This Is a Very Bad Idea
by Doug Hardin
Now this is one of those things that, on the surface, sounds like a good idea. But, actually, this is just the sort of thing that could tank our entire economic future. The Federal Reserve Bank was set up shortly after the Great Depression to keep our monetary policy stable. The Fed has many responsibilities, but its primary function is to influence interest rates in its monthly meeting.
Our economy is always steering a course between inflation and unemployment. Grow too fast and we get we get inflation. Grow too slowly and the economy shrinks resulting in unemployment. If the managers of the Fed think we are growing to fast, thus headed into inflation, they will increase interest rates to slow things down. If, on the other hand they think the economy needs a bit more growth to remain stable they reduce interest rates. If they are happy with our situation or not convinced that action is required, they leave the rate untouched. If they adjust too fast, in the wrong direction, or both fast and wrong, it will take more effort to get back on course. Wait to long for a course adjustment and it will also take more effort to get back on course. It would take several years, and somebody a lot smarter than me, to explain how they determine what is going on and which direction to steer. But, basically the analysis of keeping a steady hand on the tiller explains a complex set of calculations simply.
The Fed was initially set up to be independent of politics. The Chairman is confirmed by the Senate and serves a 4 year term. He can not be fired during his term, so he is free to act as conscience, experience and wisdom advise. However, this has not stopped every President and politician, since the beginning, trying to influence decisions. Every politician knows you win elections if the economy is growing, so "take your foot off the brake, we'll worry about the speed later."
Now an audit doesn't sound too harmless. After all it is a lot of money and why not audit it? The fact is this is really not an audit. The Fed is already audited and provides freight trains of financial information to Congress and The White House.
What this bill will actually do is subject the Fed to intense scrutiny, including public hearings, over what their next decision should be. Quiet deliberation will be replaced by the Circus we are now seeing over Health Care. The Congress will have the ability to life so difficult for the Fed to act independently, without telegraphing their intent, that it will essentially become a puppet of the politicians. Do we really want the clowns at the wheel of the economy?
This would be a very bad thing. Keep the politicians out of the deep end of the pool. Let the professionals do their job quietly and independent of politic winds. The Fed was, self admittedly, a bit slow catching on to the seriousness of the mortgage crisis, we all were. But, long after the Fed was trying to sort things out, the politicians were still pounding on the podiums chanting, "The Fundamentals of Our Economy are Strong".
The following article recently appeared in the Huffington Post
The calls to audit the Federal Reserve have come fast and furious in the last few weeks. Fed Chairman Ben Bernanke is continuing to push back against a House bill that would give the Comptroller General - the head of the Government Accountability Office - the power to audit the central bank.
But, judging by the results of a new survey, the vast majority of Americans already support a Fed audit. 75 percent of Americans back auditing the Federal Reserve, according to Rassmussen Reports.
Opponents of the Federal Reserve Transparency Act Of 2009 - introduced by Rep. Ron Paul (R-Texas) - say that putting the Fed under the control of Congress would limit the bank's independence. (The bill has gained support from over half of the House of Representatives).
There is also growing concern from Fed supporters that Congress could exert political influence over monetary policy - though, many would argue that the Fed is already influenced by politics. But, according to the Rasmussen survey, only nine percent of adults surveyed were against the idea of a Fed audit.
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