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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

August 2, 2012 at 9:50 AM

Audit the Fed

The U.S. House passed a bill last month to require an audit of the Federal Reserve. You don’t have to be part of the black helicopter tin-foil-hat gang to think this is a good idea. The vote was 327 to 98, with 89 Democrats joining the Republican majority.

Unfortunately, the bill stands little chance in the Senate, despite the support of leftie Sen. Bernie Sanders of Vermont. In 2010, thanks to a Sanders amendment, the Government Accountability Office conducted the first top-to-bottom audit of the central bank. When the report came out last year, Sanders said, “As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world. This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”

It’s important that the central bank maintain its independence to set monetary policy free from political interference. But the Fed didn’t cover itself with glory by enabling the housing bubble and looking the other way as the banksters set the economic depth charge from hell for the economy.

Under Chairman Ben Bernanke, the central bank did indeed avoid the mistakes it made in the 1930s, which were identified by Milton Friedman and Anna Schwartz. But it came at a huge cost. Much treasure and potentially the future living standards of Americans was allocated to save the big banks, all done without democratic process, raising questions that go far beyond the Ron Paul camp.

Congress’ hands aren’t clean, either: The mild Dodd-Frank “reform” did little to assure future safety of the banks, much less clean up and regulate the powerful shadow banking system and complex derivatives. Now it refuses to engage in the stimulus necessary to get the economy growing again, at a time when investors are clamoring for our debt and at historically low interest rates. But this bill is worth passage: Audit the Fed.

And Don’t Miss: It really is the jobs || Clyde Prestowitz/Foreign Policy

Today’s Econ Haiku:

Enjoy our state parks

We’ll run them “like a business”

Only green buys green

Comments | More in Federal Reserve

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