According to a September 2014 article in The Wall Street Journal, the Republican majority ruled US House of Representatives approved the bill in a September 17, 2014 vote of 333-92 in favor. That figure represents 106 Democrats that voted to pass the bill. Does the Democrat support in the House mean that the Democrat-ruled Senate will also pass the bill or will it be voted down? (2)
And, if the bill passes the Senate, what will it mean to the American people?
The Former Congressman’s call for an “Audit the Fed” was made in reaction to the central bank’s lack of foresight to the impending financial crisis that struck the US economy in 2008. It was also the leniency of the Federal Reserve on US banks that stoked the fires of outrage from the public that fueled Mr. Paul’s call for action.
The Emergency Economic Stabilization Act of 2008 authorized $700 billion to purchase distressed assets caused by the sub-prime mortgage crisis. The taxpayer money was to be used to rescue the 2008 financial meltdown, but the funds were redirected and used to infuse capital into banks and various financial institutions. (3)
Many Americans opposed the federal bailout for Fannie Mae and Freddie Mac sub-prime mortgages to prop up failing banks. More watched in outrage as large obscene amounts of money were given in severance packages awarded to the very officials in these institutions responsible for bad lending practices. (4)
If the bill passes the Senate, then what does that mean for the Federal Reserve System?
What the Audit of US Federal Reserve Means
Introduced by the House Republican leaders, if the bill makes it past the US Senate and the bill is signed by the President, then the Federal Reserve would have to open up its records and reveal all of its past activities. According to The Wall Street Journal, that includes the Federal Reserve’s deliberations on interest rate policy. It also means other types of communications would come under the scrutiny of the US Congress.
If passed, the “Audit the Fed” bill would order the Government Accountability Office (GAO) to begin a full audit of the Fed’s operations. Once completed, the audit would be turned over to Congress.
The current oversight of the GAO only includes a review of the central bank’s financial operations. It doesn’t have authority to review the Federal Reserve’s policy decisions or agreements made with central banks and foreign governments.
Annual audits are currently conducted by an outside firm responsible for auditing the Federal Reserve’s financial operations. Those findings are then published in the central banks’ annual report.
The Board of Governors of The Federal Reserve System submits annual written reports to Congress that “contain discussions of ‘the conduct of monetary policy and economic developments and prospects for the future.’ The Monetary Policy Report, submitted semiannually to the Senate Committee on Banking, Housing, and Urban Affairs and to the House Committee on Banking and Financial Services, is delivered concurrently with testimony from the Federal Reserve Board Chair.” (5)
Opposition to the “Audit the Fed” Bill
The Wall Street Journal reported on the argument voiced by Maryland’s Democrat Representative Elijah Cummings if the bill is passed. Rep. Cummings argued that if passed the bill will, “… severely curtail the independence that has been a hallmark for the Federal Reserve and has been essential to its ability to strengthen our country.”
Those fighting to get the bill passed argue that the bill does not supplant the independence of the Federal Reserve but puts in place an auditing system that provides greater transparency.
Rep Cummings argued that the bill will “…permit GAO to audit the communications that members of the Federal Reserve’s Board of Governors have with each other and with staff regarding monetary policy.” This statement seems to sum up the purpose of the bill and why so many Americans are calling for this type of transparency.
Not surprising, most Federal Reserve officials are adamantly opposed to this and any other bill that could bestow the power for Congress to have direct oversight to the Fed’s decisions and making monetary policies. These officials argue that the strength of the central bank system comes from its ability to act independently. The Federal Reserve officials believe that political interests will circumvent the good of the economy, should such oversight be granted.
Is Third Time the Charm?
In 2012, Rep. Ron Paul and his Senator son, Rand Paul, reintroduced the defeated 2009 bill and it passed the House but not the Senate. Many political analysts believe that history will repeat itself once more with the recently House passed revived bill.
According to Reuters, the Fed’s “discount window as well as its open market operations, foreign banking agreements and its funding facilities” would be included in the audit that the bill orders be conducted on the Federal Reserve. (6)
In addition, within 12 months of enactment of the bill, audits would be conducted by a nonpartisan congressional watchdog on the Federal Reserve Board and all 12 Federal Reserve Banks. 90 days after the completion of the audits, a report would be made to Congress. Other notable provisions of the bill:
– Repeal limitation shielding US central bank’s monetary policy decisions.
– GAO required to audit Fed reviews of 2009 and 2010 homeowner foreclosures made as enforcement actions of central bank against financial institutions.
According to most news sources, the outlook is gloomy since many believe the Senate Democrats will oppose the bill.
To darken the halls of passing the bill, is the timeline. It has to be passed before the next Congress assumes office in January 2015. With Congress adjourned until November 4, 2014, the lame-duck session, most political predictions see the bill failing once more when and if it even gets put before the Senate.
Is allowing the Federal Reserve to continue without closer scrutiny healthy or wise? Many believe that it flies in the face of the basic principle of checks and balances that our forefathers incorporated into the US Constitution.
References & Image Credits:
(1) TSW: Support for Ron Paul Is Exploding: Why Does the Media Ignore Him?
(4) The Nation
(5) Federal Reserve
(7) Wikipedia: Federal Reserve Building
(8) Wikipedia: Ron Paul Portrait