by Ron Paul: The
Fed’s Interesting Week
Near the start
of this year Ron
Paul (R-Texas) introduced H.R.
1207, the Federal Reserve Transparency Act of 2009. The bill
was referred to the House Committee on Financial Services. As of
this writing, H.R. 1207 has 282
A Senate equivalent,
the Federal Reserve Sunshine Act of 2009, has been introduced by
Bernie Sanders (I-Vt.). It has 23
cosponsors. Both bills have received a tremendous groundswell
of grass-roots support. Much of the support is coming from ordinary
people who have become aware of the fact that the Federal Reserve
has created trillions of dollars literally out of nothing during
the past calendar year in its effort to micromanage its way out
of the worst economic crisis since the Great Depression.
If such a measure
were passed by both houses of Congress and signed into law by President
Obama, the resulting bill would allow the Government Accounting
Office to conduct audits of Federal Reserve System monetary policy.
The bill proposes to scrutinize the Fed’s dealings not just on domestic
monetary policy but on dealings with foreign central banks and foreign
The power elite
is worried. Evidence for this can be found in a short article “The
Fed’s Political Problem” appearing on the website of Foreign
Affairs, flagship journal for the Council
on Foreign Relations (CFR). The article’s author, Alan
S. Blinder, is a senior-level economics professor at Princeton
University who also directs Princeton’s Center
for Economic Policy Studies. From 1994 to 1996 he served as
vice chairman of the Board of Governors of the Federal Reserve System.
argues a thesis he
proposed back in 1997, that some areas of government are properly
political and others are properly technocratic. He places monetary
policy in the latter, where it can operate independently of political
oversight. The drawback of Ron Paul’s bill is that it would transfer
Fed oversight to the political realm and end its independence.
Dr. Paul as u201Can extreme libertarian and longtime foe of the Fed.
He has, incredibly, persuaded almost two-thirds of the House of
Representatives to co-sponsor a bill that would jeopardize the Fed’s
independence.u201D According to Blinder, the Fed u201Cgets plenty of critical
evaluationsu201D of its policies and decisions. He maintains that Dr.
Paul’s bill u201Ccould easily develop into something quite dangerous.u201D
He imagines this scenario:
in 2010, the Fed, wanting to avoid inflation, will likely begin
to abandon the hyper-expansionary monetary policy it adopted during
the recent crisis as a way to stave off a depression. As it does
so, interest rates will start rising even as unemployment remains
high. Predictably, Congress, being more closely attuned to public
opinion, will be unhappy with this situation. Until now, the Fed’s
independence has ensured that it can afford to ignore public opinion
and take such necessary but unpopular economic measures. That is
precisely why we want an independent monetary policy. But if the
Paul bill passes, angry members of Congress could ask for a GAO
audit. And, if the report is critical, they could use it to browbeat
members of the Federal Open Market Committee, the Fed’s interest-rate-setting
body, for killing the country’s economic recovery.
Paul is a Republican member of Congress from Texas.
© 2009 The