House Votes to Audit Federal Reserve… Senate Leader Fights Transparency

Money is supposed to be the medium which carries information through the nervous system of the economy. Prices are supposed to signal us to produce what is in demand, and reduce consumption of what is in short supply. But prices become meaningless when the monetary unit changes in value.

An economy cannot function once a central bank inflates and/or deflates so much that there is not enough information for businesses and individuals to make their economic decisions. This has been demonstrated numerous times in the 20th and 21st centuries, from the German hyperinflation of the 1920s, to America’s Great Depression, to the Zimbabwe hyperinflation.

On July 25th the U.S. House of Representatives passed the Federal Reserve Transparency Act (H.R. 459), 327-98. The bill would allow for an independent and nonpartisan audit of the Federal Reserve for the first time in the 100-year history of the engine of money supply growth. This would be the first time that US taxpayers would be allowed to know exactly who benefited from Federal Reserve bailouts. It would also be the first time since the 2008 crash that investors and businessmen would be able to accurately predict the current and future money supply… information critical to a functional economy.

Transparency is an idea whose time has come. The bill passed the House with the vote of all but one Republican (yes, he was from New York) and 89 Democrats. Eight Democrats who had co-sponsored the bill turned at the last second and voted against it.

Senator Harry Reid was vocally for a Federal Reserve audit in 1995 and again in 2010. Now that the bill has passed, he has joined the high-ranking House Democrats in backstabbing the Senate version, swearing never to let it come to a vote. Presumably he has received thirty pieces of… well, probably not silver.

Federal Reserve transparency does have friends in the Senate. Sen. Rand Paul, son of the House bill’s principal supporter, is a co-sponsor. So is Senator Jim DeMint of South Carolina, who said of the House passage:

"At the same time that the Federal Reserve has played an unprecedented role in our economy, it has also shown an unprecedented resistance to transparency," Sen. DeMint said. "The Fed should no longer be allowed to conceal the full story on the depth of its interventions surrounding the financial crisis…"

But just as in the House, it isn’t only conservatives who are demanding financial transparency. Senator Bernie Sanders supported Ron Paul’s push for an audit of the Federal Reserve last year. When the GAO released the figures from its partial audit, Sanders commented on his Senate website:

"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world. This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else.”

Bernie Sanders is not an economic genius. However, even he can see that allowing the large financial companies access to unlimited bailout money with no accountability is a guarantee of moral hazard and bad investments.

Federal Reserve secrecy is justified with vague handwaving about “saving the financial system”. But corporations that lose money shouldn’t be “saved”. We have this thing called “bankruptcy” that transfers assets away from companies that lose money to managers that know what they’re doing, and it works just fine.

If GM hadn’t been “bailed out”, would the GM factories have disappeared? Of course not. Without subsidies, the GM factories would have been sold off to solvent firms. We would now have ten small profitable car companies instead of one big loser… and no taxpayer would have had to pay for it. It’s called “capitalism”, and it’s an idea that works everywhere from Shanghai to Singapore, from Botswana to the Czech Republic.

Let’s try it here. Call your US Senators and demand that they allow a vote on S.202, the Federal Reserve Transparency Act of 2011. Transparency is the first step toward national solvency.

Bill Walker is a Republican candidate for Sullivan County State Rep. District 1 (Cornish, Grantham, Plainfield, and Springfield).