Rand Paul versus Richard Fisher. Who's right?

John Tammy at Forbes asks who is right about the Audit the Fed legislation, Senator Rand Paul or Dallas Federal Reserve President Richard Fisher (SPOILER ALERT: Rand is right):

Fisher abhors the notion of more detailed congressional oversight of the Fed, but then the Constitution is very explicit that Congress is empowered “To coin Money, regulate the Value thereof.” Fisher is no doubt right that Congress is filled with incompetents prone to egregious error, but that’s not the point.  The law is the law.  Also, fairly explicit in Fisher’s question is that the Fed is in fact is staffed by competent types; a rather debatable presumption.  More on the presumed competence of the Fed in a bit.


Transfixed by charts, “output gaps” and “slack/tightness” when it comes to the supply of labor and capacity, most Fed officials think it’s their job to manage economic growth so that we don’t prosper too much and cause the economy to “overheat” on the way to inflation.  Who cares that the only closed economy is the world economy such that U.S. producers regularly access the world’s supply of labor and capacity when they produce? Who cares that thanks to entrepreneurial innovation most of us no longer deal with a live human being when we pump gas, buy airline tickets and go to the bank, thus muting any presumed labor-supply problems?  Who cares that inflation has historically been seen as devaluation of money that always and everywhere slows economic growth, yet per Kohn’s statement most Fed officials think prosperity is inflationary? For its confused views on the nature of inflation alone, the Fed very much needs to be audited.

And then there were the bailouts.  Former Fed Chairman Ben Bernanke gravely told former House Speaker Nancy Pelosi that absent the bailouts of the banks that the U.S. economy would fall into a recession so brutal that would it would take us decades to recover from.  Ok, so Japan and Germany were each reduced to rubble during World War II, even worse both countries lost at least a generation of their best and brightest to a hideous war, but within a few years of the war’s end both were once again listed among the richest and most prosperous nations in the world.  Japan and Germany rebounded fairly quickly from total devastation, but the U.S. economy couldn’t survive the failure of institutions like Citigroup; the latter having been bailed out by the Fed (this factoid came to me directly from a former FOMC official who asked to remain off the record) 5 times over the last 24 years? For the absurd reasoning behind bailouts that greatly weakened an economy reliant on failure (failure is the constant genius behind Silicon Valley’s wealth) and a healthy financial system (government is now the #1 client of finance according to former Morgan Stanley CEO John Mack), the Fed most definitely needs serious oversight. As my upcoming book (Popular Economics) argues with great constancy, a world without failure is a stagnant one.

What about “money printing”? Well, the Fed hasn’t been printing money in pursuing the most adolescent of monetary policies (quantitative easing), but tofoist QE on the economy the Fed has been borrowing enormous sums of money from the banks.  Put more bluntly, the Fed’s QE amounted to it borrowing $4 trillion from banks that it turned around and allocated across the economy.  Precisely because members of the Fed think Ben Bernanke a better allocator of the economy’s resources than you, me, Paul Tudor Jones, and Warren Buffett, the Fed most definitely needs audit-like oversight.


In short, Rand Paul is right that the Fed needs a constant audit.  He may not even know just how right he is on this one.  If we ignore the certain truth that the Fed has never been non-political or independent, we can’t ignore just how dangerous are its doings.

Fisher’s surely right about the incompetence that defines Congress, but what he seems to miss is that it very much extends to our central bank.  Big time.  So while most in Congress are surely clueless about the ongoing economic damage that is the Fed, accountability has to mean something.  Congress must audit the Fed simply because someone somewhere must be on the hook for the Fed’s actions.  Senator Paul is right about the need for a Fed audit, perhaps far more than he realizes.

Read the full thing here. I should say I don't agree with everything Tammy says; in particular, I think he is too dismissive of the Fed's role in the decline of the value of the dollar, but this is still a good read.

If you agree that Rand is right and the Fed is wrong about the Audit the Fed, then make sure you sign Campaign for Liberty's Audit the Fed petition to Congress.

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