Audit the Federal Reserve

Pavel+Ko+via+Flickr

Pavel Ko via Flickr

By ROSANNA CORRADO

Pavel Ko via Flickr
Pavel Ko via Flickr

The Federal Reserve: an official name that conjures up an image of a large, official government bank. However, what most people don’t know is that this quasi-government agency is just about as federal as Federal Express Shipping. Owned by private banks that hold stock in the Central Bank, the Federal Reserve is independent of the legislative and executive branch. The President and other government authority figures cannot regulate their actions and, thus, there emerges the issue of accountability and transparency. As a banking entity that manipulates the money supply, inflation and the unemployment rate, the Federal Reserve (Fed) holds many securities and assets. The American people have a right to know the nature of these securities and assets—the Federal Reserve should be more transparent and therefore, audited.

In 2012, former Texas Representative Ron Paul reintroduced a bill to audit the Federal Reserve and rallied college students to support the movement. Since his retirement and the death of his bill in the Senate, the movement has lost momentum but is more relevant than ever. While former Fed Chairman Ben Bernanke was resistant to making the Federal Reserve more transparent, his successor has the power to do otherwise. For the first time in history, the Federal Reserve has a chairwoman; on Feb. 3, Janet Yellen began her reign, and while she has alluded to an interest in increased transparency, she has not been forthcoming or enthusiastic about conducting a thorough Federal Reserve audit.

While the Government Accountability Office (GAO) supposedly conducts meticulous reviews and the Federal Reserve Balance Sheet is published weekly, the most important aspects of the Fed are still shrouded in secrecy. As of now, the GAO cannot review transactions that the Fed makes with foreign governments and central banks. We also do not have access to the transactions made by the Fed’s Open Market Committee. This committee makes crucial decisions regarding the growth of America’s money supply and manipulates the interest rates of U.S. bonds. Thus, because of the weight their actions carry, their actions must be reviewed and regulated. Lastly, a complete audit would shed light on how much the Fed lends through their “discount window” and to which banks they are lending. The last is extremely important because throughout the 2007-2009 financial crisis, the “discount window” was infamous for providing obscene amounts of short-term liquidity to numerous “too big to fail” banks.

So why should college students like us care if the Federal Reserve is audited? Simply put, the Federal Reserve makes important economic decisions that affect everyone on a daily basis. For example, through the Fed’s open market operations, in which interest rates and the money supply are manipulated, inflation is created. Over the course of 100 years of manipulation, the Fed has managed to debase the purchasing power of the U.S. dollar by 95 percent. For college students, this means having to deal with a currency that is steadily being debased. Thus, we will be pushed into an increasingly rough economic climate as the value and purchasing power of wages decrease and the prices of goods and services continue to increase.

If the public, Congress and outside financial institutions had access to these numbers and data, then we could better understand the instruments and methods the Federal Reserve is using to manipulate something as important as the money supply. Increased transparency would give citizens increased knowledge of the inner workings of our financial system and allow government agencies to better regulate the Fed’s secretive actions and methods.

Some argue that increased transparency could divert legislatures’ attention from the Fed’s long-term goals and instead focus on the instruments the Fed deploys in an attempt to meet these goals. However, increased transparency would give regulatory agencies and the legislatures insight into the inner workings and operations of a virtually unaccountable, behemoth private bank. In today’s tumultuous financial world, where the global system is hanging precariously on the brink of disaster, the United States needs to lead by example and put an end to the mysterious dealings of our Central Bank. If we have access to this data, we can better monitor the critical actions of the Fed and better ensure that their actions are justified and best serve the interests of the country as a whole. As college students getting ready to become financially independent adults, the decisions of the Federal Reserve affect the economic climate and job market we are entering into. Let’s hold them accountable and audit them to ensure that the decisions of the nation’s Central Bank are the right ones.