Three-Quarters of Congressmen Support Auditing the Federal Reserve, so Why Isn't It Law?

You would think that a bill supported by nearly three-quarters of the legislature should be a breeze to become law. Not so in today's House of Representatives. The legislative system has become so convoluted and corrupted that not even the legislators know what is in the bills, where the bills are being written, or what bills are pending. Given the current system, it should come as no surprise that a bill which would allow the Congress to audit the Federal Reserve should be stalled in a committee and will soon die.

H.R. 1207, the Federal Reserve Transparency Act of 2009, was introduced in February of 2009 by Rep. Ron Paul (R-TX) and has gained an astonishing 320 cosponsors, which represents just over 73% of the 435 members of the House of Representatives -- a number sufficient to surpass even a presidential veto. The bill is atypical of most congressional legislation in that it is just three pages with a single goal, devoid of pork, side projects, or other unsavory trappings of the legislative process. The bill simply requires the Board of Governors of the Federal Reserve to submit a full audit of their activities to Congress before the end of 2010. This is in stark contrast to the very limited audit powers that the General Accounting Office (GAO) has currently over the Federal Reserve. Knowing the simplicity and the obvious support the bill has, it should be a breeze to zip through Congress -- but Congress simply no longer functions.

H.R. 1207 has been assigned to the Subcommittee on House Financial Services -- the same committee that brought us the banking disaster which nearly crashed the economy in 2008. Barney Frank (D-MA), as the chair of the committee, has simply decided to ignore consideration of the bill and let it die by inactivity, a.k.a. pigeonholing. Since Frank sets the schedule for the committee, he has the power to exercise a veto on the proposed law -- a veto that cannot be overridden, bypassed, or otherwise circumvented. Essentially, Frank, like all committee chairs, can decide on his own to kill bills referred to his committee that he doesn't like -- and he clearly dislikes H.R. 1207. Since this is a familiar game played in Washington by both parties with dozens of bills, the question might be, "Why should we care about this specific bill so much?"

Thomas Jefferson was clear on a number of occasions about what he thought of the concept of a private bank issuing the currency of the land. As president, in an 1802 letter to Albert Gallatin, the longest-serving Secretary of the treasury, Jefferson said,

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Unfortunately, Jefferson's warning has been ignored, and the Federal Reserve, which is essentially a consortium of private banks with minimal government oversight, has ironclad control over the currency of the USA. The actual printing of paper and metal currency is still done by the U.S. Mint; however, the actual notes and coins in circulation represent only a fraction of the total money circulating in the U.S. economy. Despite having less than a trillion dollars in actual notes by value, the amount of money circulating in the marketplace daily is valued in the tens of trillions of dollars. Printing money is almost old-fashioned; it is all electronic now, just as people pay with debit cards, do electronic funds transfers, and cart around checks with numbers on them that can be paid only electronically. The Federal Reserve doesn't need to print more money; they can create it with a keystroke in a computer.

It seems unconscionable that the people of the United States would have no right to question the Federal Reserve. Nor does it seem rational that our representatives are severely limited in their ability to audit the activities of the Federal Reserve. The GAO has only very limited power to look into the dealings at the Fed, and they can't do much of anything about something they disapprove of. From the Federal Reserve System's founding under the Woodrow Wilson administration in 1913, the explanation of financial independence has been used to justify the Fed's wide-reaching, unchecked power. From the Federal Reserve's own FAQ page, we note:

As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government.

Our representatives in Congress have no power to alter the interest rate, alter the circulation of currency, or change the amount that can be loaned to a local bank. It is all the purview of the Federal Reserve, decided by its Board of Governors. The stereotypical image of a few people sitting in a room deciding the fate of the economic world is fact in the Federal Reserve. Congress has no power to dismiss a member of the Federal Reserve Board, revert a bad decision, or apply any other check. The economic lives of the people of the USA are controlled by the Federal Reserve, and there is nothing they can do about it -- no one to vote out and no powers of judicial review. If the Fed decides tomorrow to jack interest rates up to 30%, no one can stop them.

The mere existence of such an all-powerful organization in our government should be disturbing to any freedom-loving person. We debate over politicians and tax rates until the moon turns blue, yet this one organization has omnipotent control over the economy, and yet it is far from transparent. It is essential to at least allow the government to audit the Federal Reserve. It is essential to the free market and the survival of the republic that one agency, and its bureaucrats, not be allowed to have unchecked and unsupervised control over the economy. In sworn testimony before Congress, Thomas E. Woods, Jr. asks, "Opponents of HR 1207 have sometimes tried to claim that the Fed is already adequately audited. If this were true, why is the Fed in panic mode over this bill?"

And he goes on to ask,

[I]f our monetary system were really as strong, robust, and beyond criticism as its cheerleaders claim, why does it need to rely so heavily on public ignorance? How can it be a sound banking system that depends on keeping the public in the dark about the condition of its financial institutions?

Despite the fact that that it seems that nearly three-quarters of the House agrees with him, it looks like the legislation needed to get to the truth will die an untimely death in committee, and once again, the Federal Reserve will have dodged the sword of accountability.