Last month, Republican senator Rand Paul introduced a bill that would expand Congressional oversight over the Federal Reserve and used it to spearhead a self-proclaimed “Audit the Fed” movement. In an op-ed on Breitbart written by the senator himself, Rand cites the Fed’s massive balance sheet leverage being composed of faulty loans, long-term dollar dilution, and expanded powers from the Dodd-Frank Act as being the driving forces behind the movement. Many journalists seem to be missing the underlying implications of the proposed bill. Neil Irwin of the New York Times delves into a description of how the Fed is actually quite transparent and argues that its financial statements are indeed already audited yearly, then goes on to claim that experts say the bill is really about “unveiling the secrets of the temple, exposing the perfidy that these secretive central bankers are surely engaged in”. He counters that issue by going into detail about the Fed’s communication with the public, but what his analysis is missing is the fact that Congress having even the slightest input on the Fed’s decisions is a terrible idea. A writer for the Wall Street Journal glanced over that notion as well, providing an explanation of the Fed’s balance sheet and Paul’s claims, adding a mere sentence about how Fed officials think the bill would limit their independence with no elaboration beyond that. Journalists are missing the real story here. While some are acknowledging the fact that the Fed is adamantly against the issue, as this WSJ article does, they are simply quoting statements from Fed officials and leaving the meaty story on the table, opting instead for the side-salad.
Nobody should be surprised that the Fed is against expanding Congressional oversight – it goes against everything they stand for as independent, “private” bankers. The issue at hand here is not about a lousy financial audit, nor is it about tapping into the minds of the Fed’s Board of Governors. It is about Congress, a radically political being, wanting to interrupt a monetary system that has a solid track record. It is about lawmakers diverting their efforts towards a matter of policy where there is little room for improvement. Since the peak of the global recession, the United States has had the best recovery out of the five countries with the biggest central banks, as demonstrated by this data from the World Bank.
This was largely due to the Fed’s quick response of buying up toxic assets, a response which may have taken years (and which would have been far too late) if it involved some sort of Congressional vote or approval. Critics of the Fed claim that purchasing these assets was a mistake, reasoning that there is risk inherent to increasing the size of the Fed’s liabilities. In reality, the asset purchase program was well-implemented, likely saved Americans years of economic stagnation, and carried less risk than what was perceived. It is only natural that it will take a while for the Fed’s balance sheet to shrink, just as Fed officials claim, since it must space out the asset sales at a reasonable rate (and its asset sales have been accelerating, as noted in CNBC). The Fed has been wise in its handling of these assets, opting to hold on mortgage-backed securities that it had previously intended to sell in 2013, waiting for the right time so as to avoid losses, as described by this Bloomberg article. Those who claim that the Fed has not been transparent enough seem to be overlooking the fact that Ben Bernanke provided plenty of guidance to the market with respect to the Fed’s goals. The Fed as we know it is working perfectly fine as it is: a board of apolitical experts who are free to make decisions without worrying about public or political input that is often misguided, as Rand Paul’s is. To insert any sort of Congressional control would jeopardize a system that has worked perfectly fine as is.