David R. Henderson  

Auditing the Fed: Reply to Bob Murphy

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In his comment on my previous post about auditing the Fed, Bob Murphy stated that he shared my concerns about the audit movement because he, like me, distrusts Congress. He criticized my view, though, that the Fed is actually more transparent than run-of-the-mill federal bureaucracies, writing:

However, I think you're wrong about the level of secrecy. If Congress asks the head of the EPA to tell them where they are spending billions of dollars, can the head of EPA just say, "No, I feel that telling you that would be counterproductive to our goal of protecting the environment"? Because that's what Bernanke told Congress last December.

In the comment section, I granted that I might have overstated, but now I'm not sure. The specific information that Bernanke has refused to give Congress is which banks have gotten money from the Fed and how much. The amount that AIG receives is readily available, as is the total amount loaned out through various facilities. For the Social Security Administration to have the same amount of accountability that Bob is asking from the Fed, it would have to state who gets social security checks and how much; or ditto with government-provided student loans, government-provided mortgage guarantees, etc. Whether we favor that level of disclosure or not, the point is that they don't disclose that.

Moreover, would an audit even reveal the information Bernanke is refusing to provide? The auditors would have access to it, but would it appear in their report? I don't know.

The Treasury Department issues monthly reports on debt issued, and in which denominations. The Fed, however, reports changes in its balance sheet on a weekly basis. Are there any other federal agencies whose operations you can track anywhere near as closely?

I hasten to add that I never would sign the petition defending the Fed's independence that many of my colleagues at other universities, including my mentor, Harold Demsetz, signed. I favor the Fed's independence. But the economists' statement went much further. The most egregious line:

The democratic legitimacy of the Federal Reserve System is well established by its legal mandate and by the existing appointments process.

I think the Fed is illegitimate.


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CATEGORIES: Monetary Policy



COMMENTS (5 to date)
Bob Murphy writes:

I don't know enough details to answer your questions about Social Security etc. At the very least, nobody gets a billion-dollar check from the SSA (or at least I hope not), so I think that is a big difference.

And I appreciate that you are saying the Fed is illegitimate; I know some of us "purists" have confused your qualified defenses of the Fed, as an endorsement for central banking--when that's not what you (or your frequent co-author Jeff Hummel) are saying.

JPIrving writes:

I see your point. Federal welfare programs are unacceptably opaque but I think there is a difference. Student loans and mortgage guarantees are given to a huge set of people, in a fairly neutral way, according to a formula.

The Fed deals with a much smaller set of actors, and issues its goodies without clearly stated guidelines.

Also, isn't there something to be said for the scale and money creating ability of the Fed? The potential for abuse? Even if we don't know who gets the student loans and mortgages we at least know how much was given out and what the funds were used for.

Superheater writes:

"The Treasury Department issues monthly reports on debt issued, and in which denominations. The Fed, however, reports changes in its balance sheet on a weekly basis. Are there any other federal agencies whose operations you can track anywhere near as closely?"

The frequency of operational assertions of the issuing entity does not affect the need for an audit. The point of the audit its to see if the assertions are fairly stated with regard to the criteria used to develop them. If the assertions aren't fairly stated, it doesn't matter how often they are issued.

Marcus writes:

"I think the Fed is illegitimate."

Can you elaborate on this? In what way do you believe the Fed is illegitimate? Do believe the Congress lacks the Constitutional authority to create the Fed?

Graeme Bird writes:

But the Fed is not independent from the rent-seeking banking industry. We see this pretty clearly. Since the Fed has just been a collaborator in the most massive thieving yet conceived of in world history.

You cannot have a central bank. Its just a tool for the bankers to sponge off everyone else. Thats all its ever been and why it was opposed by people like Andrew Jackson.

"Can you elaborate on this? In what way do you believe the Fed is illegitimate? Do believe the Congress lacks the Constitutional authority to create the Fed?"

Yes of course they lack this authority. Where in the constitution is a central bank provided for? This ought not be a controversial matter. The central bank is an illegal institution in America. The constitution doesn't allow for it at all. It only allows for the minting of gold and silver coins.

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