Bloomberg reports that Bernanke May Have to Sacrifice Lending Powers or Independence.
(emphasis mine) [my comment]
Bernanke May Have to Sacrifice Lending Powers or Independence
By Craig Torres
July 29 (Bloomberg) -- The financial-overhaul plan before Congress leaves the Federal Reserve in the business of lending to everyone from General Electric Co. to investors in student loans. That makes it harder for Chairman Ben S. Bernanke to keep Congress from second-guessing what he does.
Bernanke is trying to deflect a bill, co-sponsored by 276 members of the House of Representatives, that would require audits of central bank operations, including monetary policy decisions, by the Government Accountability Office. Audits wouldn't be "consistent with independence," Bernanke said at a Kansas City town hall meeting July 26. "I don't think the American people want Congress running monetary policy."
Unless the Fed retreats from unlimited lending, Bernanke can expect such a result, said Marvin Goodfriend, an economist at Carnegie Mellon University in Pittsburgh. The more the Fed invades the domain of Congress by supplying credit to businesses and markets outside the banking system, the more Congress will seek a hand in monetary policy, said Goodfriend, a former adviser to the Richmond Fed.
"Central bank independence is incompatible over time with all but limited, temporary last-resort lending" to banks, Goodfriend said in an interview. The Fed's role in emergency lending "needs to be clarified before the next crisis," he said.
Congress may demand more say over the Fed's credit policies. Democratic Representative Paul Kanjorski of Pennsylvania is gathering signatures for a letter asking Bernanke to extend the Term Asset-Backed Securities Loan Facility.
Emergency credit policies have helped more than double the Fed's balance sheet over the past year to more than $2 trillion, including loans to support insurer American International Group Inc. and risky assets once owned by Bear Stearns Cos.
"The Fed clearly cherishes its vast power to create and spend trillions of dollars [Why in the world would it cherish that? (sarcasm)]," Texas Republican Representative Ron Paul, who wrote the House bill on Fed audits, said on his Web site. "The only accountability the Federal Reserve has is ultimately to Congress."
Bernanke told Paul at a House Financial Services Committee hearing last week that GAO audits, often initiated at the request of members of Congress, could be used as a club against the Fed.
"If we were to raise interest rates at a meeting and someone in the Congress didn't like that and said 'I want the GAO to audit that decision,' wouldn't that be viewed as an interference?" Bernanke asked. "Reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions," he said in testimony.
Congress has stepped up pressure on the Fed partly in reaction to proposals from the Obama administration to give the central bank more authority to regulate risk across the financial system. Lawmakers in both parties have expressed wariness about giving the Fed even more power.
"I understand your concern about the Fed's independence, but you are the one that threw away the independence by acting as an arm of the Treasury and engaging in fiscal policy," Kentucky Republican Senator Jim Bunning told Bernanke at a July 22 hearing. "Would you rather have an audit of the Fed or give up all of your non-monetary-policy functions?"
Senate Blocks Bid to Audit Federal Reserve
Politicallore.com reports that Ron Paul's HR 1207 transcends partisan politics and upsets Congressional leadership.
Ron Paul's HR 1207 transcends partisan politics and upsets Congressional leadership
Post Date: July 25th, 2009
Submitted By: Shaun Booth
On Wednesday a highlight of Federal Reserve Chairman Ben Bernanke's testimony in front of the House Financial Services Committee was the five minutes he endured relentless questioning from Florida Democratic Congressman Alan Grayson. Grayson refused to allow Bernanke to avoid the question of why $500 billion had gone to foreign central banks instead of remaining in the United States. In the end Bernanke did not have any logical answers for Grayson.
That moment was a microcosm of something larger that is taking place in the House of Representatives as a result of HR 1207. Alan Grayson was the first Democrat who cosigned House Resolution 1207, Ron Paul's bill to audit the Federal Reserve. Since Grayson cosponsored the bill over 90 of his fellow Democrats have followed.
HR 1207 is a perfect example of Congressmen willing to come together, though they might not agree across the spectrum of their political platforms, on an important issue by important issue basis.
So the question that keeps coming up is, "if HR 1207 has such tremendous bipartisan support, why is it still having a difficult time being brought to the House floor for a vote?"
The answer that Ron Paul continues to give is that the leadership in Congress want nothing to do with the bill, at least until it is substantially watered down.
The next questio n then becomes what does the leadership in the House (i.e. Nancy Pelosi, Barney Frank...etc.) have against having transparency in the Federal Reserve System?
I do not believe they have a vested interest in the continuing secrecy of the Federal Reserve System other than their interest to obey orders that are coming from President Obama's administration.
Once the Obama Administration becomes the focus of the question the picture begins to come into focus.
Obama himself received over $1 million in campaign contributions from Goldman Sachs, an organization that has benefited greatly from the Fed's recent actions.
The close ties between Wall Street and the White House has for many years allowed the Federal Reserve to continue to operate unsupervised by the Congress.
The subtlety of Ron Paul's bill to simply audit the Federal Reserve is its genius, not to say he has been secretive that he believes that an audit would be followed shortly by public outrage.
But the focus on transparency is something that is difficult for most Congressmen to put up a valid argument against. This leaves the Federal Reserve, namely Ben Bernanke, and eventually the leadership in the House and Senate (the Senate has a similar bill that as of this writing has 17 cosponsors) looking foolish when they are forced to use illogical arguments to justify not bringing the bill to the floor.
Ben Bernanke's argument has essentially boiled down to his fear that if Congress had the power to audit the fed, it would politicize monetary policy, such as the setting of interest rates...etc.
The politicizing of monetary policy is already here and would be no worse if there were transparency. Transparency would simply give Congress the ability to criticize the actions of the Fed with evidence. Instead of the guessing game that has been taking place in recent hearings.
After an audit, Congressmen would be able to level accusations during hearings with solid evidence to back up their accusations. Rather than Bernanke being able to play dumb and claim to not know key information.
Perhaps the most intriguing part to me about a potential audit of the Federal Reserve is something Donald Rumsfeld famously called "the unknown, unknowns."
Ron Paul and everyone solidly in his camp has a good idea that an audit would cause outrage not only among members of Congress but across the nation, but there could be things lurking in those books that send shock waves around the world. I'll let you use your imagination...
Fed is unpopular
AP reports that Americans rate Fed worst among 9 key agencies.
Americans rate Fed worst among 9 key agencies
By JEANNINE AVERSA (AP) — 1 hour ago
WASHINGTON — The share of Americans who think the Federal Reserve is doing an excellent to good job has sunk even as chairman Ben Bernanke has taken unprecedented steps to try to prevent a financial catastrophe, according to a new poll released Monday.
Many analysts credit Bernanke's unconventional approach with averting disaster last year. But his support of taxpayer bailouts of big financial firms such as insurance giant American International Group upset the public and many lawmakers.
The Gallup poll, conducted in mid-July, found that only 30 percent rated the Fed as doing an "excellent/good" job.
It was the lowest such score out of nine government agencies. And it was down sharply from the 53 percent who thought the Fed was doing an excellent to good job in a survey in 2003. At that time, then-Fed chief Alan Greenspan was steering a fragile economy back from the 2001 recession, terror attacks and corporate accounting scandals that had rocked Wall Street.
The Centers for Disease Control and Prevention topped the list with 61 percent of poll respondents rating that agency excellent to good. NASA and the FBI tied for second place at 58 percent each.
The CIA, the Department of Homeland Security, the Environmental Protection Agency, the Internal Revenue Service and the Food and Drug Administration all earned scores higher than the Fed's, the poll said.
The results come at a delicate time for Bernanke. His term expires early next year, and President Barack Obama will have to decide whether to reappoint him to a new four-year term or find a replacement. Bernanke has been under fire on Capitol Hill for rescuing AIG to the tune of more than $180 billion.
And he faces skeptical lawmakers wary of expanding the Fed's powers — as envisioned by the Obama administration — given the failure of the Fed and other regulators to detect problems that led to the financial crisis. The administration wants the Fed to police big financial companies whose failure could endanger the entire economy.
Despite efforts to become more open, the Fed has built a reputation as one of Washington's most esoteric institutions. "To many, the Federal Reserve is just a mysterious entity," said Richard Yamarone, economist at Argus Research.
At a town-hall style meeting with Bernanke on Sunday night, one of the participants, social worker Gwen Bailey, confessed: "I don't have a clue what (Fed policymakers) do, how they impact our lives."
The Fed's primary mission is to put the economy and the job market back on a healthy path and keep inflation low and stable. It also oversees the safety and soundness of banks.
Bernanke has embarked on an unusually public campaign to reach out to ordinary Americans to explain the Fed's actions to fight the longest recession since World War II. His most recent effort involved fielding questions from America's heartland Sunday night.
"When the elephant falls down, all the grass gets crushed as well [Drag the elephant's corpse away, and the grass will be just fine]," Bernanke told the town-hall meeting in Kansas City, Mo., defending the Fed's action to rescue AIG and other companies deemed "too big to fail."
[These meetings haven't been very successful.]
My reaction: The Fed is fighting a losing battle to expand its authority while protecting its secrecy.
1) The financial-overhaul plan before Congress leaves the Federal Reserve in the business of lending to everyone from General Electric Co. to investors in student loans.
2) By invading the domain of Congress by supplying credit to businesses and markets outside the banking system, the Fed has made it harder to keep Congress from second-guessing what it does.
3) Lawmakers in both parties have expressed wariness about proposals from the Obama administration giving the Fed even more power.
4) Lawmakers are asking questions such as, "Would you rather have an audit of the Fed or give up all of your non-monetary-policy functions?"
5) Bernanke is trying to deflect a bill, co-sponsored by 276 members of the House of Representatives, that would require audits of central bank operations by the Government Accountability Office.
Senate Blocks Bid to Audit Federal Reserve
1) Despite growing pressure from the House and ordinary people, the Senate decided not to increase scrutiny on the Federal Reserve.
2) leadership in the House are blocking greater transparency in the Federal Reserve System based on orders that are coming from President Obama's administration.
3) The close ties between Wall Street and the White House has for many years allowed the Federal Reserve to continue to operate unsupervised by the Congress.
About audit of Federal Reserve
1) The subtlety of Ron Paul's bill to simply audit the Federal Reserve is its genius, as the focus on transparency is something that is difficult to put up a valid argument against.
2) Transparency would give Congress the ability to criticize the actions of the Fed with evidence instead of playing guessing game.
3) An audit would also likely cause outrage not only among members of Congress but across the nation, because of things lurking in the Fed's books.
Fed is unpopular
1) The Gallup poll, conducted in mid-July, found that only 30 percent rated the Fed as doing an "excellent/good" job, down sharply from the 53 percent who thought the Fed was doing an excellent to good job in 2003.
2) The CIA, the Department of Homeland Security, the Environmental Protection Agency, the Internal Revenue Service and the Food and Drug Administration all earned scores higher than the Fed's.
3) The poor results come at a delicate time for Bernanke, whose term as Chairman expires early next year.
4) Bernanke has embarked on an unusually (and unsuccessful) public campaign to reach out to ordinary Americans
Conclusion: As I stated in my entry *****Fed's Authority Under Attack*****, an audit of the Fed is bearish for the dollar.
While positive, the building momentum behind efforts to bring transparency to the fed is another factor helping set the time frame for the dollar's collapse. An independent audit of the Fed (including physical count of its gold) would reveal the disastrous state of its assets. Since those assets are what back the dollar, it would have dire consequences for the US, possibly creating a dollar panic.