Audit the Fed: You Know Your Ideas Are Gaining Traction When…

TND Guest Contributor: Paul-Martin Foss |

When your opponents have to resort to creating straw men and telling lies, you know that your ideas are gaining momentum. This week saw two awful articles written by opponents ofAudit the Fed, complete with factual errors and straw men galore. The defenders of the status quo are feeling the heat, and they’re pulling out all the stops to keep Audit the Fed from becoming the law of the land.

The first article was written by former New Hampshire Senator Judd Gregg, who is now a senior advisor to the Securities Industry and Financial Markets Association and an advisor toGoldman Sachs. As a water carrier for Wall Street, it’s not too surprising to see Sen. Gregg opposing greater transparency for the Federal Reserve and its dealings with Wall Street banks. Remember that Sen. Gregg was one of the staunchest proponents of the TARP bank bailout of 2008.

Sen. Gregg stumbled right out of the block by claiming that Ron Paul’s 2009 book End the Fed was not a bestseller. It actually debuted at #6 on the New York Times Hardcover Nonfiction Best Sellers List on October 4, 2009, and stayed on the list for four weeks. With that sales record, it’s obvious that the idea of ending the Fed is not one that is “scorned by so many people”, unless the people to whom the Senator is referring are his cronies on Wall Street who benefit from all the money they’ve received from the Fed.

Then Sen. Gregg proceeded with the usual contradictory line of argument that we see so much from opponents of Federal Reserve transparency. He claimed at one point that Senator Rand Paul wants to “become the Fed” while simultaneously claiming that Sen. Paul “like his father, probably does not believe that there should be a Fed at all.” So which is it, Sen. Gregg? Does he want to be the Fed or end the Fed? The two concepts are mutually exclusive.

Being the Fed means that Congress would be in charge of monetary policy, which would require some sort of legislation to set a monetary policy mandate, something which Sen. Paul has not introduced. Ending the Fed would mean that no one is in charge of monetary policy, as the Fed’s mandates do not automatically revert to Treasury or Congress, again unless some sort of legislation to mandate monetary policy is introduced, which is again something which Sen. Paul has not done.

Rand Paul and the members of Congress who have signed on to his bill want a say in running the printing presses that determine the value of the currency.

Think Argentina.

When elected officials get access to the printing of money, really, really bad things happen to economies, and to the nations that cede them such power.

Without the flexibility and integrity inherent in having an independent and strong central bank to determine the amount of funds in a system, a nation can become victim to the stagnation of a fixed money supply or the profligates of the political class.

Either way, bad times follow when those who are working and trying to make ends meet do not have a viable or reliable dollar to depend upon for their savings and their income.

Can Sen. Gregg point to any legislation that has been introduced by proponents of auditing the Fed that would place Congress in control of monetary policy? Any legislation that would give Congress the power to print money, engage in open market operations, etc.? Of course not, because it doesn’t exist. Proponents of Audit the Fed are not interested in setting monetary policy. Audit the Fed is a bill to make the Fed more transparent by gaining insights into what exactly the Fed is doing. Congress can follow up after the audit if they think the audit shows that something is amiss, but the audit itself has no preordained conclusions.

Further, it’s not just allowing elected officials the power to create money that results in bad things, it’s allowing any government officials at all the power to create money. Federal Reserve officials are, after all, part of the political class too. Is Sen. Gregg unaware that the unelected Federal Reserve has presided over a 96% decline in the dollar’s purchasing power since 1913? Compared with the rest of American history when there was no Federal Reserve, that is an abysmal record. So much for a viable and reliable dollar.

The Federal Reserve is also hardly a beacon of integrity. It has been involved in scandals for decades and, as yesterday’s questioning of Chairman Yellen demonstrated, continues to duck questions about the questionable behavior of some of its officials.

Finally, if Sen. Gregg believes that a central bank is needed to “determine the amount of funds in the system”, or that the lack of a central bank would lead to a fixed money supply, then he knows less about economics than those whose economic knowledge he denigrates.

The Wall Street Journal published an article similar to Sen. Gregg’s on Tuesday, authored by Ernie Patrikis, a former New York Fed official who now works for a Wall Street law firm. He also pushed the same straw man as Sen. Gregg: “What the legislators pushing this bill are actually after is influence over monetary policy.” And his defense of the Fed involve the same tired arguments that have been repeated over and over.

The financial statements of the Federal Reserve and the 12 district banks are already independently audited, and the auditor’s findings are included in the Fed’s annual report.

Yes, we know that. But it’s one thing to know how much money the Fed has on its balance sheet and another thing altogether to find out where that money is going and what it’s buying. Nobody sits up and pays attention to the H.4.1 release, no matter how bloated the balance sheet gets, because data releases like that are sterile and uninformative. But when Congress mandated the release of detailed transaction data, and when the Fed was forced to submit to a FOIA request, then people could get incensed when they began to find out details of the well-connected Wall Street figures and foreign banks the Fed is bailing out.

The Fed chair and governors also appear periodically before congressional committees to answer questions about monetary policy and other economic matters. By law, the Federal Reserve Board delivers a report on monetary policy to Congress twice a year. If legislators want more Fed transparency, these hearings are the place to obtain it.

Really? Does Patrikis actually believe that five minutes of question time twice a year (if you’re lucky to be high enough on the list of questioners) is anywhere near enough to express concern about or to get detailed answers about monetary policy? To call that transparency is laughable. Those hearings are for the Fed Chairman to pay lip service to transparency and for Congressmen to pay lip service to oversight, but that’s about it.

It is unclear what benefit a “full audit” would provide. But there are clear risks. Opponents of the bills, including current Fed Chair Janet Yellen, maintain that such legislation would allow Congress to put short-term political pressures on the Federal Reserve.

There is nothing in the bill that would or could put any political pressure on the Fed. That is a completely fictional bogeyman. Congress can put political pressure on the Fed at any time. Committees can subpoena Fed officials and demand data at will, they can call multiple hearings to harass Fed policymakers, they can introduce legislation to mandate a certain rate of growth in the money supply, etc. That is political pressure. An audit of the Fed’s actions byGAO is not.

No matter how many times the proponents of Audit the Fed point out that nothing in the very plain and easy to understand language of the bill would get Congress involved in monetary policy, no matter how many times former GAO officials state that nothing in Audit the Fed would put pressure on the Fed, the opponents of Federal Reserve transparency continue to argue the opposite.

Straw man arguments like this are incredibly aggravating because those who create the straw men know that they’re untrue yet propound them anyway. It’s hard to take seriously the arguments of people like Sen. Gregg and Mr. Patrikis who peddle such obvious untruths and argue in such a dishonest and deceitful manner. But even if Sen. Gregg and Mr. Patrikis don’t want to engage the substantive arguments in favor of auditing the Fed, those of us who support bringing the Fed out of the shadows have to continue engaging our opponents, no matter how specious their arguments might be. If we want to win the battle for Federal Reserve transparency, we can do no less.

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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.”