Ron Paul’s last legislative ride in Congress was a resounding victory: His bill to require more extensive auditing of the Federal Reserve swept to passage in a bipartisan vote Wednesday afternoon, 327 to 98. Eighty-nine Democrats sided with all but one of the chamber’s Republicans on the measure.
Representative Paul, the Texas libertarian and three-time presidential candidate, is a longtime skeptic of the nation’s central bank and has put Audit the Fed, as the legislation is colloquially known, as his attempt at reining in the central bank’s power. There's little appetite on Capitol Hill to do what Mr. Paul would ultimately prefer – that is, to end the Fed altogether.
“The whole idea that they can deal in trillions of dollars and know that nobody is allowed to ask them a question is a moral hazard,” Paul said after the vote. “And this removes that moral hazard.”
The Democrats who sided with Paul were a mix of those in tough reelection contests in conservative leaning districts, such as Rep. Ben Chandler (D) of Kentucky, and the most left-leaning, progressive House members, who have long held deep suspicions of the Fed, such as Rep. Lloyd Doggett (D) of Texas.Two members seeking seats in the Senate – Rep. Shelley Berkley (D) of Nevada and Rep. Tammy Baldwin (D) of Wisconsin – both voted for the measure.
The bill, which has zero chance of passage in the Democrat-controlled Senate although it has 21 Republican sponsors in that chamber, would require a “full audit” of the Federal Reserve by the Comptroller General of the United States before the end of 2012. More importantly, it gives Congress the authority to implement such audits in the future.
Fed Chairman Ben Bernanke recently told the House Committee on Financial Services, which provides oversight of the Fed, that the bank already has plenty of measures in place to ensure transparency. These include testimony before Congress, minutes of meetings between the members of the bank’s board of governors, an audited annual financial statement, the ability of the Government Accountability Office to audit “essentially all aspects” of the bank’s operations, and new requirements for openness placed upon it by the Dodd-Frank financial reform law, Mr. Bernanke said last week.
With that in place, what more could the Fed divulge?
Specifically, the Fed could be required to divulge deliberations surrounding its monetary policy decisions, the discussions among the central bank’s members that lead to raising or lowering of interest rates, for example.
Revealing such discussions to the public “is very concerning because there's a lot of evidence that an independent central bank that makes decisions based strictly on economic considerations and not based on political pressure will deliver lower inflation and better economic results in the longer term,” Bernanke said.
Without such confidentiality, Bernanke said, the bank would be subject to increased political pressure.
“I do feel it's a mistake to eliminate the exemption from monetary policy and deliberations which would effectively, at least to some extent, create a political influence or a political dampening effect on the Federal Reserve’s policy decisions,” he said.
Asked about Bernanke’s rejoinder, Paul was dismissive.
“That’s just nonsense,” Paul said Wednesday. “It’s less political if it’s out in the open. It’s when it's secret that it becomes political and the special interest have control.”
Republicans backed the bill because they, like Paul, believe existing audits of the Fed don’t go far enough – and it isn’t enough to take the Federal Reserve at its word.
“Although the Fed is audited to see whether, basically, some numbers are correct on a limited basis, the truth is the Federal Reserve is not open and transparent, even years after they make a decision,” said Rep. Darrell Issa (R) of California, who chairs the Committee on Oversight and Government Reform, on the House floor Thursday.
“Do we in fact know the true numbers, do we know the leverage, the policies, the accuracy, and the knowledge of the Federal Reserve?” Mr. Issa said. “Do we know what we need to know?”
Democrats who approved of the measure connected with the theme of openness and accountability.
Democrats in opposition to the bill, however, said that putting Congress and the American political process further into the Fed’s business would do great damage to an institution that has attempted to remain outside the partisan fray.
“I agree with Chairman Bernanke that congressional review of the Fed's monetary policy decisions would be a ‘nightmarish scenario,’ especially judging by the track record of this Congress when it comes to governing effectively and intervening in the courts and other areas,” said House minority whip Steny Hoyer (D) of Maryland on the House floor Tuesday. “We don't have to look further than the Congress unnecessarily taking the country to the brink of default last summer in a display of politics.”