Let me state from the jump that I’m all for auditing the FED. The system is so corrupt in that banks are able to borrow the people’s money at almost no interest which they then use to determine whether or not they want to invest it in hedge funds or credit default swaps or manipulating commodities prices or if they actually want to loan that money directly to you. Decisions … decisions. Easy fix to the system … just eliminate the middle man and let the FED loan the money directly to individuals; nothing is ever that simple but at the core of it … I do not see why we need a middle man. Taking the model for the Bank of North Dakota to a federal level would address much of what concerns our country; you can read more about the only state owned bank – the Bank of North Dakota HERE.
People need to understand why all of a sudden out of nowhere Republicans who have blocked this legislation for a very long time are choosing to get on board the Ron Paul express to pass it now and why all of a sudden Democrats are protecting the non-politicization of monetary policy. The Republican led Congress has done everything it can to block jobs bills that would help the economy and now they’re trying to pressure the FED not to act because they need the economy to suck in order to win politically.
The Republican led House of Representatives passed a bill this week to audit the Federal Reserve and it passed by significant numbers; the bill is expected to die in the Senate as the Senate Majority Leader Harry Reid (D-NV) will not put the bill to a vote. It’s likely that he won’t put this bill to a vote because it would pass and that makes me question why. Auditing the Federal Reserve is an issue that is popular among all political ideologies: liberal, conservative, libertarian etc. The people want an audit of the FED – period. Democrat leaders in the House urged to vote no for the bill.
Right now – the economy needs MORE inflation … not less … as conservatives keep calling for. Of course the push back by the FED makes one wonder what is really on the balance sheet on the FED. There is definitely something about not politicizing the FED and its clear the Republicans are counting on the FED not to make moves that would benefit the economy. And if the FED thinks it is going to get audited – they would be unlikely to engage in programs that are necessary to increase inflation and benefit the economy. Right now – we’re in desperate need of FED action.
Since Congress won’t act – the only potential fix for our economy is via monetary policy. The FED discount window rate is at .25% basically giving banks money for free and the only way to stimulate the economy is to have negative interest rates; this would require creative programs that are out of the ordinary. All of this amounts to money having to funnel through the hands of large banks with the hope that it will find it’s way into the system. Republicans are trying to pressure the FED to tamp down engagement and thus maintaining the status quo in this economy. They want the economy to remain stagnant even though the only solution is higher inflation. Without higher inflation – the economy will remain stagnant and that’s what Republicans need … the economy to suck. That’s the BIG game.
As we have written HERE – the economy grew only 1.5% in the 2nd quarter and inflation rose only .7% for the same time frame. We need about 3% inflation. Inflation today is lower than at any time under Bush. And the Great Depression … was due to DEFLATION – not inflation. You can read that article to have Krugman explain the “deleveraging shock” we’re going through.
Almost everyone is calling for more inflation from the FED. Inflation is lower today than it has been under the Bush administration and it needs to rise to around 3% in the near term in order to get corporations and wealthy people sitting on cash reserves to invest it in something other than cash reserves in the bank. That means the money will make its way back into the real economy and that’s what Republicans are trying to avoid. Inflation hurts poor people but it really hurts rich people; inflation helps magically eliminate debt and thus has a very positive impact on people saddled with lots of debt whether we’re talking about credit cards, student loans, mortgages etc. If you have $1,000,000 in the bank … at some point … there is an incentive to invest it for fear of losing “real dollars”.
The last time an audit of the FED was conducted came courtesy of the Dodd-Frank bill where the bill called for a one time audit of the Federal Reserve. Many interesting things were found. That amendment to audit the FED passed 96 – 0. HuffPo did a great read up on it HERE. I notice NO ONE is calling for eliminating the automatic 6% dividend the FED pays out to its unknown shareholders being a quasi-private bank owned by unknown people. The FED’s charter calls for 6% of all profits from the FED (which are significant) to go back to the owners of the FED.
Reuters reports on the recent vote by the House HERE:
The legislation, written by Republican representative Ron Paul, whose anti-Fed crusade prompted a presidential bid and his grass-roots folk-hero status, passed the House by a 327-98 vote on Wednesday, exceeding the two-thirds majority needed.
Eighty-nine Democrats joined 238 Republicans to approve it.
The Fed asset purchases, aimed at lowering borrowing costs and spurring economic growth, have swollen its balance sheet to $2.8 trillion from around $800 billion before the crisis. It has held interest rates at nearly zero for three and a half years and has pledged to keep them extraordinary low until late 2014.
Paul’s son, Republican Senator Rand Paul, has introduced a companion bill, but the Democrats who control the Senate do not intend to bring it to a vote, a senior Democratic aide said.
Subject: WHIP ALERT – DEMOCRATS ARE URGED TO VOTE NO ON H.R. 459 – FEDERAL RESERVE TRANSPARENCY ACT
This week, the House is expected to consider H.R. 459 – Federal Reserve Transparency Act. This bill directs the GAO to complete an audit of the monetary policy deliberations, actions, and related matters taken by the Federal Reserve System before the end of 2012, followed by a detailed report to Congress. Most significantly, the bill would repeal existing restrictions on the GAO’s authority to perform audits of Federal Reserve monetary policy activities.
Like all other major central banks around the world, the Federal Reserve is an independent central bank, and its monetary policy actions are not subject to approval by the Administration or Congress. While Congress has set out the policy goals the Federal Reserve is to pursue – maximum employment and price stability – the ability of the Federal Reserve to pursue monetary policy independent of political influence is critical to its ability to fulfill its dual mandate.
Moreover, Congress already conducts regular and robust oversight of the Federal Reserve and actually expanded GAO’s audit authority two years ago in the Dodd-Frank Wall Street Reform and Consumer Protection Act. It expanded the types of audits GAO may conduct of the Federal Reserve, as well as the data that must be disclosed to the public. The Federal Reserve’s financial accounts have long been subject to audit both by the GAO and an outside, independent audit firm.
This bill impedes the independence of this critical institution. In order for the Federal Reserve to do its job effectively, it should not be subject to short-term political pressures. The experience during debate on the debt ceiling last summer should demonstrate to the American public that House Republicans cannot be allowed to hold our economy or our critical economic institutions hostage in order to further their extreme agenda.
DEMOCRATS ARE URGED TO VOTE NO ON H.R. 459.
But – the irony of it all is that the person stopping this from going to a vote – Senate Majority Leader Harry Reid (D-NV) has actively and frequently showed public support for auditing the FED in his very long career. On January 23, 1995 – Harry Reid said this:
“I have sponsored legislation every year that would call for an audit of the Federal Reserve system. I offer that amendment every year, every year it gets nowhere. I think it would be interesting to know about the Federal Reserve. I think we should audit the Federal Reserve — it’s taxpayer’s money that’s being used there. But we don’t do that.”
“There is no entity in the world that controls our lives more than the Federal Reserve System”
More recently – in a 2010 debate against educationally challenged Republican Sharon Angle …. he said that he still supported an audit on the Federal Reserve:
You can find the full text of the bill S. 202: Federal Reserve Transparency Act of 2011 that Rand Paul sponsored HERE. It’s a very simple bill that the basic person can read without confusion. Pretty cut and dry … conduct a full audit before the end of 2012 and report back within 90 days on what you found.
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