Audit the Fed?
The US House of Representatives voted, recently, by an overwhelming margin, to pass the Federal Reserve Transparency Act of 2012, popularly known as “Audit the Fed.” Were it to pass in the Senate and be signed by the president, both unlikely, the legislation would require “a full audit of the Board of Governors of the Federal Reserve System and the Federal reserve banks by the Comptroller General of the United States...."
America's central banks, very much including the Federal Reserve, have been the subject of intermittent popular suspicion from the earliest days of the Republic throughout American history and to the current day. This 1912 cartoon anticipating the creation of the Fed shows a certain popular skepticism of the Fed's powers and intent.
The Audit the Fed legislation is a signal legislative achievement of that great Jeffersonian Rep. Ron Paul, who is retiring from the House.
The Wall Street Journal reported:
The vote marks the latest clash between House Republicans, wary of the unprecedented moves the central bank has taken since the financial crisis to stabilize the economy, and Fed Chairman Ben Bernanke, who has warned the bill could expose the Fed to political pressures.
On Wednesday, the House on a 327-98 vote, passed a bill that would permit the government to review the policy deliberations that are at the heart of the central bank’s mission.
A senior Democratic Senate leadership aide said there are no plans to bring the bill up in the Senate, but didn’t rule out an attempt by Republicans to seek a vote on the measure as part of another piece of legislation. The Senate would be almost certain to defeat it given the Democratic majority in the chamber.
The Fed is already reviewed by an outside, independent audit firm, whose examination of all Fed financials is published in the bank’s annual report. The Government Accountability Office also audits the Fed’s financials, including those of its monetary-policy operations, but it doesn’t evaluate the policy decisions behind them. The bill introduced by longtime Fed critic Rep. Ron Paul (R., Texas) would eliminate that exemption for the Fed’s closed-door discussions of monetary policy.
“It’s really not an audit without this,” Mr. Paul said at a hearing with Mr. Bernanke last week.
Rep. Barney Frank, the House Financial Services Committee's ranking Democrat and an outspoken opponent of the legislation, said on the House floor:
“This is a way to shake your fist at the big bad Fed, and it’s not a good way.”
A central bank is not in and of itself good or evil. The Bank of England, under the classical gold standard and honoring “the rules of the game,” was the central agency in a worldwide classical gold standard. As such, it became a celebrated agent of prosperous commerce for well over a century. Only upon departing from the true gold standard and entering into the gold-exchange standard, euphemistically termed a “managed gold standard,” did systemic decay begin to creep in.
The adulteration of the true gold standard, unfortunately, closely coincided with the creation of the Fed, almost a century ago. The dollar had the same purchasing power from the beginning of the 19th century and the beginning of the 20th. But the purchasing power of the 2012 dollar is approximately 2% that of the dollar of the 1912 dollar, a gradual but inexorable 98% depreciation of the dollar.