Seeing Through the Federal Reserve

[bio] Syndicate content

Obama promised a transparent administration. But his incredible policy of bailouts and nationalizations hides behind a secretive agency.  

The Federal Reserve, a central bank, runs monetary policy, sets interest rates, pumps liquidity into insolvent banks, buys and sells government securities, issues paper currency and controls the money supply. Since its founding in 1914, this very important banking monopoly has enjoyed unparalleled secrecy.

Unlike even the CIA, the Fed doesn't answer to a congressional committee, has no budget, and is never meaningfully audited. It meets behind closed doors. Transcripts are made public only after five years.

The Fed allegedly needs independence from politics. But as historian and economist Murray Rothbard wrote in The Case Against the Fed (1994): 

"Government can only be accountable to the public and to its representatives in the legislature. . . . '[I]ndependent of politics' . . . can only mean that that sphere of government becomes an absolute self-perpetuating oligarchy, accountable to no one."

The big banks favor Fed secrecy. "[C]onsider any other private industry," Rothbard writes. "Wouldn't it be just a tad suspicious if, say, the insurance industry demanded unchecked power for their state regulators. . . ? [S]houldn't we be very suspicious of the oddly cozy relationship between the banks and the Federal Reserve?" 

Fed secrecy is a bigger danger than ever. "[T]he administration is making trillion dollar decisions relying on the Federal Reserve and a small Wall Street club of advisors, with no transparency or public accountability," writes the American Prospect's Robert Kuttner. 

Kuttner writes that the Fed has become the administration's "unlegislated, all-purpose slush fund. Because the Fed's operations are largely beyond the reach of Congressional appropriations or scrutiny, the Fed can do whatever it wishes with its money. The Geithner plan was negotiated behind closed doors, the main players being the Fed, the FDIC, the Treasury, and power-brokers on Wall Street. What we have is something perilously close to a dictatorship of the Fed and the Treasury, acting in the interests of Wall Street." 

In the past, those who criticized Fed secrecy were dismissed. Today the criticism is mainstream. 

As of this writing, Ron Paul's (R-TX) proposed bill "The Federal Reserve Transparency Act of 2009" (HR 1207) has more than 60 cosponsors from both parties. Bernie Sanders (I-VT) has introduced identical legislation (S604) in the Senate. 

Democracy should be open - not obscured in mystery. Now is the time to shine some light on this agency. 



How Much Transparency?

Opening up the Fed to make greater public disclosure seems like a good idea.  But is it important for the Fed to be able to operate independently of the prevailing political winds and the latest public scandals?

It's well and good to suggest that the Fed has failed to uphold the public interest these past few years, but does that mean that it should shape its actions according to the whims of the editiorial pages, TV commentators, and blogs?  If the actions of the Fed over the past five years had been immediately transparent, how would that have helped prevent this crisis?

The Fed's actions may not be immediately disclosed, but they are disclosed, aren't they? Is there no validity to the claim that too much transparency too soon would exaggerate instability in the market? How would immediate transparency improve Fed Lending programs? Or would it make important macroeconomic decisions too susceptible to political (and not economic) interests?