Do Audit the Fed Critics Know What They’re Criticizing?

Much of the criticisms of our effort to Audit the Fed is not actually based in reality. Relying on Fed propaganda, critics are doing nothing more than setting up straw men and boldly knocking them back down.

I’d like to point to one today in particular, so full of misinformation, it’s not clear the author actually knows what the Audit the Fed bill would do.

In an article titled, “Auditing the Federal Reserve is a frightening idea. Here’s why,” Sheila Tschinkel, visiting faculty at Emory University, begins by discussing Fed “independence” (re: secrecy) — a legal fiction that has been so thoroughly debunked elsewhere as to not even make it worth rehashing here.

She then continues, however, saying, “The demand for an audit rests on the notion that there is a simple way to carry out monetary policy, as if there was one rule to follow.”

Actually, no, it doesn’t. You can read H.R. 24, and S. 264 until your eyes give out, and you’ll never find a mention of a “monetary policy rule.” I’m afraid Ms. Tschinkel is confusing The Federal Reserve Transparency Act, or, Audit the Fed as it’s commonly known, with a confusingly named bill out of the House Financial Services Committee, The Federal Reserve Accountability and Transparency Act, or the “FRAT” Act. Only the FRAT Act mentions monetary policy rules, and the FRAT Act is NOT Audit the Fed.

After discussing the Fed’s “responsive and flexible” actions in 2008 during the financial crisis, which she fails to mention were the result of the Fed’s failed monetary policy,  she says, “Would the results have improved had the Fed been subject to regular Congressional audits of its procedures in real time?”

This is an argument we’ve heard several times now, and it’s pure fantasy. The GAO audit called for in Audit the Fed is nothing more than a retrospective look at the Fed’s actions — more than a year after they’ve made them! While the GAO does fine work, they do nothing in “real time,” and it’s made-up arguments like this that serve to convince me that Audit the Fed critics have no idea what they’re criticizing.

Observing the Fed at work in real time or having the Congress audit its policy procedures are frightening proposals. Americans should be well aware by now that our Congress is not known for its flexibility and responsiveness.

This is almost identical to the argument made by proponents of the unitary executive theory and Presidential war-making powers — as if Congress can’t get together and swiftly pass a Declaration of War, as they did after Pearl Harbor, or legislation like TARP, when they even think a real crisis is upon them. If you recall, the initial bailout was voted down September 29, 2008. By October 3, 2008, TARP was signed by the President.

Overall, her argument is one based on faith, not evidence. Trust the experts; they know what’s best for you. “We learned too much about panic during the Great Depression,” she writes. Best to keep the ignorant plebs in the dark, while our betters go about doing important things for our benefit — in secret — that we just wouldn’t understand or comprehend.

So, to help clarify what Audit the Fed actually does for Ms. Tschinkel and other critics, I’ll highlight the core of the bill below (taken from H.R. 24):

( c ) Repeal of Certain Limitations.–Subsection (b) of section 714 of title 31, United States Code, is amended by striking the second sentence.

And, what are those limitations the bill strikes? Glad you asked.

Audits of the Board and Federal reserve banks may not include—

(1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
(2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
(3) transactions made under the direction of the Federal Open Market Committee; or
(4) a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.

So, while thankfully Ms. Tschinkel didn’t begin her argument by saying, “the Fed is already audited!” plenty of other critics disingenuously have. As you can see, these limitations on the GAO’s audit authority over the Fed are quite substantial.

If Audit the Fed critics want to have a debate or discussion over why any of these areas of the Fed’s operations should remain secret from the American people, then so be it. Let’s have that debate. But until then, Audit the Fed critics just aren’t being honest — with themselves, the media, or the people they’re trying to convince to oppose transparency at the Fed.