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Ron Paul's Bill to Audit the Fed Might See Some Action

June 10, 2009 - by Donny Shaw

Updates below.

Rep. Ron Paul [R, TX-14] is known for his tendency to sponsor pretty radical legislation in Congress that get a lot of grassroots support, but never see any legislative activity. Some of his past proposals have included abolishing the minimum wage, ending U.S. involvement in the U.N., abolishing the Fed, repealing all antitrust laws, repealing the Gun-Free School Zones Act of 1990, and much more. Pretty serious stuff.

But a bill he has proposed this session has been steadily gaining traction. Paul’s Federal Reserve Transparency Act of 2009 (H.R. 1207) was introduced on February 26 with only 11 co-sponsors. It now has 190, and the list is strongly bi-partisan. That’s only 28 names short of a majority of the House.

The bill would repeal special audit protections that the Federal Reserve is currently given under U.S. law(31 USC 714 – Sec. 714) and calls for a full Government Accountability Office audit of the central bank to be completed before the end of 2010 and submitted to Congress for review. Yesterday, as Congress Daily ($) reports, House Financial Services Committee Chairman Rep. Barney Frank [D, MA-4] is tentatively supporting the bill and a subcommittee hearing is likely:

House members are stepping up their efforts to bring more transparency to the Federal Reserve over mounting concerns that the central bank has had little accountability in its decision to lend more than $1 trillion to firms in its bid to stabilize the economy.

House Financial Services Chairman Barney Frank on Tuesday favorably noted a measure introduced by Rep. Ron Paul, R-Texas, that would allow GAO audits of the Federal Reserve.

“I would like to take a look at it,” said Frank of Paul’s legislation, which has collected 190 co-sponsors. “Yes, the GAO should be able to audit.”

He added that his primary concern will be maintaining the independence of the Fed while increasing Congress’ ability to oversee the massive transactions it conducts.

“The question is … that we are losing the independence of monetary policy,” he said. “I don’t think we are. But I think maybe we need to put some safeguards on it.”

House Financial Services Domestic Monetary Policy Subcommittee Chairman Melvin Watt, D-N.C., is expected to hold a hearing on the issue, said Frank.

For months, the bill has been at the center of a grassroots “audit the Fed” campaign. Stemming mostly from Campaign for Liberty, a libertarian group that grew out of Paul’s 2008 presidential campaign, rallies and national call in days have been taking place regularly.

A few weeks ago, Rep. Alan Grayson [D, FL-8] circulated a “Dear Colleague” letter around Capitol Hill in order to round up more Democratic support for Paul’s bill. He argues that Fed transparency is needed so that the country can proceed to have an informed debate on what further economic reforms are needed.

An audit of the Federal Reserve may not be sufficient to control this sprawling system or bring it back into balance, but it is a start. The public has a right to know to whom the US government is lending trillions of dollars. Dancing around this issue with technocratic terms like ‘increasing liquidity’ is preventing a full and long overdue public debate on the role of the Federal Reserve and the influence of private banking interests in the governing of our economy.

I encourage my colleagues to support H.R. 1207, so that we can bring some transparency to our banking system and allow the public to have a real debate over the fundamental direction of our nation’s political economy.

Here are a couple of very related recent news stories:

House committee subpoenas Federal Reserve

The congressional panel investigating what happened to all that bank bailout money has issued a subpoena to the Federal Reserve, asking them to hand over all documents relating to the takeover of Merrill Lynch by the Bank of America.

On January 1, BofA finalized its purchase of Merrill Lynch for just over $29.1 billion. That made the bank eligible for an additional $20 billion in federal rescue money, bringing BofA’s total to some $45 billion. Now, Reps. Dennis Kucinich (D-OH) and Edolphus Towns (D-NY) want to know exactly what the banks and the Federal Reserve agreed to when they arranged the deal last year.
Fed Intends to Hire Lobbyist in Campaign to Buttress Its Image

The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power over the U.S. financial system, people familiar with the matter said.

Linda Robertson currently handles government, community and public affairs at Johns Hopkins University in Baltimore, and headed the Washington lobbying office of Enron Corp., the energy trading company that collapsed in 2002 after an accounting scandal. She was also an adviser to all three of the Clinton administration’s Treasury secretaries.

Robertson would help the Fed manage relations with lawmakers seeking greater oversight of a central bank that has used emergency powers to prevent Wall Street’s demise. While she wasn’t tied to Enron’s fraud, her association with the firm may raise questions, analysts said.

UPDATE: Two things to add. First, the bill is now up to 207 co-sponsors. Seventeen were added in the last two days alone, including House Minority Leader Rep. John Boehner [R, OH-8]. It’s now just 11 co-sponsors short of having a majority of the House signed on.

The second things is that Grant’s Interest Rate Observer editor Jim Grant went on CNBC yesterday and said that if the Fed gets audited, it’s likely that it will be found insolvent:

“If the Fed examiners were set upon the Fed’s own documents — unlabeled documents — to pass judgment on the Fed’s capacity to survive the difficulties it faces in credit, it would shut this institution down.”
“The Fed is undercapitalized in the same way that Citicorp is undercapitalized.”

UPDATE 2: It’s now up to 213 co-sponsors (Prison Planet).

UPDATE 3: The bill has officially reached (and surpassed) majority co-sponsorship status, a just-issued press release from Ron Paul reports:

Audit the Fed Bill Reaches Crucial Benchmark

Washington, D.C. – Congressman Ron Paul’s Federal Reserve Transparency Act, HR 1207, has reached and surpassed the level of 218 cosponsors in the House of Representatives, which means it is now cosponsored by a majority of the members.

The 218th cosponsor was Dennis Kucinich (OH-10), and the bill has since received its 222nd cosponsor.

“The tremendous grass-roots and bipartisan support in Congress for HR 1207 is an indicator of how mainstream America is fed up with Fed secrecy,” said Congressman Paul. “I look forward to this issue receiving greater public exposure.”

Hearings on Federal Reserve transparency are expected within the next month, as part of the Financial Services Committee’s series of hearings on regulatory reform.
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