• Janet Yellen bristles
when asked about audit of Federal Reserve
When Janet
Yellen
appeared before the House
Financial Services Committee February 11, she gave relaxed
answers to most questions. But two members of Congress that day
touched a nerve when they each grilled the newly confirmed chairman
of the privately owned and controlled Federal Reserve on the merits
of former Texas maverick Representative Ron
Paul’s bill to audit the Fed.
Click here
for the Archived Webcast of this hearing.
Mrs. Yellen was also scheduled
to address the Senate
Banking Committee February 13 as part of her twice yearly report
to Congress, but it was postponed.
At the House hearing,
Representative Bill
Posey
(R-Fla.) and Representative Michele
Bachmann
(R-Minn.) not only pressed Mrs. Yellen on what she’d think of
Paul’s bill if it were operational, they also touched on monetary
policy—the Holy Grail of Fed operations.
Mrs. Yellen’s demeanor
noticeably changed when that sore spot was exposed. She made it clear
that in no manner whatsoever would the Fed ever allow an in-depth
government audit to “second guess” the sacred monetary policy
conducted behind closed doors by the Fed’s Open Market Committee
(FOMC).
That committee publishes
minutes and a basic schedule, but even
presidents and Congress members cannot
attend FOMC’s meetings. The Fed calls that “independence,”
which it certainly is. But critics say
that deciding how much money enters the
economy, and under what terms, is a critical piece of the Fed’s
actions that needs to be much better
understood and closely watched, not hidden.
Posey called Paul’s audit
bill “the most-sponsored bipartisan bill” that’s been put
before the House in recent memory. It passed the House with flying
colors in mid-2012 but was blocked in the Senate. Paul’s son,
Senator Rand
Paul (R-Ky.), reintroduced it in the current Congress as S.
209. A similar bill is parked in committee on the House side.
An unavoidable question is
that if Bachmann and Posey think an
audit is so important, then why don’t
we see more action on these ready-to-go
audit bills?
When Mrs. Yellen indicated
that she finds it hard to believe Congress may not fully trust the
Federal Reserve, Posey shot back: “Some
of us believe in the adage ‘trust but verify.’”
He told Mrs. Yellen that
federal agencies are subjected to
government audits that the Fed somehow avoids,
apart from sundry audits conducted by private accounting firms. Why
not the Fed?
Posey stressed to Mrs. Yellen
that Paul’s audit bill limits itself
to “post-decision audits.” That means
that individual Fed actions, including those taken by the FOMC, would
not be second-guessed. Posey thought
that condition would cure Mrs. Yellen’s
jitters about elected officials looking over the Fed’s shoulder
when it devises and implements monetary
policy.
He was mistaken.
While Mrs. Yellen made a
throw-away remark that perhaps the
Government Accountability Office could
visit the Fed and read its meeting transcripts, she kept returning to
the same-old Fed boilerplate that
“political” intervention (read: public input
or real accountability) is not welcome at the Federal Reserve.
“An audit is different than
second-guessing policy judgments,” she
stated with a faint hint of contempt.
As if reading a script, Mrs.
Yellen repeated that the Fed’s assigned duty is to “maximize
sustainable employment and price
stability.” She added: “[Keeping]
inflation running well below 2% is our objective.”
Mrs. Bachmann, who also
pressed Mrs. Yellen about her view of an audit, stressed that there
is growing public criticism of the Fed.
She asked how struggling Americans could ever hope to have any
control over their often gloomy economic destinies if
the Fed insists that a real public audit is unacceptable.
Mrs. Yellen only replied that
committee hearings like this one were
pretty much all Americans and Congress
could ever hope to have in terms of influencing or in any way trying
to steer the Fed.
Among other things, Mrs.
Yellen said the Fed has plans to carry
out “proposed rulemaking” to address
highly risky ventures engaged in by banks. This was in response to a
question on why most banks engage in
elaborate investments without providing
a practical benefit to the productive sector. She added that the Fed
would cooperate with the Securities and Exchange Commission, which
she feels has more authority in this respect.
She also declared the dollar
is stable and will always be the world’s
reserve currency. But she made that
statement while largely avoiding the question of what the Fed would
do if the dollar loses its reserve
status amid nations increasingly trading
with other currencies.
She casually dodged the
statement by Representative Brad
Sherman
(D-Calif.) that “we need Jimmy Stewart banking back in the U.S.”
He was referring to the community-friendly banker played by Stewart
in “It’s a Wonderful Life.”
Sherman is concerned that the
Fed is too tolerant of banks that only loan to large interests and
deny loans to small business owners.
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