Auditing The Fed

By Kleinheider Posted on July 15, 2009 at 9:02 am

It’s not just for crackpots anymore:

For more than 20 years, Ron Paul, the Texan Republican, has been trying to pass a bill that would audit the Fed’s monetary policy decisions. He says US citizens need to know more about the inner workings of the organisation. But he has had little support.

However, in the past 12 months the possibility of more oversight of the Fed has dramatically increased. No longer confined to conspiracy theorists — or the small libertarian wing of Mr Paul — it is now the view of mainstream politicians. A majority in the House of Representatives and many in the Senate have decided the Fed needs a tighter leash. “We do not want to politicise our central bank but perhaps they are politicising themselves,” says Richard Shelby, senior Republican on the Senate Banking Committee.

Majority opinion has coalesced around more oversight because of a coincidence of economic and political decisions in the Fed and the Treasury. Defenders of free-market capitalism worry about the actions of Ben Bernanke, Fed chairman, who is alleged to have coerced Bank of America into completing its acquisition of Merrill Lynch in spite of mounting losses.

There are opponents to the unconventional monetary policy moves from the Fed, which has vastly increased its own balance sheet and bought mortgage-related securities and Treasury paper in an attempt to restart the flow of credit.

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