This afternoon the House of Representatives will vote on Federal Reserve Transparency Act, introduced by Ron Paul (R - TX) and cosponsored by 274 congresspersons. The act 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 before the end of 2012, and for other purposes.” The Comptroller General is the head of the Government Accountability Office—the arm of Congress responsible for investigations and audits.
Ron Paul’s bill is going to coast through the House, but it faces an uncertain fate in the senate, where good bills go to die, and bad bills go to become even worse. The senate may very well not even vote on the Fed Transparency Act at all, given that the audit is staunchly opposed by Fed Chairman Ben Bernanke—a bipartisan darling of the upper chamber. After presiding over the worst financial crisis in 80 years, driven in part by the low-interest policies instituted by his predecessor and mentor Alan Greenspan, Bernanke was inexplicably reappointed by President Obama, and was subsequently confirmed with ease in the Senate 70 to 30. This, despite the fact that Bernanke was woefully wrong multiple times about the course housing prices would take.
Bernanke wants no part of another, fuller, Fed audit, especially considering a previous—albeit partial—one laid bare the extent to which the U.S. central bank has been propping up domestic and international financial institutions. That disclosure revealed that between December 2007 and July 2010, the Fed issued some $16 trillion in loans at virtually zero interest to the likes of JP Morgan, Goldman Sachs, Bank of America, Barclays, Royal Bank of Scotland, and others. Many mistakenly assume that the bank bailouts are over, but continued 0% interest lending combined with multiple rounds of monetary easing have the effect of continuing them, and indefinitely so.
Bernanke has resisted calls for full transparency because he says he is concerned that Congress will want to legislate monetary policy by attempting to dictate interest rates, thus politicizing the central bank’s operations. While this is a legitimate concern, Bernanke has consistently refused requests to disclose the details of the Fed’s lending activity, which has nothing to do with setting monetary policy. Back in 2009, during senate testimony, Bernanke told an incredulous Bernie Sanders (I - VT) that the Fed didn’t want to reveal the recipients of some $2.2 trillion in virtually no-interest loans to various central banks, lest those banks not borrow from the Fed in the future.
In the words of Sanders, isn’t that too bad?
Federal Reserve transparency should be the kind of bipartisan issue that can bring together a woods-dwelling Montana survivalist with an Urban Outfitters-clad uber hipster from the East Village. The U.S. central bank is the most powerful financial institution in the world, and controls the monetary policy of the world’s largest economy and the de facto world reserve currency. Whether you think the Fed should be ended like Ron Paul, or not, the stakes are far too high to allow the bank to continue operating under a shroud of secrecy.