Thursday, October 2, 2014

The Sane Case for Auditing the Fed

The Sane Case for Auditing the Fed

The Federal Reserve, which was just caught paying footsie with Goldman Sachs, is as shadowy as it is powerful. So why can’t Congress bring itself to actually audit the damn thing?

If you want to get a sense of just how incredibly powerful the Federal Reserve really is, forget about interest rates, reserve requirements, or even the ways in which a random nose-pick or burp by Janet Yellin during lunch at a Jackson Hole delicatessen might send markets soaring or crashing.

Instead, think about this: In an age utterly bereft of bipartisanship, auditing the nation’s central bank is one of the few issues on which Rand Paul and Elizabeth Warren agree. So does everyone else. Polls consistently show anywhere between 70 percent and 80 percent of Americans supporting an audit that would not just open the Fed’s ledger books but peer into exactly how monetary policy gets set.

Just a couple of weeks ago, the House of Representatives passed The Federal Reserve Transparency Act by an overwhelming vote of 333-92; a majority of House Democrats voted for an audit while just one Republican voted against the bill.

Yet despite overwhelming public and congressional support for an audit, it’s just not going to happen.

What is it about the Fed that inspires such solidarity among its critics? Ever since its creation during the Woodrow Wilson era, it’s been a favorite target of everyone from right-wing conspiracists who fear the Fed is simply another cog in an international Jewish banking conspiracy to left-wing populists who see it as both a cause and effect of globalized capital. Because it controls the money supply of the planet’s biggest economy and because it operates so opaquely, it’s an obvious place to project all sorts of anxieties about large, impersonal forces beyond our reach that sharply affect, if not actually control, virtually all aspects of our daily lives.

But one needn’t wade into the fever swamps of conspiracy to see the Fed as an inherently problematic institution. The central bank is explicitly tasked with the fundamentally incompatible duties of conducting stable monetary policy, promoting full employment, acting as a lender of last resort, and regulating the banks it works with. Good luck with all that. Also, while it’s technically independent, the federal government exerts massive political pressure on the Fed and appoints its chair and board of governors.