Will a GOP-Led Congress Finally Audit the Fed?

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While former-Rep. Ron Paul's showdowns with Ben Bernanke recede into yesteryear, his calls to "Audit the Fed" may once again reverberate through the halls of Congress.

Republicans are increasingly likely to take back the Senate today, which could put congressional focus back on the Federal Reserve's shadowy shenanigans, The Wall Street Journal claims:

Financial executives say a GOP-led Senate would ratchet up congressional scrutiny of the central bank's interest-rate policies as well as its regulatory duties as overseer of the nation's largest financial firms.

"If the Republicans take control of the Senate and thus have control of both the House and the Senate—two words for the Federal Reserve: Watch out," said Camden Fine, president of the Independent Community Bankers of America.

Fed Chairwoman Janet Yellen may have put the (perhaps temporary) kibosh on quantitative easing, but that's not enough for critics of the central bank:

Many Republicans want Fed officials to move quickly now to raise interest rates from near zero and shrink the central bank's balance sheet, which has climbed to near $4.5 trillion.

Scrutiny of the Fed's monetary policies and regulatory activities has sometimes been a bipartisan affair. This past year, the chairman of the House Financial Services Committee, Rep. Jeb Hensarling (R-Tex.), held 11 hearings looking into the Fed's activities. In a few weeks, Sen. Sherrod Brown (D-Ohio) will preside over a Senate Banking Subcommittee on Financial Institutions and Consumer Protection hearing on an unsettling report of impropriety in the relationship between the Fed and Goldman Sachs. And the Federal Reserve Transparency Act passed in the House of Representatives with overwhelming bipartisan support back in September. But for reasons unknown, Senate Majority Leader Harry Reid (D-Nev.) has kept this latest "Audit the Fed" proposal off the floor.

Perhaps the fed audit legislation put forward by Sen. Rand Paul (R-Ky.) will have more luck after today. That bill has support from other Senate Republicans, including Sen. Mitch McConnell (R-Ky.), who will probably become Senate majority leader if the GOP wins the chamber—and if McConnell wins his own re-election.

Even if no legislation actually passes, the heightened attention on the Fed's activities could still be beneficial:

A slate of hostile congressional hearings questioning the Fed's every move and movement of legislation would…force the Fed to play more defense.

For their part, Fed officials oppose congressional audits and other external meddling in their affairs, arguing that the bank's political independence is actually a feature and not a bug. In her confirmation hearings Yellen said, "I would be very concerned about legislation that would subject the Federal Reserve to short-term political pressures that could interfere with that independence."

In any event, we'll soon find out whether the GOP is doing more than its usual blustering at fiscal irresponsibility.

Comments

[OldMexican]

Short answer: Of course not.

Long answer: O f - c o u r s e - n o t.

[SusanM]

Which is pretty much the answer to every "Will a GOP-led congress..." question out there.

[Marshall Gill]

Not every "Will a GOP-led congress " question, by a long shot. It is all a matter of phrasing.

Will a GOP-Congress "fix" Obamacare? Of course they will.

Will a GOP-Congress keep our spending levels increasing by the second? Of course they will.

You get the idea.

[Invisible Finger]

Exactly. The perceived political independence is a useful tool - for Congress.

The question I ponder is which set of scoundrels I'd prefer to have in office when the currency collapses and a New dollar is birthed.

[Rich]

Yep. How about a debate between Ron Paul and Janet Yellen?

[Dr. Fronkensteen]

Behind closed doors they'll show the Congressthat the whole system is a house of cards. They'll be too scared of a Greatest Depression to mess with the system such as it is.

[OldMexican]

That's exactly it. These guys grew up with the myth that the Federal Reserve saved Capitalism from itself and will not do anything to rock that notion's boat.

[Troy muy grande boner]

Exactly. This is one of those pipe dreams like a libertarian president or a domesticated Steve Smith.

[waffles]

I always imagined Warty as the latter.

[Swiss Servator, spare a franc?]

I think you need a new definition of "domesticated"...

[DaveSs]

I don't buy into their supposed 'independence'

Congress created the Federal Reserve. While current law says Congress cannot remove Fed governors, there is no prohibition on giving themselves this power.

Amend the law, presto-chango, hey we have the power.

[Palin's Buttplug]

Why stop there? Give Congress the power to remove SCOTUS justices too.

Not.

[See Double You]

Why not stop there?

[Pro Libertate]

Congress can impeach any federal official: "The President, Vice President and all Civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors."

While Congress has mostly limited that to judges, it can impeach its own members, officials in the administration, justices, ambassadors, probably even military officials. Since that's a constitutional power, no mere law can limit it.

[See Double You]

Yes, I'm aware of that Art. II power. But I think shrike was trying to imply the ease with which he thinks Fed reformers want Fed Governors to be removed should logically apply to the Justices.

I was merely asserting such a statutory change would be a far cry from amending the Constitution to make judge removal even easier.

[Pro Libertate]

Yep, wouldn't take much. Amending the Constitution is hard, which is why the left stopped trying several decades ago, turning instead to the courts exclusively.

[Bill Dalasio]

Actually they do have the power to impeach Supreme Court Justices. Chase was impeached in 1805, but acquitted by the Senate. But, thanks for playing.

[Pro Libertate]

All impeachments that have resulted in convictions have been of judges, I believe. If you think about it, excluding justices would mean they could not be removed for any reason by anyone. Not exactly the checks and balances at work if that were the case, is it?

The Chief Justice presides only if the president is impeached, so you can impeach him, too.

[See Double You]

Honest question, shrike.

Do you believe the Fed needs any kind of substantive change?

What about proposals like the Taylor Rule that are pitched as a way to shift the Fed from ad hoc decisionmaking to rule-based procedure?

Should the Fed retain the dual mandate?

[Palin's Buttplug]

USD is the envy of the world. Oil and gold headed down as the hawks have been proven wrong. Yes on the dual mandate.

[DaveSs]

My point which you apparently missed is that the Fed's independence is a myth.

If Congress and the President want to engage in official meddling, all that is required is a simple majority in Congress to change the law to allow official meddling.

Thus, the Fed has read the political winds to make sure that they keep 50%+1 of the Congress and the President happy, regardless of what may make actual hard economic sense.

[Palin's Buttplug]

Not missed. Congress can move on the Fed anytime.

[JEP]

the Fed has read the political winds to make sure that they keep 50%+1 of the Congress and the President happy

I think it's the other way around. Politicians don't want to mess with the Fed precisely because it is a house of cards. If the dollar falls, so does all the political power. The Fed holds all the debt. Without money, politicians have no influence.

[Pro Libertate]

I haven't paid much attention, but how many of the projected newbies in the Senate and the House are of the RADICAL REFORMER ilk?

[SusanM]

Not enough.

[Pro Libertate]

Figures. Heads, we lose; tails, we lose; balanced on the edge, we lose.

[Palin's Buttplug]

Politicize the Fed? What a shitty idea. Who wants idiots like Louis Gohmert and Sheila Jackson Lee deciding monetary policy?

[JEP]

Again. You presume that people in positions of authority have to prove they are qualified to make decisions. Not true.

[The Late P Brooks]

Who wants idiots like Louis Gohmert and Sheila Jackson Lee deciding monetary policy?

We should leave it to Barney Frank and Chris Dodd, right Shreeek?

[Bill Dalasio]

I'm an ex-Fed guy. I kind of understand the institutional impetus against political involvement in the process.

When I was there (granted almost 15 years ago and at Philadelphia, one of the more hawkish banks), the concern, at least among grunts like myself, was less about oversight from a Ron Paul or a Rand Paul than it was about letting a Maxine Waters or an Elizabeth Warren get their grubby mitts on monetary policy.

[Loki]

But for reasons unknown, Senate Majority Leader Harry Reid (D-Nev.) has kept this latest "Audit the Fed" proposal off the floor.

I hear it has something to do with his tendency to dress up in a frilly dress late at night and fuck sheep in the alleyway behind the Senate office building.

[Bill Dalasio]

I will add, though, that circumstances have changed pretty dramatically since my time with the Fed. Post-2008 policy has entered a lot of new territory and there are a lot of legitimate questions (What is the exit strategy from QE, for example? How exactly does the proposed management of liquidity through macroprudential policy work in practice, for example?) that deserve a lot better explanation than a lot of hand waving or glib assurances that they'd explain it to us, but we wouldn't get it.

[The Late P Brooks]

The myth of the apolitical Federal Reserve Bank should have a special room in the Library of Congress.

[Pro Libertate]

Indeed. That's a major problem with the Fed in the first place.

[Butler]

No way. The GOP is fine as a minority party, making noise from the peanut gallery. But, when republicans actually has the power to do something about fiscal irresponsibility,they fall flat. To be fair, Democrats are the same way with civil liberties and certain constitutional rights (like first Amendment, freedom of the press, etc.)

[Pro Libertate]

The Republicans cannot be trusted on spending.

That said, the Democrats should never be trusted with civil liberties. When you're starting place is TOTAL STATE, rights stop being fundamental and inalienable; instead, they become privileges granted--and taken away--by Leviathan. The reason they're increasingly bad on fundamental rights is that they no longer give a shit about individuals.

[Florida Man]

So I'm reading Benjamin Graham's "intelligent investor" with updates from post 2002 and there is a link to slate in the book about a comic parodying corporations writing off non-reoccurring events from loses. My question is, should I burn this book and find another on investing?

[JEP]

I tried reading it a few years ago, but couldn't get through it.

I don't agree with Buffet on political topics, but I respect his investing ability. His philosophy in a nutshell is: Don't make judgments about things you don't understand. Buffet apparently spends most of his time reading, so he can learn as much about what he's investing in as possible.

So I've been trying to figure out how to learn enough about particular industries to make smart investment decisions about it.

Reading all of Nassim Taleb's books might be a good start.

[Florida Man]

That is what I am struggling with. "Know everything about the company!" Fine. How? The best thing I have come away with so far is a confirmation of what I was already doing. Invest consistently and for the long term.

[JEP]

There seems to be two parts: there's the finances and then there's the industry (tech, sugar, oil, etc).

I just got a book in the mail called Why stocks go up and down. It's highly recommended and sells itself as "the book you need to understand other investing books." It's all about the internal spreadsheets on a company's finances and how the stock price is tied to what the company is doing.

I think those stock/company finances are going to relatively the same, no matter the industry. Knowing the industry comes into play when you're trying to get on the bottom floor.

In Taleb's books, he talks about people making their fortunes trading in the pit, but all they trade is coffee beans. That's it. And they make decisions solely based on experience. And then there's the quants who are trying to predict the market through complex math models.

It seems the key to good investing is knowing what your goal is, and knowing where the map stops meeting the territory. Keep in mind, I'm not speaking from experience. But I'm trying to read as much as I can about it and try to figure it out.

[Florida Man]

Thanks. I'll check it out

[The Late P Brooks]

deserve a lot better explanation than a lot of hand waving or glib assurances that they'd explain it to us, but we wouldn't get it.

Come on, that's better than saying, "If we told you, we'd have to kill you."

[Bill Dalasio]

So, Yellen would threaten to turn her Medusa-like gaze on us?

[Blank Reg]

Yellen is completely wrong on this and everything else. The Fed shouldn't exist. It's existence is now, and has always been unconstitutional.

According to the Constitution, only Congress has the authority "to coin money and regulate its value". In 1913, they illegally handed off that responsibility to a third party. The SCOTUS at the time should have thrown the thing out for the fraud that it was, and jailed everyone responsible for it, up to and including JP Morgan and his cronies, who helped write the bill.

For the Fed to be a legitimate enterprise, there needed to be a Constitutional amendment establishing it.