WASHINGTON – The House voted Wednesday to give Congress greater scrutiny over the monetary policy decisions of the Federal Reserve, approving legislation sponsored by longtime Fed nemesis Rep. Ron Paul.
The 76-year-old Texas Republican, who is retiring at end of this session, has made a career of trying to do away with the Fed, which he blames for the growth of government and the rising federal deficit. Failing to accomplish that, he has pushed to make the independent central bank's operations more transparent.
"I know when people talk about independence and having this privacy of the central bank, it means they want secrecy, and secrecy is not good," Paul said.
"Congress has rightly insulated the Fed from short-term political pressures," Rep. Steny Hoyer of Maryland, the House's second-ranked Democrat, said in opposing the legislation. "This bill increases the likelihood that the Fed will make decisions based on political rather than economic considerations, and that is not a recipe for sound monetary policy."
The legislation, which passed 327-98, would require the Government Accountability Office, the investigative arm of Congress, to carry out comprehensive audits of the Fed's Board of Governors and 12 regional banks.
The Fed is subject to annual financial statement audits and the Dodd-Frank Act passed after the 2008 Wall Street meltdown does have provisions, backed by Paul, for auditing certain Fed activities. But the new legislation goes further in requiring inspections of the bank's monetary policy decision-making, including its agreements with foreign central banks and Foreign Open Market Committee directives.
As of July 18, the Fed's balance sheet stood at $2.86 trillion. Of that, $1.65 trillion is Treasury securities and $863 billion is mortgage-backed securities.
Fed Chairman Ben Bernanke, in an exchange with Paul last week at a House Financial Services Committee hearing, objected to the legislation, saying it threatens the Fed's independence because it would allow Congress to request documents supporting changes in interest rates. He said that could make some Fed policymakers hesitant to support changes and "that is very concerning."
Paul rejected that argument, asking when "did we get into a situation where Congress has nothing to say about trillions and trillions of dollars?"
Paul, a libertarian and three-time president for Congress, opened that hearing by saying the "loose monetary policy" of the Fed was largely responsible for destroying the nation's work ethic by creating a dependence on government largesse, allowing the government to engage in wars around the world and subjecting Americans to a mammoth bureaucracy that grinds away at personal rights.
"If Congress were really serious about limiting the size of government it would eliminate the most important enabler of government profligacy by ending the Fed," he said in a statement.
The bill faces an uncertain future in the Senate. The sponsor of the Senate's companion bill is Paul's son, tea party favorite Sen. Rand Paul, R-Ky.