Auditing the Fed
Ron Paul finally got his wish yesterday and the House Financial Services Committee held a hearing on his legislation to audit the Federal Reserve. There were only two witnesses: the Fed's general counsel and Tom Woods, a historian from the Ludwig von Mises Institute. The testimony is available here:
http://www.house.gov/apps/list/hearing/financialsvcs_dem/fchr_092509.shtml
I urge those curious about this issue to read both statements. I think it is abundantly clear that this is a crackpot idea. The Fed is already thoroughly audited in every area except two: monetary policy and dealings with foreign central banks. The only purpose of having additional audits of the Fed is to undermine its independence precisely with regard to these two areas. If Woods presents the best argument for doing so, the argument is very shallow indeed.
Whatever one thinks of the Fed's policies in recent years--and there certainly are grounds for criticism--there is no reason whatsoever to believe that undermining its independence and putting the Congress in control of monetary policy--Ron Paul's goal--would improve matters at all. Indeed, there is every reason to believe that full congressional control of monetary policy would be a disaster. Instead of getting Switzerland-like stability, as Paul foolishly imagines, the more likely result would be Zimbabwe-like hyperinflation.
In the end, I agree with Barry Ritholz that whatever the Fed's failings, those of Congress are vastly worse. As he put it in explaining why he didn't testify yesterday:
I was invited to testify this week to the House Financial Services Committee about reform and regulation.
I politely demurred.
While I have been critical of the Federal Reserve (especially the Greenspan years), my beef with them has been their judgment and decision-making process. Congress, on the other hand, is a whole different matter. Its not their judgment, but rather, the fact they are owned not by the American people, but by lobbyists, and corporate interests. They have become structurally deformed.
How weird is it for me, who spent so many pages blaming the Fed for a lot of the recent crisis, to find myself in a position of defending them from outside political pressure? The choice we face is the recent Fed regime of secrecy, nonfeasance, irresponsibility, and easy money — versus something possibly likely to be a whole lot worse.
To be found in “contempt of Congress” would require an improvement in opinion of them.
If the Fed has been a major source of problems, Congress is much worse. They were the great enablers of the crisis, readily corruptible, bought and paid for by the banking industry. I find Congress to be the worse of two evils — lacking in objectivity, incapable of producing legitimate regulatory review.
If the Fed is Wall Street’s bitch, then Congress is the Street’s whore.
http://www.ritholtz.com/blog/2009/09/fed-vs-congress-lesser-of-two-evils/
Who screws who
The choice we face is the recent Fed regime of secrecy, nonfeasance, irresponsibility, and easy money — versus something possibly likely to be a whole lot worse.
If I have the choice of having the hands at the wheel be unelected unaccountable bankers or folks who can be thrown out at the next election, I know who I want.
A New Central Bank System Unecumbered by Politicians
Individuals have undergone debt default and terrible personal hardships. The Super Banks and the Financial Industry Trustocracy are melded with the Federal Reserve creating gross unfairness in the money system compared to wage earners.
A national bank with changeable rules controlled by politicians would be far worse than the Federal Reserve. But a new national bank system controlled by rules and parameters made by the likes of a responsible wise man like David Walker has instant potential to be much better than the Fed with then possible correlative appropriate retribution and jailing of the Federal Reserve's Money Industry collaborators. Gross fraud should be punished.
A new national bank and new tax rules to thoroughly punish speculation, gains, losses in the stock, commodity, and financial industry derivatives markets and to reward savings in traditional banking accounts would go far in reestablishing a balanced economic system.
Over valuation relative to wages, tremendous outstanding debt load, existing over supply of housing, decreasing wages, rising unemployment, impossible entitlement obligations must all reach a devolution equilibrium before the system can reboot.
Fed
Sometimes I look at the Fed with concern and I wonder about their autonomy. But I really feel more concerned about our government taking over another organization. We certainly need our government but we don't need to have it running too many things. The track record is not good. online casino
The FED haters don't realize
The FED haters don't realize that speculative cycles occur not just from fiat money and a central bank, but from the use of leverage to fund the buying and selling of stock. To get rid of such cycles, dumping the central bank is not enough. Trading and speculation in stock must also be ended - however I don't see von Mises types arguing for an end to capitalism any time soon.
Agreed, but that doesn't mean
Agreed, but that doesn't mean that getting rid of the Fed wont help. Fed printing gives bubbles wings.
Business Cycles
You'd think we never had business cycles or speculative bubbles before the Fed was invented. Tell that to John Law.
John Law was France's central banker
Any serious history book on John Law explains that he was handling the printing press when he blew up his bubble. He acted as France's central banker.
Fiat
The issue then, if you are to bring John Law into the picture, is paper (fiat) vs. sound money. This bill, HR 1207, simply looks to provide more transparency into the actions of the Fed. The only people who would stand against such action are those who support a Congress that second guesses the actions of the Fed with only a fraction of the information necesssary over a Congress that second guesses the Fed with all information necessary to be fully informed. Reject increased oversight if you will but please remember your basic history...our nation's "Great Depression" occurred 16 years after the Fed was created, not before.
Correct, which is where the
Correct, which is where the problem of government comes in with protection of fraud and redistribution of wealth to protect its favored groups. Now imagine a world with no Fed and no government action to bail out the crackpots and speculators. You'd think people would act responsibly knowing that they don't have to bear the consequences of their actions....oh wait, that doesn't make any sense.
How does audit = control?
Mr. Bartlett,
You spend plenty of words highlighting the "crackpot" nature of Paul's legislation, but why would audits lead to full Congressional control of the Federal Reserve? Do you think Bernanke would change any of his positions on monetary policy based on political pressure?
I agree that Congressional control of the Fed would be worse - but that's not a case for not increasing oversight of an organization that had at least some hand in the finanical and housing bubble that lead to economic recession of the past two years. Maybe we should audit Congress more, too? I bet Paul would be in favor of that, and I bet he would agree with you that a Congress in control of the money supply would be disaster as well. BUT...
You blissfully ignore the real issue, Mr. Bartlett. Congress is is partly in control of the money supply, because it can increase spending to such levels that make it justifiable to liquidate the government debt. Please rethink your stance on this topic or re-post a more thoughtful rebuttal.
"undermining its independence
"undermining its independence and putting the Congress in control of monetary policy--Ron Paul's goal"
You Lie! Paul just published a book called "End the Fed". That's his real goal.
The legislation calls for the GAO to audit the Fed like it audits everything else. That's All.
Thank you for calling the
Thank you for calling the disingenuous basis of this article exactly what it is, a lie.
So if the Fed is bad and the
So if the Fed is bad and the Congress is worse... END THE FED!
"Whatever one thinks of the
"Whatever one thinks of the Fed's policies in recent years--and there certainly are grounds for criticism--there is no reason whatsoever to believe that undermining its independence and putting the Congress in control of monetary policy--Ron Paul's goal--would improve matters at all. Indeed, there is every reason to believe that full congressional control of monetary policy would be a disaster. Instead of getting Switzerland-like stability, as Paul foolishly imagines, the more likely result would be Zimbabwe-like hyperinflation."
Hey Mr STRAW MAN, that isn't even what Ron Paul wants, he's stated many times he doesn't want congress in control of monetary policy, that is not the aim of the audit the fed bill, he merely wants to open the book to see where all the peoples tax money is going, you'd think that would be a fair request.
so much wrong with just this one little paragraph it's untrue, suffice to say you've totally mischaracterized Dr Pauls position and aim.
"While I have been critical
"While I have been critical of the Federal Reserve (especially the Greenspan years), my beef with them has been their judgment and decision-making process. Congress, on the other hand, is a whole different matter. Its not their judgment, but rather, the fact they are owned not by the American people, but by lobbyists, and corporate interests. They have become structurally deformed."
How the heck do you know that the FED is not owned by corrupt banking insiders and corporate interests without an audit? Congress is open, which is why we know how corrupt it is.
The Inevitable
For starters, Bruce, it's pretty insulting to think Ron Paul would advocate getting rid of our current fiat system and replace it with Switzerland's fiat system. The fact that you say that shows that you are completely lying.
Second, according to the Constitution, only Congress has authority to create legal tender, and all monies are to be made of gold and silver or represent one of these. Seeing that the Federal Reserve Act took that power away from Congress without an amendment to the Constitution means it should be invalidated.
Third, since the Federal Reserve's inception in 1914, the dollar has lost 95% of it's value. Before that, the dollar was quite steady.
And finally, you fail to mention the inevitable that will happen when the World Bank drops the dollar as the World Reserve Currency: hyperinflation. Though I see it more along Weimar Germany lines than Zimbabwe.
Darn those occult practices
Thank goodness we have Bruce Bartlett arguing for secrecy and lack of accountability for those who control our money supply. Why, we can't have the people or the representatives know what is really going on. That would be dangerous.
How about a little sunshine for a change? What are you afraid that we will discover with an audit?
Ron Paul - Audit the Fed
There is a simple way to eliminate the fed. Re-establish gold as a money-equivalent, with no gain/loss taxation on its exchange. Allow contracts to be enforced on a gold ounce basis.
Ideally, the fed would peg the exchange rate at say, $1000US greenback / ounce of gold. That would accomplish almost everything we need.
But even if that is not done, the market can effectively do the same thing by merely doing the first -- acknowledge gold as a money-equivalent.
Just like politicians...
How about you actually read H.R. 1207 before blogging about it? Nowhere is congressional control of the money supply mentioned in it. Now that would be a disaster. But at least we could evict the politicians for it. Now the Fed blames the treasury and the treasury blames the Fed, while the public takes it in the wallet.
Funny how little substance there is to Pro-Fed arguments these days. No one mentions the total erosion of the dollar under Fed control, or the total lack of savings in America during the Fed's reign.
P.S. End the Fed!
So opening up the Fed so we
So opening up the Fed so we can all see their nefarious dealings would somehow hand over all control of the monetary system to congress? Really? Quite the non sequitor if you ask me. Of course congress would do a terrible job with the monetary system. AND EVERYONE KNOWS IT. That's why they give the job to a secretive, semi "independent" organization instead-- so we CAN'T see what a terrible job they're doing! Really folks, this argument is absurd. All the audit wants is to make the dealings of the Fed public. Right now you're all desperately clinging to your womb of ignorance, protesting that since you can't see what's going on there can't possibly be anything wrong. If congress was in charge (and no one, certainly not Dr. Paul is advocating that) at LEAST their horrendous dealings would be public and subject to public scorn! Do you really think that because this organization is secret it is somehow more trustworthy than congress? Dare I say it's the opposite? Perhaps if this audit is passed and people have a lightbulb moment when they see the Fed has shoveled trillions into the coffers offoreign banks and personal friends they will think otherwise.
End the FED.
Dr. Paul doesn't want Congress in charge of monitary policy. It is a mistake to even think the government has the power to set monitary policy at all. Congress is tasked with the "regulation thereof".. not with the setting, but with the enforcement of gold and silver, and their weights and measures, as legal tender.
Also, yes, there were booms and busts, ups and downs, before the FED. These were due to the fractional reserve banking scheme, vis a vis government tampering with the market.
Free banking is the answer. Let the consumer choose which bank, money, and level of risk he is willing to participate in, and get the government OUT of monitary policy all together.
Following the Constitution
Following the Constitution (like, say, ohhh the requirement that all money be silver and gold) is a crackpot idea. I mean, gee, who does that any more? The free-market may be wonderful for every other good and service, but hey, banking needs central planning. Of course the banking elite should do all the planning in secret because secrecy = independence. Besides, the cost to buy off even more politicians if this bill passes will cut into bank profits. The Big Banking Cartel is above playing the game of petty fascism like everybody else, so just leave them alone.
It's fun to see who the cockroaches are as they scatter when you shine a light into their favorite dens.
Re: Tell that to John Law
"You'd think we never had business cycles or speculative bubbles before the Fed was invented. Tell that to John Law."
John Law was for all intents and purposes operating a central bank. From you-know-ipedia: "In May 1716 the Banque Générale Privée ("General Private Bank"), which developed the use of paper money, was set up by Law. It was a private bank, but three quarters of the capital consisted of government bills and government accepted notes."
"To get rid of such cycles, dumping the central bank is not enough. Trading and speculation in stock must also be ended - however I don't see von Mises types arguing for an end to capitalism any time soon."
Mises demonstrates that ordinary trading and speculation cannot explain the business cycle. The real source of widespread investment error is the expansion of the money supply through government fiat. It is only the debasement of the currency which can fool large numbers of entrepreneurs and the public into thinking that wealth exists where no real wealth is to be found. This is because money is the yardstick used to evaluate the profitability of enterprises and if there is an artificial source of money then the measuring stick is useless and everyone ends up using fake "paper profits" to justify investment in (ultimately) unprofitable activities.
Ron Paul is right, end the fed. The auditing part is a good first step, as a PR exercise to make the public aware of what utterly crooked, broken and shabby "leadership" they have been getting.
Independence != Opacity
Bartlett is confusing "Independence" with "Transparency", like most Fed supporters do. The Fed can be free to operate, but it shouldn't be free to conceal their dealings from the Public.
Zimbabwe will be all Ron Paul's fault
This is very entertaining to see, with the Fed doubling the money supply in the past year, hyperinflation is inevitable, probably during Obama's first term.
Now that it looks like HR1207 might pass, Bruce can start threatening, "If you audit the Fed, it will cause Hyperinflation!" and then when both things happen, he can say, "See, I told you so!" Very clever!
I suggest an alternative (and equally unsophisticated) meme: "If you don't Audit the Fed by the end of 2010, we will have Zimbabwe-style Hyperinflation!!"
Independence = Privately owned monopoly
The mechanism by which the FED manipulates (manages) the economy is through open market operations at the FRB NY. I sent this bank an email asking for a list of their stockholders. After a six month wait, while the public relations people consulted with their lawyers, I finally recieved a copy of this list. All privately owned banks. Every single share is owned by banks located in or with operations in the state of New York. So essentially we have turned over the control of your money supply, and subsequently our economy, to a cartel of private banks. Banks who have the legal authority to print money, break contracts and collapse our economy at their whim.
It is absolutely INCREDIBLE to me that ANYONE, ANYWHERE, would EVER defend this utterly corrupt institution.
signed,
Speechless
crackpot ideas
It is true ignorance or deception to state the Fed is independent of politics. I suppose Mr. Bartlett, believes creating money out of thin air to buy U.S. Treasuries is a purely apolitical event. Pleeeeease.
I don't know about Mr. Bartlett, but it would seem totally reasonable to know who was given money, in what amounts, for what purpose, and what was received.
Only a true crackpot would favor handing out 1 Trillion dollars with no accountability. May God have Mercy on your soul
Thw Fed
Masterful and arrogant wealth, created largely by Government protection of its profits, not content with its domination and influence within a single party, had sought to corrupt them both, and to that end had insinuated itself into the primaries, in order that no candidates might be nominated whose views were not in accord with theirs." ‘Colonel’ Edward Mandell House in 'Philip Dru: Administrator', circa 1912
Keep the people frightened
Of things they cannot know
Is the secret of the Tomb
If they knew what you and I know
They would know it is just men
Who rob them, cheat them, kill them
Then start it all again
- Orville X
Reform cannot be achieved by a well-intentioned leader who recruits his followers from the very people whose moral confusion is the cause of the disorder." - Socrates
A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine. - Thomas Jefferson
I feel bad for Bruce...
As Murray Rothbard once said...
"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."
Bruce, I'd say you're being totally irresponsible but, based on the lack of substance in your post, I don't even think you believe it.
Watch this interview with Jim Grant on CNBC (the title has little to do with the content).
Since the statute creating
Since the statute creating the Fed is unconstitutional and the president had no power to steal our gold why are people accepting paper as payment for anything? Wake up people and take your country back. If you are going to wait for the crooks in congress to fix our problems you will be waiting a long time. Stand up like men and do what is right for you and your family.
Rebuke
http://www.amconmag.com/blog/2009/09/28/congress-vs-the-fed/
Several mistakes or outright lies.
First of all, Dr. Paul doesn't want to move the "monetary policy" power from the Fed to the congress, he wants to eliminate that power altogether.
Our constitution prohibits the states from enacting legal tender laws for anything other than gold or silver, because we'd been there and done that. The hyperinflation of the continental dollar, and the damage that did to our economy is why the founders wanted to make sure that it never happened again.
Secondly, the claim that the Fed is "independent" is preposterous. The Fed is owned by the banks, and its entire purpose is to loot us by inflating the currency. Any other ostensible purpose of the Fed is nothing but the propaganda line that Rockefeller, Morgan, Warburg, and the rest of the Wall Street insiders cooked up to give Wilson a cover story.
I'll leave it to the other commenters to address your other mistakes.
-jcr
crackpot huh
bartlett, so Bloomberg is a crackpot media channel too?. huh?.for wanting to audit the fed?.
ritholtz is an unbashed obamarama.he thinks all that is needed is to replace the republicans with the dems and life would be beautiful. he is ignorant of the regulation brought about by a free market.so his propaganada is all about the heavy hand of external regulation.
the money supply is centrally controlled -resulting in a recession which is pervasive thru all of the economy. havent you thought about it?
for a faux libertarian that you are, it is weird that you dont like monetary liberty
It doesn't matter what the
It doesn't matter what the money supply is, there will always be boom and busts. The fed hasn't rewarded "saving" money in the last 10 years or so but if you had a pile of cash at the beginning of the year you could buy a lot of stuff on the cheap. Of course then the gov't came in with the "stimulus" package to try to prop up some failures. Capitalism just is. You cannot stop it. Every move the gov't makes is just a castle made of sand that will have to deal with gravity sooner or later. The $8000 first time home buyer stimulus just gets baked into the price of a starter home thereby propping up the price of the starter home. Cash for clunkers increases the value of the clunker. Just my opinion.
Here is the bill
Here is the entire text of the bill H.R. 1207, so anyone reading this can see for themselves what it says:
A BILL
To amend title 31, United States Code, to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States and the manner in which such audits are reported, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘Federal Reserve Transparency Act of 2009’.
SEC. 2. AUDIT REFORM AND TRANSPARENCY FOR THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.
(a) In General- Subsection (b) of section 714 of title 31, United States Code, is amended by striking all after ‘shall audit an agency’ and inserting a period.
(b) Audit- Section 714 of title 31, United States Code, is amended by adding at the end the following new subsection:
‘(e) Audit and Report of the Federal Reserve System-
‘(1) IN GENERAL- The audit of the Board of Governors of the Federal Reserve System and the Federal reserve banks under subsection (b) shall be completed before the end of 2010.
‘(2) REPORT-
‘(A) REQUIRED- A report on the audit referred to in paragraph (1) shall be submitted by the Comptroller General to the Congress before the end of the 90-day period beginning on the date on which such audit is completed and made available to the Speaker of the House, the majority and minority leaders of the House of Representatives, the majority and minority leaders of the Senate, the Chairman and Ranking Member of the committee and each subcommittee of jurisdiction in the House of Representatives and the Senate, and any other Member of Congress who requests it.
‘(B) CONTENTS- The report under subparagraph (A) shall include a detailed description of the findings and conclusion of the Comptroller General with respect to the audit that is the subject of the report, together with such recommendations for legislative or administrative action as the Comptroller General may determine to be appropriate.’.
http://www.govtrack.us/congress/billtext.xpd?bill=h111-1207
"Secondly, the claim that the
"Secondly, the claim that the Fed is "independent" is preposterous. The Fed is owned by the banks, and its entire purpose is to loot us by inflating the currency."
I think it's worth noting that, as holders of debt, inflation would actually hurt the banks' interest. In other words, the faster inflation occurs, the less those loan portfolios held by the banks are worth.
What prompted this little hit piece?
No name calling, strawmen, or vapid generalizations in this comment, I just thought I'd ask a simple question.
I guess harshly criticizing
I guess harshly criticizing Ron Paul's agenda on a blog is to Ron Paul supporters what leaving an open jar of jam on a picnic blanket is to ants.
(Well, except that there's no benefit to leaving that jar open.)
hmm, maybe instead of ants I should have gone with birds http://www.youtube.com/watch?v=R2Im8Lu5pP0
Maybe a 9/11 Truther convention is coming up and the Paulites will be otherwise occupied for a while. By the way, is Ron Paul the new Lyndon LaRouche? Have they ever been seen together or might they actually be the same person under disguise(s)?
Then again, maybe they're onto something. Come to think of it, we should just solve all our fiscal, monetary and economic problems once and for all by going back some millenia to a pure gift and barter system. That oughta teach that Bernanke guy and all the other evil "bankers"! Hey, where can I buy a pitchfork in Manhattan?
Lets go back to the Supreme Law of the Land!!!
go look at Article I, Section 10...
Nothing but Gold and Silver coin is to be a tender for debts within the states, there has NOT been a valid Article V amendment to change that requirement as stated in the Supreme law of the land, no state can make anything but gold and silver coin the tender for debts..
Also under the current FED control on our monetary system. How can the country ever get out of debt?
I personally wrote Russel L. Munk, Assistant General Counsel, International Affairs, Department of the Treasury, and asked how money was created in the United States of America. His reply was, "The Federal Reserve Board (or "the Fed" as it is often called) has several ways of allowing money to be created, but the actual creation of money always involves the extension of credit by private commercial banks."
Private commercial banks charge interest to pay for the extension of credit..
When i asked Mr Russel L. Munk, where the money comes from to pay for the interest on this extension of credit since banks only created the principal with this extension of credit?
His reply was "Money for paying interest on borrowed money comes from the same source as the other money"
In other words you have to borrow more money in order just to pay the interest...
Under this type of money system their is NO way that the private citizens or the country can ever pay back this debt.....
Abolish the FED!!!!!
Are you serious?
Knowing what it is that the Fed is doing with our money, that doesn't exist, would cause hyperinflation? How much is Bernanke paying you to say that? You do know that the Fed is funding an extremely large PR campaign to demonize this bill right? Where do you think current inflation originates from? If the Fed can print literally trillions of dollars without any permission, and do with it as they please, like give it to other international banks without having to report to anyone, then it only makes sense that transparency in their wiley ways would do the exact opposite of hyper-inflation. It could actually make our economic situation more difficult at the time, but at least we would know the truth of where our dollar truly stands so that we can start making steps stabilize it. Yes the congress isn't perfect, but it's all we got right now to actually do something about the Fed which is our more outstanding economic threat in more ways than one... As far as lobbyists go, their issues are addressed more than ours because they actually make their voice known to the politicians, the people don't take their issues to their senators and congressman like they're supposed to nearly close to a fraction as often as the lobbyists do. If the people would do something about their opinions then some good change could possibly arrive at the horizon.