Audits are a fundamental tool to hold government and quasi-government entities accountable.
Without thorough examination by independent parties, citizens would have to rely on the agency’s word that its operations and accounting are above-board.
When it comes to the activities of the Federal Reserve, the nation’s central bank, verbal assurances just aren’t good enough.
Thankfully, momentum is building for legislation to enable the General Accountability Office to audit the Fed, something that has not happened in the 100 years since it was created to set monetary policy.
“Any agency or bureau of government that is 100 years old probably needs a good checkup, especially one as powerful as yours,” Rep. Jeb Hensarling, R-Texas, the chairman of the House Financial Services Committee, told Fed Chairwoman Janet Yellen in recent congressional hearings.
The bipartisan Federal Reserve Transparency Act passed the House late last year. A similar bill cosponsored by Sen. Rand Paul is making its way through the Senate. The Kentucky Republican’s father, former Rep. Ron Paul of Texas, a longtime Federal Reserve critic, tried unsuccessfully to get similar bills passed.
Though the proposed legislation provides no specifics about the scope of the audit, there already is substantial pushback from former and current Fed officials, who are used to doing most of their work in secret. Officials fear, for example, that their closed-door Federal Open Market Committee will be subject to “second guessing.” Transcripts of deliberations are released five years after the fact to shield members from political blowback arising from policy decisions.
When government is nervous about openness, it should make everybody nervous.
We hardly would advocate micromanaging Fed operations, but there should be significant oversight. Deciding how much money enters the economy, and under what terms, are critical Fed responsibilities that should be better monitored.
“Independence and accountability are not mutually exclusive concepts,” Hensarling said.
Conservatives particularly are interested in the Fed because central banks with fiat money – currency not backed by gold reserves – enable governments to run large deficits. Critics also are interested in more closely following monetary policies, which, when poorly executed, can lead to market distortions such as the U.S. housing bubble that occurred prior to the 2007 recession.
We need increased transparency at the Federal Reserve. Considering its massive influence over the U.S. economy, its bureaucratic movements cry out for consistent oversight. That’s something all citizens should approve of, regardless of where they fall on the political spectrum.
Government simply can’t be trusted to watch itself, and neither should its biggest bank.