Do not trust the Federal Reserve


art by Ellie Stitzer

Luke Chval

The housing market bubble of 2007 was, in small part, the fuel for the Great Recession that malevolently affected millions of people across the United States. It opened the door to widespread criticism of the Federal Reserve, the mysterious government department that sets interest rates and currency, yet is one of the least transparent offices.
Some of the lowest interest rates in more than 50 years caused the housing bubble. The rates have been set by the Federal Reserve since its founding in 1913. Then-Federal Reserve Chairman Alan Greenspan set the plummeting rates that contributed to the recession.

art by Ellie Stitzer
art by Ellie Stitzer
In 2006, when Ben Bernanke replaced Greenspan, the first domino had already been struck. The low interest rates caused the housing bubble, which led to the terrible stock market crash in September 2008. This destructive lapse in judgment by Greenspan proves that it is time for the Federal Reserve to be audited more scrutinously.
Sen. Rand Paul (R-KY) introduced to the Senate the Federal Reserve Transparency Act, colloquially known as ‘Audit the Fed,’ which intends to widen the scope of congressional audits already taking place on the Federal Reserve. Janet Yellen, the current Federal Reserve Chair, has claimed central banks, such as the Reserve, perform at their best under independence, free from partisanship and political agendas.
It is true that what Yellen described as “short-term political pressures” could negatively impact the Federal Reserve; however, after the incident caused by Greenspan, it is apparent that the Reserve is not always competent at keeping interest rates in check.
The online publication of the audit, which already happens, would allow independent economists to review the work of the Reserve so those enlightened in economics would be able to reveal the consequences of the Federal Reserve’s decisions on monetary policy. These potential viewpoints could also keep the less knowledgeable Congress from intervening detrimentally out of ignorance.
Opponents of the bill stake a claim that Congress having power over the Federal Reserve would harm the economy. However, the bill does not place Congress as the decision-makers of monetary policy, simply as an overseer much like the President and his Cabinet members, each of which specialize in a category in which they may be more informed than the President.
The point is valid; however, it is ridiculous to believe that government should be less transparent to avoid problems in other parts of government. Greenspan’s error of utmost significance shows that it is time for the Federal Reserve to come out of the shadows that protect it from public scrutiny.
During the Reserve’s audit by the Government Accountability Office, laws protected a few portions of the Federal Reserve’s operations. Paul’s bill would provide for no exemptions of any operations. One of the portions currently exempt is decision-making information on monetary policy decisions, which shows how the interest rates and inflation are decided.
Since the founding of the Federal Reserve, it has snaked more power away from Congress, even though Article 1 Section VIII of the U.S. Constitution states that Congress has the power “To coin money, regulate the value thereof,” meaning Yellen’s objections over independence are unfounded even in this nation’s supreme law.
Yellen’s arrogant self-confidence about her perception of the omniscient ability of the Federal Reserve is alarming. Although the department may be filled with some of the best economic minds of the world, the key mistakes in the past indicate that it is time for Congress to retake control, and provide the people with insight into their own economy. Support of Audit the Fed is support of the democratic principle of open government.
By Luke Chval