Monday, January 11, 2016

Audit the Fed Bill Nears Vote - Contact your Senators

This week, the Senate will consider a bill to allow Congress to "Audit the Fed." This is a surprising development because the role of the Fed, the Federal Reserve Bank, doesn't come up much in the political discourse. Monetary policy is a complicated subject that isn't a key issue for most voters, and the Fed generally enjoys bipartisan support. At the more consistent ends on the left and the right, you will find people as diverse as Senator Bernie Sanders on the left, and former Congressman Ron Paul on the right who have tried to raise hell about the Fed. Unfortunately, they were lonely voices.

The Fed is a significant institution in our political system. It controls the amount of money in the eonomy, and ultimately impacts everything from the interest rates on car loans and home mortgages to the prices at the grocery store to the state of the economy itself. People often try to assign responsibility for the US economy to the President at the time--in this view, Bush was responsible for the crash of 2008 and Clinton was responsible for the prosperity that preceded it. In reality, though most of the credit, good or bad, belongs with the past and present leadership of the Fed. When times seemed (and were) too good to be true during the dot-com and housing bubble, the Fed was the chief culprit. And when those bubbles eventually popped, the Fed bears the lion's share of the responsibility for putting us on an unsustainable path.

Setting aside the Fed's role in creating bubbles, it is also important to note the Fed's supplemental bailouts during the most recent crisis. According to this report from Bloomberg, the Fed gave the largest and most politically-connected banks access to $7.77 trillion in financing at the depth of the crisis--that is over 10 times larger than the official Troubled Asset Relief Program (TARP) run through the Treasury Department. And all of that was undisclosed, revealed only years later through Freedom of Information requests by Bloomberg.

Now, a case can be made that such bailouts may have been necessary. I don't find it to be compelling, but it is at least debatable. But there is no justification for doing it in secret, and to the benefit of a few large institutions. The Fed will argue that releasing the names of the institutions that needed emergency financing would cause a loss of confidence among its depositors. But if you're one of the banks that needs billions of dollars of emergency funding to stay afloat, well, it seems like a loss of confidence is probably justified. Additionally, we must understand that ultimately, we were all affected by the grant of $7.77 trillion in financing because that money didn't come from anywhere. It is simply created. In the long-run, extra money in the system will cause prices to be higher.* 

The Audit the Fed** bill aims to bring some of these backroom activities into the public eye on a more timely basis. Introduced by Senator Rand Paul, this is a bill that the best on the left and right can both appreciate. For the left, this bill would make it harder for politically-connected banks like Goldman Sachs to benefit at the expense of regular Americans. For the right, auditing the Fed is the first step towards blocking future bailouts in general.

Remember that the vote is this week. So if you're interested in learning more and contacting your Senators, check out Downsize DC. They have more information and a convenient contact form that will send an email to all your Senators and Representatives through a single form. If you don't have much time, you can also use the pre-written note suggested by Downsize DC. (I've pasted that letter in its entirety at the end of this post.)

It's pretty rare that a decent bill comes up for a vote in either house, so we should enjoy the moment and take the opportunity to voice our support.

*Because this financing took various forms (commitments and guarantees, as well as actual loans), it's very unlikely that the full $7.7 trillion was literally provided to the institutions. But the fact that Fed committed to create that much money in a pinch, however, is still significant and taxpayers deserve to know how institutions were selected to receive such financing. We should also note that it's difficult to predict the timing or amount of inflation in a global financial system. The long-term effect, however, is that prices are higher than they otherwise would be. Thus, money creation is ultimately a wealth transfer from everyone that has saved US dollars, to the institutions that benefit form the new money.

**We should also note that the Fed already receives a financial audit from a public accounting firm. This covers the Fed's financial statements and ensures their accounting is appropriate. However, it does not address more detailed questions about the nature and merits of the Fed's activities. That is the purpose of the bill--to ensure that significant activities of the Fed can be subject to similar levels of oversight as other governmental agencies.

Suggested Letter:

It's time to "Audit the Fed." You must PASS S. 2232 the Federal Reserve Transparency Act.

The Fed regulates banks, influences interest rates, and determines the size of our money supply. The Fed's policies determine the value of our money, the health of the economy, and the rates we pay to borrow.

But for too long, the Federal Reserve Board has acted under a cloak of secrecy.
  • It's decision-making process is secret.
  • Minutes from meetings come three weeks after decisions are announced.
  • The Comptroller General is legally prohibited from auditing several important Fed activities.
But the economic consequences of Fed policies can be just as devastating to our lives as are taxes, regulations, and even war...
  • Many economists, including former Fed Chair Ben Bernanke, blame the Fed, in one way or another, for the Great Depression
  • Many also blame the Fed for harmful booms and busts
  • The Fed’s continued inflationary pumping cuts the value of your money, devastating savings and the well being of people on fixed incomes
Sen. Rand Paul of Kentucky introduced the Federal Reserve Transparency Act of 2015. 

It expands congressional oversight of the Fed and gives the Government Accountability Office the authority to review its monetary policy decisions. Now, the bill is "fast tracked" and scheduled for a vote on January 12.

I insist that you vote to Audit the Fed. Support the Federal Reserve Transparency Act. I'll be watching what you do.

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