That just might be his motivation..’g’.
http://www.opensecrets.org/politicians/summary.php?cycle=2008&cid=N00002328&type=I#fundraising
Need it be said that independence conduct of its legislatively prescribed role does not mean independence from all oversight from Congress into whether it strayed from that assigned role or independence from all oversight in spending taxpayer funds.
Congress created the FED. It can uncreate it, or modify, add to or delete its powers and independence at the drop of a duly passed and signed into law bill. It would be oh, so nice if the dog wagged the tail for a change.
Mr. Watt and The Fed, along with Wall Street and banking/finance all seem to have a similar profile.
That of a pompous horse’s ass.
Thanks for the update Mr. Baker.
And I apologize to all horses’s asses everywhere, be they pompous or not, but it was the first lexicon that came to my mind.
Hey Larue
Have you read that SMUD is suing Bank of America, UBS, and JPMorgan over Derivatives?
I say ‘good for them’
Looks like Ryan Grim answered my question.
We wouldn’t be sitting in the wreckage of the home lending mess if the Fed had exercised its powers to regulate mortgage lenders, either.
Watt’s district is a minority-majority district gerrymandered as a narrow band that runs from Charlotte (home of Bank of America) to Greensboro.
Congress is a major stakeholder in the Fed, so it’s not likely to air any dirty laundry. Ron Paul should know that. It’s what his mentor, the late Murray Rothbard, argued, after all.
Indeed, what in the world does it mean to discuss the *independence* of the FED after *operation TARP* and the multi-trillion dollar bailout of Wall Street? You may as well talk about the *independence* of Congressional finance committes, the Teasury Department and the White House economic team. Independent of what—Wall Street? Crony capitalism? K Street?
Ron Paul is one of the few Republicans [a libertarian] who is fully aware of the enormous gap between laizze-faire capitalism and state capitalism. And Grayson [like Kucinich and a hand full of other Democrats] is one of the few genuinely committed liberals with respect to economic policy. All the rest are bought and paid for.
Funny though how this systemic view of the juncture where political and economic power converge in America is rarely discussed indepth in the mainstream media. Maybe because they are a part of it?
Dean,
Should the Fed be abolished?
I think so.
We were beating up on this over at naked capitalism last night. The Fed has failed in its twin missions of guiding monetary policy and full employment. It has moved massively into the area of fiscal (spending) policy. This not only highlights its extra-Constitutional character, but its governance and control by private banks for private banks. Its foray into the fiscal side means it is usurping the Congressional power of the purse. It essentially politicized itself by doing so becoming an extension of the Executive branch in the process. It has already lost its independence, and how it is spending money is very much the right of Congress to oversee and control.
The independence of the Fed is at risk? Good. May it be put in the same chains that it put Americans.
Dean – good to see you here.
Is that Andrew Jackson I hear saying “I told you so.” Today’s Fed makes Andrew Jackson look prescient. The actions of the contemporary Bank of the United State wouldn’t surprise him, I would guess.
Thanks Dean. I’ve appreciated your work for a long time. What do you think we ought to do with the Federal Reserve?
Thanks Dean; Can we get a Petition going to support the Grayson/Paul Bill? This is mind-boggling, to say the least. My God the FDIC wants to use taxpayers money in secrecy, can anybody say Bush Agenda.
thanks Dean. Follow the money. Audit the Fed! Independence whooey
Thanks Dean. Great post.