Why the Fed Likes Independence

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by Ron Paul: Keynesianism
Delivers a Decade of Zero

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Last week it
was revealed that when Treasury Secretary Tim Geithner was Chairman
of the New York Federal Reserve, he urged AIG officials not to disclose
to the Securities Exchange Commission relevant details of agreements
with banks to bail out Goldman Sachs. Apparently he felt at the
time that regulators and the public would be angry that taxpayer
money was used to fully compensate bankers who made some horrifically
bad investment decisions. These banks should have suffered the consequences
of the huge risks they were taking. After all, they kept plenty
of rewards when times were good. Instead, the Fed found a way to
socialize these major losses so these banks could survive and continue
making more bad decisions, at the expense of the American people
and the value of the dollar.

Geithner claims
that they had to take politically unpopular actions to save the
economy from collapse. Half of that is right — it was politically
unpopular, but it is extremely premature at best, to claim the economy
has been saved. It was just reported that the economy shed 85,000
more jobs in December. Unemployment stands at 10 percent officially,
and 22 percent according to more traditional calculations. It is
hard to argue that this sort of government waste has done anything
but harm to our economy. Raiding Main Street to bail out Wall Street
is a foolish idea. Main Street productivity and the strength of
the dollar is the bedrock of the economy. You cannot gut this foundation
without eventually toppling everything else. This is what too many
policy makers either don’t understand or refuse to face. Or
even worse, perhaps they do understand, but don’t care!

In any case,
this revelation makes precisely my point about the need for Fed
transparency. This claim that the Fed should have “independence”
is a canard. They very much enjoy their comfortable pattern of bailing
out friends and devaluing the currency with no oversight and no
accountability. Geithner specifically asked officials at AIG not
to disclose to the SEC or to the public particulars about this special
deal for his friends. We only know these details now because AIG
was eventually forthcoming when Congress demanded some answers.

We should be
getting this information, and information on all such dealings,
straight from the Fed. The Fed should be accountable to Congress
because it is a creature of Congress. The Constitution gives Congress
the authority to oversee the integrity of the monetary unit. We
have unwisely and unconstitutionally delegated this authority to
the Federal Reserve, which has in turn devalued our dollar by 95
percent and counting. When the Federal Reserve engages in harmful
policies, Congress is still ultimately responsible. If the Fed is
not made accountable through a GAO audit at least, it will continue
to be accountable to no one, and that is unacceptable.

Geithner expects
to be praised and thanked for his actions instead of rebuked and
fired. He expects to be given more power to engage in “experimental”
monetary policy in the future. But he has just given us a very good
idea of what the Fed and Treasury would do with more power, what
they consider good monetary policy, and why they like their so-called

the Ron Paul File

12, 2010

Dr. Ron
Paul is a Republican member of Congress from Texas.

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