Congressman Dr Ron Paul, a Libertarian Republican, and a twice popular candidate for president among the multitude of despondent Americans since 2007 but usually in sync with the Fed’s monetary ideology, wants the institution audited by the Government Accountability Office (GAO). He also wants to End the Fed. The country is bigger and older than the nation’s central bank he argues. And that we know how to run our money better than the Fed because we have been there and done that from 1789 to 1913 when the Federal Reserve was established.
Federal Reserve Chairman Benjamin Bernanke, in his public semi-annual monetary policy report to the Federal Reserve’s overseers in the United States Congress, vigorously defended his agency’s policy judgment and independence in the areas of money supply and banking supervision from audits by the GAO, and of course, not to forget the Office of Special Counsel (OSC), Equal Employment Opportunity Commission (EEOC) and the Federal Bureau of Investigation (FBI). His agency can do no wrong.
United States, as any other country, needs monetary policy independence, not agency insulation from constitutional and legal accountability. There are no gag rules against the citizenry to save the Fed from the American people unlike some in the United States Secret Service and legal system appear to be thinking. There are, however, rules of appropriate government conduct within and without according to the Office of Government Ethics.
In the ideal world of economic liberty, the Fed, in its own eyes, must be the personification of self-regulation: a hard working virtuous agency supplying money to honest market participants, across the street from the raging bull in Manhattan, conscientiously going about market activities incentivized for pursuing their classical economic virtue since the days of Adam Smith, their individual reputations in business conduct being the only check on their behaviors, to advance the wealth of our nation. The American economy is always at stake for the Fed if only it knows its Beige book.
The world outside the Fed’s cocoon where I worked for about 8 years only one floor above where Mr Bernanke sits is anything but ideal if the years since 1999 are any indication. It is Dionysian.
Market participants as we all well know by now don’t break the law but bend it sufficiently in their favor in ways which are unsavory according to Alan Greenspan in one of his ruminations reminiscent of the Papacy. In the language of the Fed’s college of cardinals on the Federal Open Market Committee (FOMC) and the “Catholic Church” they run, “unsavory” is the antonym of “delectable” suggesting that the conduct of financial markets since the 1999 slowdown has left a bad after-taste in the mouth of the nation akin to stale and spoiled wine. Wealth has become a fleeting memory for many who support Ron Paul and lasting for the rest of the partisans in Washington.
The path to ending an institution, as desirable as it may be to some, must be treaded on as cautiously as a chef in the kitchens of the Congress which created it in 1913.
Federal Reserve – as a first step in its defense, rather than attempting to stave off the GAO and other agencies which monitor government conduct for being lawful – must become fully transparent – as transparent as the Supreme Court of the United States if it informally claims the stature of an august institution.
First, Fed budget, independent of the revenues from its monetary and other operations, must be allocated a budget through the Congressional appropriations process (Fed remittances to the US Treasury can be found in the public Treasury statements and the budget, largely under the agency’s own control, in the Fed annual report). The Supreme Court, a co-equal branch of government, receives its operational expenditures from the Congress every year.
Second, even though the Fed has made substantial progress in shrinking the delay in the release of FOMC meetings information since 1997, a lot remains to be done. Internal staff analyses in the run up to each FOMC meeting to prepare the FOMC – Fed’s classified FOMC Class II Greenbook and FOMC Class I Bluebook – must be publicly released in real time at the press conference where Fed forecast is discussed after every FOMC meeting. Senior-most Fed bureaucrats involved in the FOMC meetings with the members of the committee must be available to answer questions on staff analyses.
FOMC meeting minutes must be released in audio together with the summary transcript. The meetings can be open to few from the press and the public similar to Supreme Court arguments but the portion of the meeting where voting decisions are should be closed (see sample FOMC statement) requiring individual FOMC members to optionally submit concurring or dissenting written statements for public presentation and discussion after each meeting.
Third, options presented by the Fed system bureaucracy in support of all banking supervision intervention decisions, both crisis and non-crisis (discount-window operations) must be defended in the financial press and in public explicitly in a press conference before a decision can be made by the Fed Board and/or FOMC in Washington. Ron Paul’s angst about the Fed is in this regard because about $16 trillion, with no detailed accounting once the money left the fire hoses, has been supplied by the Fed since 2007 to recover an economy worth $15 trillion.
Fourth, the Federal Reserve Act (FRA) must be amended to institute an explicit numerical inflation targeting regime of 1-5% personal consumption expenditures (PCE), without any further deliberation either in the economist community at large or within the Fed. Enough has been said about this subject for decades since Jimmy Carter’s appointment of Paul Volcker as Fed Chairman in 1979. Ben Bernanke, who received his PhD in Economics from MIT in 1979, would not have been Fed Chairman otherwise.
Under law, the Congress (and the American people) can ask the Federal Reserve any and all information publicly for formal dissemination through written materials or hearings, without regard to the Fed’s internal policies and procedures, about the agency’s past decisions but cannot politically direct future rate-setting and bank intervention decisions.