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Published On: Sun, Feb 8th, 2015

Audit The Fed – An Additional Quibble

TND Guest Contributor: Paul-Martin Foss |feddc

Following on yesterday’s article in response to Dallas Fed President Richard Fisher’s attack on “Audit the Fed”, I wanted to clarify something with regard to the comments made by Cleveland Fed President Loretta Mester.

On Wednesday, Cleveland Fed President Loretta Mester criticized the legislation as “misguided” during public remarks in Columbus, Ohio. “They really are about allowing political considerations to influence monetary policy decisions,” Mester said in her speech. “This would be a tremendous mistake, because it would ultimately lead to poorer economic performance.”

As Congressman Ron Paul’s monetary policy legislative assistant from 2007-2013, I believe that it is my duty to refute misconceptions of Audit the Fed whenever they occur.

Much of the Fed’s misgivings regard Sec. 2(a)(2) of the bill (as currently introduced as H.R. 24).

(2) Contents.–The report under paragraph (1) shall include a detailed description of the findings and conclusion of the Comptroller General with respect to the audit that is the subject of the report, together with such recommendations for legislative or administrative action as the Comptroller General may determine to be appropriate.

The House Office of the Legislative Counsel, which drafts and prepares bills for introduction, added this language to the text we provided them. Their explanation was that it was boilerplate language that is inserted into all bills that call for an audit by the Comptroller General. But because of the Fed’s concerns with the “recommendations for legislative or administrative action as the Comptroller General may determine to be appropriate”, we struck that portion of the bill when revising the language for use as an amendment. We had no desire to hear GAO’s recommendations for monetary policy either, as they likely would reflect the same status quo views that pervade the mainstream political and economic establishment. That amendment, by the way, passed in the House as part of a bill that eventually became the first version of the Dodd-Frank bill.

Anyone who understands Ron Paul and his monetary views understands that he doesn’t want to see Congress dictating monetary policy. Congress has no power under the Constitution to engage in any of the activity that the Fed engages in, nor does it have the power to delegate any of those non-existent powers to the Federal Reserve. Congress has the power only to “coin Money, regulate the Value thereof, and of foreign Coin…” In other words, Congress can mint coins and ensure that they are neither underweight nor overweight. That is the full extent of the power the federal government is granted by the Constitution with regard to money. Anyone who infers that Dr. Paul wishes to see Congress engaged in open market operations, discount window lending, or any other central banking activities obviously knows nothing about Ron Paul or his views.

Nor does Dr. Paul wish to see the Fed engaging in political considerations with respect to monetary policy. However, it is well-established that the Fed already considers politics when making its monetary policy. Arthur Burns was famously asked why, after he helped Richard Nixon win reelection in 1972 by lowering interest rates, did he not do the same thing for Gerald Ford in 1976? The answer: because Ford didn’t ask. The Federal Reserve Chairman is nominated by the President for a four-year term as Chairman. If he doesn’t do what the President wants him to do, he doesn’t get renominated. Fed Chairmen are as self-interested as anyone else, so to think that they would buck the President is ludicrous. I forget who uttered it, but there was a quote that went around a few years ago about working in the DC political arena: “You can only quit once.” As soon as you stop going with the flow and stand up for your principles, not only are you out of a job, you gain a reputation as not being a team player and are blacklisted if you try to get back in. That’s why nobody in DC stands up for principle.

Poor economic performance in this country has always come about because of government interference in money and banking. Whether in the form of restrictions on banking, issuance of unbacked paper currency, or establishment of the Federal Reserve System, government intervention has been responsible for crisis after crisis after crisis. Rather than just sitting back and allowing markets to provide the money and banking services they need to do business, the government insists on arrogating those responsibilities to itself. The result has been an unmitigated disaster, especially since the advent of the Federal Reserve and its destruction of the value of the dollar. And now the Fed throws a hissy fit because the American people want to find out what exactly the Fed has purchased with the over $3.5 trillion of securities it has added since 2008 and want to know where that money has gone? Give me a break.

Would Congress engaging in monetary policy be bad? Yes. Would it be worse than the Fed? It might be, or it might not be. Depending on who is in power, you might just get lucky and have a not-too-horrible monetary policy. At least Congressmen can be voted out of office every two years, unlike the Fed. But why subject the state of the economy and the health of the nation to the control and whims of a small handful of people? Having either Congress or the Fed in charge of monetary policy is a bad idea. Just get the government out of money and banking, open up money and banking to market competition, and then we’ll see just what real economic growth looks like.

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About  Paul-Martin Foss:

Paul-Martin Foss is the founder, President, and Executive Director of the Carl Menger Center for the Study of Money and Banking, an Arlington, VA-based think tank dedicated to educating the American people on the importance of sound money and sound banking.

Prior to founding the Menger Center, Mr. Foss worked in the U.S. House of Representatives for seven years, including six years as Congressman Ron Paul’s legislative assistant for monetary policy and financial services, and one year as Deputy Legislative Director for Congressman Thomas Massie.

As Congressman Paul’s legislative assistant, he assisted the Congressman in his duties as Chairman of the Subcommittee on Domestic Monetary Policy by helping to develop hearing topics, agendas, and briefing Congressmen and their staffs on monetary policy topics. Mr. Foss also was responsible for the management of Dr. Paul’s monetary policy and financial services legislation, including the “Audit the Fed” and “End the Fed” bills, and was co-editor of Ron Paul’s Monetary Policy Anthology, a multi-thousand page compilation of hearing transcripts, lecture transcripts, and other documents related to Dr. Paul’s chairmanship.

Mr. Foss received his Bachelor’s degree from The University of the South (Sewanee), and Master’s degrees from the London School of Economics and Georgetown University’s Edmund A. Walsh School of Foreign Service.

This article appeared on the Carl Menger Center for the Study of Money and Banking and is reprinted with permission, “Creative Commons 4.0.”

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