Why the Fed is Under New Scrutiny

The Marriner S. Eccles Federal Reserve Board Building – Washington, DC

The Hill reports:

The Federal Reserve is pushing back against mounting criticism of the central bank, as those pushing for reforms ratchet up their attacks. . . The uptick in outreach from the independent agency signals an effort to quell calls for significant changes at the Fed and assuage concerns that it has become too opaque and too cozy with Wall Street.

Even some independent observers are puzzled by the highly visible push back from the Fed:

“It almost seems like they’re running scared,” said Vern McKinley, an attorney who advises governments on central banking policies. “It’s beneath them to be doing this lobbying.”

McKinley, who has done work with the Fed and the Treasury Department, called the Fed’s political outreach efforts “surprising” and “unseemly.”

The Hill pointed out one reason for new energy behind the Audit the Fed campaign is that the 2010 Dodd-Frank reform law handed the banks new regulatory power over financial institutions. This mission creep opens up the Fed to normal political give-and-take, like other regulators:

“As Fed officials get deeper into the regulatory space, we are now starting to see them acting more like regulators,” [one] industry source said. “[They’re] commenting on issues of concern beyond interest rates — that’s new.”

[…]

“Clearly the Federal Reserve fears the information that may be disclosed as part of an audit,” Paul spokesman Brian Darling said. “Maybe they fear that the revolving door between the Wall Street and the Federal Reserve will be exposed.

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Why Did Warren Denounce “Audit the Fed”?

Sen. Elizabeth Warren (D-MA) (photo credit: Tim Pierce via Flickr, CC BY 2.0)

Steve, The Hill is reporting Elizabeth Warren had a private lunch with Federal Reserve Chair Janet Yellen in December:

A Warren representative declined to describe what was discussed at the meeting between Yellen and Warren, who frequently criticizes Wall Street.

But not the Fed, apparently.

Maggie Gallagher is editor of ThePulse2016.com. Continue Reading

Warren Now Opposes Audit the Fed

Sen. Elizabeth Warren (photo credit: Ben Wikler via Flickr, CC BY 2.0)

That odd sound you hear is the baying of Keynesian economists, howling with indignity at the effrontery of Senator Rand Paul to propose scrutiny of the Federal Reserve (S. 264, “The Federal Reserve Transparency Act of 2015”, and its companion bill H.R. 24 introduced by Rep. Thomas Massie).  Ralph Benko previously noted that Wall Street and liberal economists have their knives out to savage Rand Paul and protect the Federal Reserve’s fantastic and undemocratic prerogatives.

The real significance of Senator Paul’s proposal is the removal of a prohibition against the Government Accountability Office analyzing and critiquing the monetary policy of the Federal Reserve.

Today Elizabeth Warren, the great liberal hope, joined up with Wall Street and 20th Street NW to shield the Federal Reserve from scrutiny by the GAO.

Senator Warren told the Huffington Post: “I oppose the current version of this bill because it promotes congressional meddling in the Fed’s monetary policy decisions, which risks politicizing those decisions and may have dangerous implications for financial stability and the health of the global economy.”

What the bill risks is that an honest appraisal of recent Federal Reserve policies will lay at its feet not only responsibility for the pathetic rate of recovery from the previous recession, but a hand in causing the recession of 2007 which in turn led to the banking crisis of 2008.

The American people are still suffering from the dysfunction of our economy.  Continue Reading

Rand Paul Draws Liberal Fire Over Audit the Fed, Part Two

Prof. Paul Krugman (photo credit: David Shankbone, CC BY 3.0)

Sen. Rand Paul is drawing liberal fire from many left wing commentators, now including Prof. Paul Krugman.  Many of the criticisms are badly off base. As noted in yesterday’s column there is so much simply factually incorrect about The New Republic‘s Danny Vinik recent Rand Paul Has the Most Dangerous Economic Views of Any 2016 Candidate— for example — that one hardly knows where to begin.

Vinik by no means is the only commentator to go into hyperbolic meltdown over Rand Paul. Nobel Prize economics laureate Paul Krugman, recently, in Money Makes Crazy:

Right now, the most obvious manifestation of money madness is Senator Rand Paul’s “Audit the Fed” campaign. Mr. Paul likes to warn that the Fed’s efforts to bolster the economy may lead to hyperinflation; he loves talking about the wheelbarrows of cash that people carted around in Weimar Germany.

Prof. Krugman, a polemicist, characteristically exaggerates. Mr. Paul “likes to warn?” The record demonstrates two brief statements of concern, made in obscure venues, by Dr. Paul. If there are any more they must be obiter dicta in venues even more obscure, showing these “likes” to be far less than a leitmotif of Paul’s rhetoric, much less agenda.

Krugman goes on to indict the Republicans as “monetary crazy” — based mostly on a few stray comments and some utterly irrelevant, outlying, positions such as one derived from Ayn Rand. Few of the positions he cites are any part of the real discourse now ongoing among the center right. Continue Reading

Rand Paul Draws Liberal Fire Over Audit the Fed, Part One

Sen. Rand Paul (photo credit: Gage Skidmore, CC BY-SA 2.0)

The New Republic, in its February 8th issue, carries an article by Danny Vinik entitled Rand Paul Has the Most Dangerous Economic Views of Any 2016 Candidate.  It appears that TNR’s fact checkers decamped along with its top journalists. Vinik:

Speaking in front of more than 150 Iowa activists, Paul ripped into the Federal Reserve and promoted his “Audit the Fed” bill, which he introduced earlier this week. “I think there needs to be some sunshine,” he said, according to reports of the event. …

Paul’s bill …would significantly damage the Fed’s independence, which exists so that politicians cannot influence the central bank for their own political purposes. In other words, “Audit the Fed” would lead legislators to interfere with monetary policy matters and put the entire economy at risk.

There is a certain irony. Sen. Paul might be counted as one of the great champions of protection of the Fed from abuse by the political authorities.  It is very probable that Sen. Paul’s motive is to rescue the Fed from having “unfortunately fallen into bad company.” Although the Fed, the Democrats, and leftish economic commentators may dispute his chosen means they may share a common ideal: high integrity monetary policy.

Fed independence from political meddling — which I support  — actually became crippled when Lyndon Johnson, in the wake of the Tet Offensive, closed the London gold pool.  It died when Richard Nixon closed “the gold window” in 1971. Continue Reading

Rand’s Audit the Fed Wins New Respect

The Marriner S. Eccles Federal Reserve Board Building – Washington, DC

The Hill is reporting Sen. Rand Paul’s “Audit the Fed” bill is gaining momentum:

“The ‘Audit the Fed’ movement has grown from an oddball pet project of former Rep. Ron Paul (R-Texas) into legislation that was passed with broad bipartisan majorities in the House two Congresses running, before stalling in Democratic-led Senates,” notes The Hill, which calls the prospect of Congress passing the measure “more real than it has ever been before.”

The Hill, and presumably pro-Fed Democrats, are particularly perturbed by the fact that one Democrat, Hawaii’s Sen. Mazie Hirono, has signaled support for the bill, with an argument based not so much on objections to its policies as support for more transparency: “While the Fed must make its monetary policy decisions based on data, not on politics, we owe it to Hawaii’s middle-class families, small businesses, and others that suffered so much to give them a full accounting of those actions,” Sen. Hirono said in a statement.

Paul Dupont is a legislative assistant at American Principles in Action. Continue Reading

The Paul Effect: The Fed Matters In 2016 Race

Sen. Rand Paul (photo credit: Gage Skidmore, CC BY-SA 2.0)

It isn’t often that I agree with Paul Krugman.  But on Friday, Krugman devoted his NYT column to the idea that “[m]onetary policy probably won’t be a major issue in the 2016 campaign, but it should be.”

Well, Krugman got it half right anyway. In truth, not only should monetary policy be a campaign issue, it already is.

Last week we watched Bobby Jindal force everyone from Chris Christie to Jeb Bush to start talking about Common Core. In a press release last week from American Principles Project, we called this “The Jindal Effect.”

Maybe we should start talking about “The Paul Effect.”

Rand Paul, who has also been one of the leading candidates opposed to Common Core, often covers atypical issues for a Republican—he believes in sentencing reform and eliminating mandatory minimums, has ridiculed the “war on drugs,” and has focused much of his time in the Senate on the Federal Reserve and monetary policy.

Indeed, a cursory scan of Rand Paul’s Facebook page reveals more than 15 posts about the Federal Reserve in just the past week, including this quote:

“Once upon a time, your dollar was as good as gold. Then for many decades, they said your dollar was backed by the full faith and credit of government. Do you know what it’s backed by now? Used car loans, bad home loans, distressed assets and derivatives. #AuditTheFed” – Rand Paul (via Facebook), Feb 7, 11:00 A.M. Continue Reading

Fed Reserve Empire Strikes Back at Rand Paul

The Marriner S. Eccles Federal Reserve Board Building – Washington, DC

In an orchestrated orgy of protests, Fed governors and regional bank presidents have roasted Sen. Rand Paul and his co-sponsors for reintroducing a bill mandating an audit of the Fed. Loretta Mester, president of the Cleveland Fed, wants us to know that such a thought is “misguided.” Why? “They really are about allowing political considerations to influence monetary policy decisions,” she said in a speech in Columbus. “This would be a tremendous mistake, because it would ultimately lead to poorer economic performance.”

What performance? Presumably the Fed wants a pat on the back for the zero-interest-rate policy of the last six-plus years, which has all but abolished bank savings accounts and made it harder for small businesses to access the lines of credit they need to expand—and create new jobs. Or is Ms. Mester talking about the recovery that began in 2009, which is the weakest since the statistics that measure such things began to be kept?

Of course this is about much more than a congressional audit. It is at root the Fed’s desire for zero review and zero debate of a monetary policy that has virtually nationalized lending and seems capable of making stagnation a permanent feature of an economy that not long ago was the most dynamic in the world. God forbid that there should be a political debate about a Fed whose last two chairs are among the most political ever to serve.

And God forbid that Congress should take seriously Article I, Section 8 of the U. Continue Reading