Bernanke Fights House Bill To Audit The Fed

(AP)

Federal Reserve Chairman Ben Bernanke is strongly opposing a proposal in Congress, which enjoys the support of over half of the U.S. House of Representatives, to audit the Fed.

During an appearance on PBS's NewsHour, which will be aired this week on local PBS stations, Bernanke said the proposed legislation would interfere with the central bank's independence. "I don't think the American people want Congress running monetary policy," he said. "And I think that's very very critical for people to understand." (See transcript below.)

This is an odd claim. If you read the bill (H.R.1207), it simply amends existing law to say "under regulations of the Comptroller General, the Comptroller General shall audit" the Federal Reserve Board and its member banks.

The Comptroller General is a Senate-confirmed official who's also the head of the Government Accountability Office (GAO), a legislative branch agency organized under the U.S. Congress. In other words, we're not talking about a political bomb-thrower, but a veteran civil servant tasked with important oversight responsibilities.

The argument for an audit has become stronger in the wake of the extraordinary and unprecedented steps the Federal Reserve has taken in response to the market turmoil that began two years ago. Among them: the Fed has printed hundreds of billions of dollars to purchase what are delicately called "troubled assets"; it has created mammoth Wall Street bailout funds with acronyms like CPFF and TALF; and it has done all of this without prior approval by the U.S. Congress.

As far back as 1977, the GAO was saying it needed the authority to conduct a full audit of the Fed. "We do not see how we can satisfactorily audit the Federal Reserve System without authority to examine the largest single category of financial transactions and assets (foreign currency purchases) that it has," its report to Congress said at the time.

If the Fed had stuck to its traditional role of setting interest rate targets and employing other monetary policy tools, it's unlikely this measure -- the Federal Reserve Transparency Act of 2009 -- would have drawn more than a modicum of public and congressional support today.

But because Bernanke and other Fed officials have been bailing out financial institutions, such as providing up to $30 billion to let JPMorgan buy Bear Stearns last year, and because the national monetary base has recently doubled, public interest in the topic has spiked.

Bernanke can thank (or blame) Rep. Ron Paul, the libertarian-leaning Texas Republican and longtime Fed critic, for focusing so much attention on this topic. Paul was the original author of the Audit-The-Fed bill, which can now claim 277 sponsors, up from 170 two months ago. It's been spurred along by concerns about the way the government is responding to what has become an unusually severe recession -- and public opinion turning against the Federal Reserve.

"Since its inception, the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight of its operations," Paul said in a February 2009 speech announcing the bill. "While the conventional excuse is that this is intended to reduce the Fed's susceptibility to political pressures, the reality is that the Fed acts as a foil for the government. Whenever you question the Fed about the strength of the dollar, they will refer you to the Treasury, and vice versa. The Federal Reserve has, on the one hand, many of the privileges of government agencies, while retaining benefits of private organizations, such as being insulated from Freedom of Information Act requests."

Paul points out that although Federal Reserve has the authority to enter into agreements with foreign central banks and foreign governments, the GAO is prohibited from auditing or even reviewing any of those agreements. (Current law says the GAO may not audit "transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization.")

The 2008 presidential candidate has been a longtime Fed critic, and even an advocate of its abolishment, saying for years that if the central bank keeps interest rates too low, bubbles are likely to form. In 2002, for instance, Paul correctly predicted that government policies would create "a short-term boom in housing" while increasing "the likelihood of a painful crash in the housing market." This represents a minority view among economists -- see a CBSNews.com review of a recent book on the financial crisis with a foreword by Rep. Paul -- but one that has found more adherents recently.

Here's an excerpt from the transcript of the PBS exchange:

PBS' Jim Lehrer: There's an effort in Congress, and in the House in particular, to audit what the Federal Reserve does, particiularly in monetary policy. How do you feel about that?

Bernanke: So that bill, people don't fully understand what that bill is about. It sounds like, audit the Fed, it sounds like "Let's look at the books." That's what it sounds like. Congress already looks at our books. We have many different levels of auditors. The GAO, the General Accountability Office, which is supposed to be doing this audit, already looks at virtually all of our activities. And the ones it doesn't, our financial books, financial loans, and the ones it's not looking at, and where the taxpayer needs some assurance, we're willing to work with Congress to make sure the GAO gets the information it needs.

Bernanke: What people don't understand is that this bill would give the GAO, the GAO, the authority to audit monetary policy. And what does that mean? That means if the Federal Reserve decided a year from now that because of incipient inflation it was time to raise interest rates, that the Congress would say, 'Ah, the GAO's going to audit that decision. It's going to subpoena your materials. It's going to demand information from members of the FOMC. It's going to evaluate your decision. It's going to report to Congress.' I don't think that's consistent with independence. We are completely open to providing any information Congress wants to make sure we're using taxpayer money safely and soundly, that we're meeting all our responsibilities. I don't think the American people want Congress running monetary policy. And I think that's very very critical for people to understand.

PBS' Jim Lehrer: You think that's what it would end up doing?

Bernanke: Exactly, that's exactly what it would do. There's a provision in that law, which, currently, current law, which carves out monetary policy. It doesn't give Congress authority, GAO authority to audit it. That was put in in 1978, at a time when we had a lot of inflation, which you might remember. After that the Fed became more independent, brought inflation down. But now, that's exactly what it would do. If that carveout was eliminated, Congress would have the authority anytime to ask the GAO to come in, and audit, and look at, and evaluate the monetary policy decisions made by the Fed. That's not consistent with independence.

Perhaps. Then again, the text of this proposal is not chiseled into granite. If the auditing authority granted to the GAO becomes too intrusive, Congress can always amend it.

While Rep. Paul's bill enjoys strong bipartisan support in the House of Representatives, the Senate version (S.604) has only 20 sponsors and was blocked from coming to a vote by the Democratic leadership earlier this month. Now we'll see if public concern about the Federal Reserve's recent activities is sufficient to overcome this last political hurdle.

---

Declan McCullagh is a correspondent for CBSNews.com. He can be reached at [e-mail].

[perk235]

I agree with Thomas Jefferson about the central bank:

?The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered. ?

[the_keeper03]

August 13, 2009
http://www.auditthefed.com/

Dear Friend of Liberty,

As you and I both know, Campaign for Liberty is leading the fight to pass Ron Paul's bill to Audit the Fed. With 282 cosponsors in the House and 23 in the Senate, your efforts have so far proven very successful in establishing large, bipartisan support for Federal Reserve transparency. We've come a long way in demonstrating to the nation that monetary policy is a critical issue, and every day more and more people are waking up to the harm that the Fed has caused our economy.

But our mission is not yet complete. There are more Americans to educate, more signatures to collect, and more work to be done to combat the "big guns" that have come out against Ron Paul's Audit the Fed bill. That's why today I'm proud to announce that we've taken the next step in our efforts by launching AuditTheFed.com, a focused, coalition website with one purpose: to push this historic piece of legislation through Congress, past the President's desk, and into law.

AuditTheFed.com includes: contact information for your congressman and senators, petitions, widgets, and banners to promote the website, dynamic graphs of the bill's cosponsors, a detailed summary of the Audit the Fed bill, a list of our growing coalition, a blog to keep you up to date on all the latest Audit the Fed news, a sign up for email updates, and social networks to help get the word out online. This website was designed to put you, the liberty-loving activist, in a position to efficiently and effectively promote Audit the Fed to family, friends, neighbors, and strangers alike.

This new website is the latest addition to our efforts to Audit the Fed, but it is by no means the culmination. Stay tuned to CampaignforLiberty.com in the coming days for information on how we plan to mobilize to gain not only more cosponsors for HR 1207 and S 604, but support for a vote in the House and Senate.

For Liberty,
John Tate
President

[frenchmenfred]

Resisting an audit is neon red flag proof in itself that one is badly needed. Call congress and demand your Reps and Senators suport HR1207 and S604.

[jhenry3107]

Starting July 24 2009 consumers who would like to purchase a new car trading off their old gas guzzlers can use
the Cash For Clunkers program voucher.

Jhenry
Blogger
www.cashforclunkersfacts.info
http://www.cashforclunkersfacts.info

[tiltjp]

LOL @ Bernanke ... the FED is all about centralized power ... deciding for us minions what is best ... they act with the greater good in mind ... so WE the PEOPLE are not independent ... The FED does not want the GAO affecting its independence as the FED puts it ... but they are all about the rest of us not being independent and push a dept slave agenda.
good lord. END the FED.

[RonPaulRampage]

It is just crimminal what is going on here! Shadow entities working behind closed doors? How long would the fore fathers tolerated this nonesense? We have become their servants unreal~

[Stop_the_crying]

Bernie, Your taking a bad position here. Let them do it!!!!

[tmittelstaed]

The issue really isn't a power issue although people like to think that it is. The issue is really one of control of the economy. What most economists have realized, along with the Fed, is that the government has as much control over the economy by just blowing smoke, as they do by actually doing things like manipulating interest rates.

This is why so many indicators, like unemployment, have been modified in recent years. For example take unemployment. If unemployment were calculated the same way today as it was during the Great Depression, the unemployment rate today would be WORSE than the Great Depression. If people knew the truth of it they wouldn't be running out and buying cars using the rediculous cash-for-clunkers program. It becomes a self-fulfilling prophecy, tell people the truth about how bad it really is and they stop spending and make things worse.

Conversely, if the government had been telling everyone about how great the economy was back in 2005, then 10 times more people would have started flipping homes then and the housing crash would have been far far worse.

So instead, the government tells everyone how bad it is when the economy is good, and how good it is when the economy is bad, in an attempt to even out swings in the market.

So, both the Fed and the government know that the market can be manipulated by lying the the general public, and so they do it all of the time nowadays. If the GAO is to audit the Fed and reveal the actual truth of things, then people will start making economic decisions based on what's actually going on, not what the government wants them to THINK is going on. As a result the ability to manipulate and control the economy is lost.

What it boils down to is who do you trust? Someone is going to be controlling the economy, because the pressure points and mechanisms of control exist. Would you rather it be a group of economists operating in secret? Or would you rather have it be your neighbors down the street who own 6 guns, have 4 broken washing machines in their front yard plus a car on jacks that's covered in blackberry bushes, and their sum total economic knowledge consists of the going price of 6-packs?

If you really want to understand what is going on in the economy the information is there for the taking. Visit your local library and start reading. There are people in the country today who have done that and spend their days sitting at home managing their portfolios and are independently wealthy. The problem is that most people don't want to bother doing that. Instead they want to make money fast by reading the adverts on the back of a bus, or following the fake financial advice of opinion writers in the WSJ who if they actually knew what they were talking about they would be millionaires, not surviving by writing financial advice columns in WSJ.

[FreedomLives]

Wow where do I begin? First Mr. Bernanke Congress does have the authority to create and maintain the currency supply. How do you think in 1913 you got your powers under the Federal Reserve Act? Funny how he never will go past 1913 in any interview or even when questioned by Congress - such as under President Lincoln creating an alternative currency that failed, not backed by Gold.

Now even China is wanting an alternative currency, not wanting the U.S. dollars to flood the global currency. The same goes with the oil cartel that is worried about having the U.S. dollars decide the price on the exchange. Perhaps, you could think of them as allies against the Federal Reserver (which is NOT a government agency).

In regards to the statements by Bernake, we already know he is lying about Congress' authority about monetary policy. We also know the GAO doesn't decide ANYTHING they simply report accounting books - which is why they are respected by all sides because they stay out of politics. It was genius for Ron Paul to suggest they oversight it because it would have a much better chance of passing; the same goes for being only 3 pages long.

Ron Paul 2012 - It's Coming Faster Than You Think!

[sheeplefleecer]

Bernanke: "I don't think the American people want Congress running monetary policy. And I think that's very very critical for people to understand."
Sir, your statement is anti-American. Please read the law, written in Article I Section 8 of the Constitution: "The Congress shall have Power to...coin Money, regulate the Value thereof..."
Time for some sunlight to shine on where the American people's money goes. It is suprising though that this article is posted by CBS.

[RonPaulRampage]

I know CBS inline with this article? They must feel the shifting tide. Look for them to lay off Ron Paul now. Media? What Media? Nothing but propoganda.