Thursday, July 09, 2009
Reuters reports on Fed Vice Chairman Donald Kohn's appearance on Capitol Hill today to talk about how the Federal Reserve should be given more power over financial markets while keeping its books away from the prying eyes of Congress.
The Federal Reserve on Thursday launched a robust defense of its independence and warned that efforts in Congress to put monetary policy under political sway would hurt the economy.If Rep. Ron Paul (R-Texas) hasn't already done so, he ought to splurge and buy each and every elected official in Washington a copy of The Creature from Jeckyll Island and point them directly to Chapter 2 - The Name of the Game is Bailout.
Fed Vice Chairman Donald Kohn said opening up some of the U.S. central bank's most sensitive decisions to political scrutiny could result in higher long-term interest rates and hurt the United States' credit rating.
Testifying before a congressional panel, Kohn sought to beat back a proposed bill that would open the U.S. central bank's policy decisions to audits by a federal watchdog agency. More than half of the members of the U.S. House of Representatives have signed as co-sponsors of the measure.
Maybe he's already done that...
It is just a little bit funny that, as the Obama Administration pushes on with a plan to hand over new powers to the central bank in order to better regulate financial markets (something that they've had the power to do for years through official means and a bully-pulpit, that, unfortunately, was used largely to create even more monstrous asset bubbles in recent decades than might have otherwise developed), there is a simultaneous movement in Congress to have the Fed's books examined.
Maybe some day, in the heat of debate, Kohn or Fed Chief Ben Bernanke will steal a line from Jack Nicholson and tell Congress, "You can't handle the truth".
Not today, apparently...
Fed officials have had to endure rigorous congressional grillings over their aggressive actions to restore financial calm. Their e-mails have been subpoenaed, recalling past episodes when the central bank came under attack and was forced to yield to the political will.It's not clear which would be worse, the Fed continuing to operate as it is or the House and Senate meddling in their affairs.
The proposed bill, put forward by Representative Ron Paul, a Texas Republican and long-standing Fed foe, would expose decisions on monetary policy and emergency lending to audits by the Government Accountability Office.
The GAO is currently prohibited from auditing these areas. Kohn said removing this exclusion would be highly detrimental and could lead investors to worry that politics -- not economics -- would guide the Fed's decisions.
"The Federal Reserve strongly believes that removing the statutory limits on GAO audits of monetary policy matters would be contrary to the public interest by tending to undermine the independence and efficacy of monetary policy," Kohn said.
Paul's bill has 250 co-sponsors, including 78 Democrats. But it has not been promoted by the Democratic majority leadership in the House, where it has yet to face even a committee-level vote.
If it were to emerge from the House, to become law it would also need to clear the Senate, where support may be scant.
Maybe those who advocate, "Audit it, then end it" have it about right.
Here's Ron Paul on the subject - skip directly to the four minute mark to hear about the possible implications of a Fed audit on the price of gold.
It's hard to talk about this stuff without sounding like your some kind of conspiracy nut, but, to think that the system, as currently constructed, serves the public good nearly as well as it serves the big banks is horribly naive.