By now you may have heard about Congressman (R-Texas 14th district) Ron Paul’s bill H.R.1207 to audit the Federal Reserve System. Until now many in the mainstream have never considered the Fed as an institution exempt from audit. However, by law, the Fed is completely independent.
The President, with Congressional assent, can appoint the six governors and the chairman to the Federal Reserve Board. Government involvement ends there. The other component of the Federal Reserve System is the Federal Reserve Banks and the banks are completely exempt from oversight. It has been this way since 1913, when the Fed was founded. A few generations later, on October 12, 1973, Congress finally took steps to bring the Fed into the regulatory fold. Although sentiment was positive, the watered down bill that became law was a great deal less than anticipated. This bill was attempting to provide an insight into Fed activities in light of Richard Nixon’s actions to close the gold redemption window in August of 1971. Without the redeemability in gold, many felt that the Fed was abusing authority by issuing money for spending that wasn’t approved by Congress. Imagine that? The bill provided that: 1. The Comptroller General shall make, under such rules and regulations as he shall prescribe, an audit for at least one of each three fiscal years of the Federal Reserve Board and the Federal Reserve banks and their branches, the Federal Advisory Council, and Federal Open Market Committee, and all clearing facilities.
For about a moment we rejoiced, until we read the rest of the story. The scope of the audit was crafted to specifically excludea( 31 USCA §714): (1) transactions for or with a foreign central bank, government of a foreign country, or non-private international financing organization; (2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, open market operations; (3) transactions made under the direction of the Federal Open Market Committee; or (4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to items.
The Senate recently passed a non-binding resolution giving government the authority to audit the Federal Reserve System and particularly the banks. It also required the Fed to disclose the identity of anyone it lends to. The Federal Reserve responded with a “top-to-bottom” review of its operations about which it has released very few details. Treasury Secretary, Timothy Geithner, who engineered the bail-out of American International Group when he was President of the New York Fed, strongly supports Fed independence. Two Fed governor seats are currently vacant. Ben Bernanke’s term as chairman ends in 11 months.
For all the posturing it is doubtful that any meaningful change will occur in the near future. The Fed itself may use its survival instinct and agree or even suggest ways in which it could be subject to more congressional oversight, without actually granting any. Most likely these moves would be coupled with demands for more privilege among the sweets on the Fed’s wish list: 1. The ability to issue its own debt securities. 2. More regulatory control over elements of the financial system. 3. Greater secrecy for its activities The Treasury Department is solidly behind the plans. The Federal Reserve and the Treasury recently held a joint press conference to signify their joint responsibility for maintaining stability in the financial system. However, Treasury took great pains to point out that the Fed has singular responsibility for monetary policy. There should be no doubt that the Fed has come to dominate fiscal and financial policy in the United States and the world.