Senate rejects Rand Paul’s ‘Audit the Fed’ legislation … The Senate on Tuesday blocked legislation calling for tougher audits of the Federal Reserve, rebuffing an attempt by Republican presidential candidate Rand Paul to give lawmakers greater oversight of the central bank’s moves on interest rates. The 53-44 vote fell short of the threshold to overcome a Democratic filibuster. – AP
Dominant Social Theme: Dangerous legislation deserves to be blocked.
Free-Market Analysis: Audit the Fed, in which so many had invested so much hope, is no more, at least for now.
Rand Paul and Ron Paul, the dynamic duo of anti-Fed forces, invested a lot of time and money trying to get that legislation passed. But even if it reached Barack Obama’s desk, it would have been vetoed.
And thus it was not destined to be. But the high-profile bill probably informed or reminded millions that the system was not a very good one and that there were better alternatives.
The measure call[ed] for the Government Accountability Office, a watchdog agency for Congress, to scrutinize the Fed’s monetary policy and offer recommendations to lawmakers on ways to address any perceived problems.
Congress, the White House and Treasury officials have traditionally been careful to steer clear of questioning the Fed’s independence to set policy, and current law blocks the GAO from reviewing the way the agency conducts monetary policy or reviewing internal deliberations.
Rand Paul doesn’t see it that way. “Nowhere else but in Washington, D.C., would you find an institution with so much unchecked power,” Paul was quoted as saying.
Of course, the Fed pushed back against the legislation. Fed Chairman Janet Yellen penned a letter to senators before the vote claiming that the legislation would deprive the Fed of necessary independence.
She also noted that passing the legislation might generate an inflation scare and cause interest rates to rise.
One wonders if this was a subdued threat. Additional rate increases, especially happening rapidly, could tip a delicate economy back into the red, assuming it is in “recovery” to begin with.
The article later gives critics more sustained ink with the statement that some believe the Fed has suppressed rates for years, thus fueling booms and then busts.
The Democratic senator and presidential candidate from Vermont, Bernie Sanders, supported the legislation but for different reasons.
Sanders wants Congress to have more control over the Fed so that its policies are tailored to supporting the working classes.
“Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages,” he wrote in a recent New York Times editorial.
The Democrats and President Barack Obama issued statements agreeing with Janet Yellen that an independent Fed was better than one subject to the vagaries of political influence.
But lost in the argumentation was that central banks are involved in price fixing – and this means the price and volume of credit is being manipulated.
One can suggest moving rates up or down depending on one’s political agenda but the results will be an economy distorted beyond recognition and subject to ruinous monetary debasement.
The only way to remove the damage the Fed does is to remove the Fed. But the Fed by now commands such a powerful constituency that it is very difficult to imagine that it will be damaged or shut down via a political process.
Conclusion: As we often point out, empires rarely if ever retrace their tracks. The Fed will continue to create damage until there is basically nothing left to damage. Plan accordingly.