Federal Reserve to be Audited

The worm has turned several times in the effort to audit the US Federal Reserve and reclaim some democratic  accountability of the secretive machinations of this institution.  Joseph Stiglitz, Nobel recipient in economics, has called the Fed a corrupt institution.  Many on both sides of the political spectrum, like Congressmen Ron Paul (R-Tx) and Alan Grayson (D-Fl), have questioned the basis and decision making structure of the Fed and demanded that more transparency be provided.

On the other hand, many Democrats, Republicans, and status quo defenders of Fed have attempted to defeat any legislation that would review and address the gross failings of the Fed, which directly lead to the Great Recession.  The arguments offered by these groups have varied from the supine to the ridiculous.  For example, claims were made that American capitalism itself would be imperiled (unlike the current situation) if politicians were given the ability to review the monetary policies of the Fed.  The sacred independence of the Fed would be lost and monetary policy would be subject to the whims of politicians, who are subject to short-term re-election thinking; thus potentially pushing the country into a Zimbabwe-like economic collapse.  However, the problem isn't so much congress' meddling in monetary policy, but the Fed's persistent habit of defining fiscal policy, which is clearly the purview of the elected representatives in Congress and the executive.  During the past recession, the Fed shifted its position from being the lender of last resort to the investor of last resort.  In practice this meant that the Federal Reserve, under Ben Bernanke, has been picking the winners and losers in the US market by defining who would be protected by the state if their businesses faltered.   That is the definition of crony-capitalism.

Last week, 11 May 2010, the US Senate voted 96-0 for the Government Accountability Office to audit the "Fed's activities since the outbreak of financial turmoil in 2007."   Unlike in the past where the Federal Reserve and its Chairman were given "deference and near-reverence" by members of Congress, populist anger at all branches of government have forced politicians to respond.

The chief backers of the audit idea are a political odd couple, Rep. Ron Paul (R) of Texas in the House and Sen. Bernie Sanders (I) of Vermont. On the right, Representative Paul is a libertarian who sees the audit as a step to help the public conclude that the Fed should not exist at all. On the left, Senator Sanders is known as a "democratic socialist" crusading against an institution that critics say is closely allied with powerful Wall Street bankers.

The recipients of all those trillions of dollars, which to date the Fed has refused to provide, and the underlying rationals for providing these parties with such grandiose sums, will now be open to public inspection.  As Senator Sanders said, "We also need to know what possible conflicts of interest exist involving the heads of large financial institutions."