If people knew exactly what goes on behind the agency’s closed doors, they would be shocked at how much power it has to screw things up for the rest of us.
Back when Ron Paul was in Congress, you could always count on him to do one thing: introduce the same bill every year, heedless of futility or Sisyphean labor, to conduct a comprehensive audit of the United Stated Federal Reserve Bank.It never went anywhere. But undaunted, the elder Paul continued the tradition right up until his retirement, at which point he passed the mantle to his son, Sen. Rand Paul, R-Ky. (A, 92%).
Rand continues to introduce the bill every year, with increasing probability of action, receiving a rare vote in the Senate in 2016. This year, the warriors of monetary policy may have their best shot yet at success, as a new version of the bill is being sponsored by Rand and Rep. Thomas Massie, R-Ky. (A, 94%) with vocal support from the incoming Trump administration.
The Federal Reserve is a nominally independent agency that regulates the nation’s money supply, controls interest rates, and occasionally intervenes in markets more directly, as when it purchased toxic mortgages during the 2008 housing crisis. The Fed generally operates behind the scenes in comparative secrecy, with the general public having only a vague conception of what the agency actually does.
What few people realize is that when the Fed alters the money supply and changes interest rates, it is sowing the seeds of future economic disaster by introducing distorted signals into money markets. Not only does dramatically expanding the money supply (as the agency has done for the last decade) create inflation that causes consumer prices to rise, but it also leads investors into making bad decisions that harm the economy as a whole.
The Fed is adamant that it is already subject to audits by the inspector general, and that it is already fully transparent. The agency is also adamant in its opposition to the Audit the Fed bill. Can you spot the inconsistency? If the agency is already transparent, then the bill would do nothing, so why oppose it?
The truth is that, while the Fed is subject to periodic audits, these are only partial reviews of the agency’s activities that leave out many of the most important aspects of what the Fed does: Transactions with foreign governments, internal communications, and the open market operations that constitute most of what the Fed does are currently exempt from scrutiny. If people knew exactly what goes on behind the agency’s closed doors, they would be shocked at how much power it has to screw things up for the rest of us.
We would also discover that the Fed is not nearly as independent as most people believe. The Fed chairman is appointed by the president, which imparts an inherently partisan slant to anything the agency does. I suspect an audit of internal communications would reveal far more consideration for political concerns than the Board of Governors lets on.
Make no mistake: Auditing the Fed will not be a panacea that will immediately change anything, but it is a necessary first step toward exposing the agency’s actions to the public and convincing ordinary citizens of the need to end the agency’s charter.