We Should All Love Fed Transparency

Ron Paul’s signature Audit the Fed legislation finally passed the House; on July 25, the House bill was passed 327 to 98. But the chances of a comprehensive audit of monetary policy — including the specifics of the 2008 bailouts — remain distant.

Why? Well, the Fed doesn’t seem to want the sunshine. Critics including the current Fed regime claim that monetary policy transparency would politicise the Fed and compromise its independence, and allow public sentiment to interfere with what they believe should be a process left to experts dispassionately interpreting the economic data. Although the St. Louis Fed makes economic data widely available, monetary policy is determined behind closed doors, and transactions are carried out in secret.

Bernanke:

We fully accept the need for transparency and accountability, but it is a well-established fact that an independent central bank will provide better outcomes.

Ron Paul:

When the Fed talks about independence, what they’re really talking about is secrecy. What the GAO cannot audit is monetary policy. It would not be able to look at agreements and operations with foreign central banks, and governments, and other banks, transactions made under the direction of the FOMC [Federal Open Market Committee], and discussions or communications between the board and the Federal Reserve system relating to all those items. And why this is important is because of what happened 4 years ago. It’s estimated that the amount of money that went in and out of the Fed overseas is $15 trillion. How did we get into this situation where Congress has nothing to say about bailing out all these banks?

What I am struggling to understand is why the Fed is so keen to not disclose the inner workings of monetary policy even in retrospect. How can we judge the success of monetary policy operations without the raw facts? How can we have an informed debate about what the Fed does unless we know exactly what the Fed does? Why should only insiders be privy to this information? Surely the more we know, the better debate economists and the wider society will be able to have about Fed policy?

There are plenty of critics of Bernanke and the Fed, including both those who believe the Fed should do more, and those who believe the Fed should do less. But it seems very difficult to appraise the Fed’s monetary policy operations unless we can look at every aspect of its policy. If Bernanke and the FOMC are confident that their decisions have been the right ones, why can they not at least disclose the full extent of monetary policy and explain their decisions? If they are making the right decisions, they should at least have the confidence to try and explain them.

All that the current state of secrecy does is encourage conspiracy theories. What is the FOMC trying to hide? Are they making decisions that they think would prove unpopular or inexplicable? Are they ashamed of their previous decisions or decision-making frameworks? Are they concerned the decision making process will make them look bad? Are they bailing out well-connected insiders at the expense of the wider society?

We can’t have a real debate about policy unless we have access to all the data about decisions. Those who believe the Fed’s monetary policy has worked should welcome transparency just as much as those who believe the Fed’s monetary policy has not worked. If the Fed’s actions have been beneficial, then transparency will shine kindly on it. If not, then transparency will help us have a better debate about the road forward.

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63 thoughts on “We Should All Love Fed Transparency

  1. As an ex Auditor at Arthur Andersen, an Audit of the Fed is a solution to the endless chatter about the Fed.

    Maybe Arthur Andersen could be revived and re-establish its Brand.

  2. Attaboys to Ron Paul and Aziz! I wonder if Romney would offer the former a key appointment?

    Secrecy encourages not only conspiracy theories but also conspiracies.

    Possible solution? “Classified” briefings for selected congress members, like those (formerly?) on defense. Better make it CAREFULLY selected — new (and naive) president George W. Bush met with key members, asking confidentiality — everything was disclosed (and spun) before Bush got back to the White House!

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  7. To Author:
    Have you read any of Hans-Hermann Hoppe’s works?
    Let me quote from Democrace, The God that Failed, an amazing read by the way:

    “The central task of those wanting to tum the tide and prevent an
    outright breakdown is the “delegitimation” of the idea of democracy as
    the root cause of the present state of progressive” decivilization.” To this
    purpose, one should first point out that it is difficult to find many proponents
    of democracy in the history of political theory. Almost all major
    thinkers had nothing but contempt for democracy. Even the Founding
    Fathers of the U.S., nowadays considered the model of a democracy,
    were strictly opposed to it. Without a single exception, they thought of
    democracy as nothing but mob-rule.” p. 103

    “More importantly, it must be made clear again that the idea of democracy
    is immoral as well as uneconomical. As for the moral status of
    majority rule, it must be pointed out that it allows for A and B to band
    together to rip off C, C and A in tum joining to rip off B, and then B and C
    conspiring against A, and so on. This is not justice but a moral outrage,
    and rather than treating democracy and democrats with respect, they
    should be treated with open contempt and ridiculed as moral frauds.” p.104

    I strongly suggest reading the book.

      • It’s not as simple as saying democracy is wrong. Democracy is massively imperfect, and at its base form it is mob rule. The problem is finding something that is better.

        • It’s not a problem. The solution is simple. Just read the book.

          BTW, it is not hard to find something better than democracy, it is probably the worst system of social order imaginable. The bloodiest century in history was the most democratic.

        • What’s the solution? For a start — how do you sell non-democratic politics to a Western world that is largely and broadly committed ideologically to democratic politics? If you cannot sum it up in a comment, and must instead resort to telling me to read a book, it cannot be very simple.

        • Bring us back to a conistutional republican form of government and let the real debters, ( the Fed) pay off there own debt that thay created. The debts have belonged to them ever since the lazy congress illeagly turned there job over to them so they could lawfuly steal from the American people and eat out their substance

  8. The truth is ALWAYS profoundly simple.

    People analyze to their strength, i.e., they need their empiricism to support their world view. Most people can not handle the jarring simplicity in coming to the conclusion that banking is theft [on the grandest of scales].

    It’s sort of like when you are a child and believe that your parents are incapable of wrong doing. Once you realize that this is not the case, then things become a bit clearer.

    And this is not to say that all bankers are horrible people, it’s just to say that, “it is what it is,” and what it has always been. Now that things are grossly dys-funtional, it becomes really obvious, but even in times when the banking system is, “working well,” it still ripping people to shreds.

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  10. In all IMmodesty, I must point out that you guys (except, possibly, the author Hoppe) just don’t get it. “Pure” democracy (mob) with gullible selfish citizens, etc. indeed does NOT work. The US founders did NOT create “the model of a DEMOCRACY”, but a Constitutional REPUBLIC, clearly, simply and understandably based on strictly-defined limited government POWERS and open-ended RIGHTS of individuals. Read the US Constitution, including and especially the first ten Amendments called “The Bill of Rights” — it is quite brief and “very simple”.

    But it has been (illegally) ignored, and our republic betrayed, by corrupt politicians and selfish gullible people. Hence the “tea party” “revolution” to Take Back Our Country!”

    • Yo guys, you can’t get more than two adults together in the same room without all Hell breaking loose!

      I’ve always thought that people come up with all these -isms in order to obscure the fact that people are going to be fleeced [and that they should understand that although their -ism isn't, "perfect," it's the best one available at Mal-wart].

      That way, people can sleep at night, comfortable with the knowledge that they have been “had” by people who really meant not to [have them], but just couldn’t help themselves.

      Is it not the greatest skill owned [honed] by man, his ability to lie [ask any woman :].

      • Impernanence – that is precisely why a democracy does not and will never work. A representative republic works well but only if the populus believe in an irrefutable set of principles. As the founders did. There in lies our problem. We have deviated from a republic towards a democracy because the ones in power failed to maintain those principles in favor of ideas that benefited their self interest. Even the supreme court has been politicised to the point they are not strict interpreters of the constitution. Their only function was to keep the government glued to the constitution as closely as possible. Do you think they serve that purpose any longer? Example: the recent ruling.

        • Justin, I could write something that would read like, “Well, this is this, and that is that, but, who cares?

          I believe that the key is in first seeing what is actually going on [with the greatest degree of clarity]. Once you are able to achieve this, then it becomes reasonable obvious what you are up against.

          Although we all have a tendency to wax romantic vis a vis the Founding Fathers and the U.S. Constitution, it really only worked in you were a white land-owning male. Otherwise, you were SOL.

          I believe that history has aptly demonstrated that the organization of mankind in to group activity [no matter how benevolent the initial intentions] results in the individuals within the group using the group’s power to their individual benefit. This appears to be every individual’s natural tendency.

          So, if we can recognize this, perhaps we can more reasonably design social institutions to keep these tendencies in check, as opposed to fantasizing that giving individuals the phenomenal power they get currently receive [political/corporate], can turn out in any fashion other than what we have seen over the past several centuries.

        • There was no “romantic waxing” or any other intent to my post other than to say that true Democracy does not work in anything other than a homogenious, non fragmented society. I am not talking about race here. We have so many points of view that there will never be agreement on any issue. Therefore a system must be maintained to prevent the most powerful from imposing majority rule on the weakest or smaller segment. Democracy will not do that.

        • I believe you are putting the cart before the horse. First, the problem needs to be identified, then you solve it.

          What you will find is that once you CORRECTLY identify the problem, the solution becomes obvious [and this is exactly how you know you have correctly identified the problem].

    • I don’t get it Don Guier. You speak against corrupt politicians and selfish gullible people, yet still support Romney because he has proven that he is anything but a corrupt politician? Cognitive dissonance at its best i suppose.

      • 3 blahs: I assume that you do NOT disagree that corrupt politicians betray our Republic, but that you accuse Romney of BEING a corrupt politician. Well, there is time for me to switch my support to Obama if you give me reason.

        While you (and I) may disagree with some of his governance in Massachusetts (his only experience as politician that I know of), Romney has never been called a corrupt politician — unless above-board compromise is “corruption” — causing Democrat ads to resort to attacking schoolboy pranks, his wife’s expensive clothes, and his job-creating private sector career. At risk of belaboring the obvious, I call to your attention that the fact of highly-paid campaign experts running these ads, shows that they must somehow divert attention away from Obama’s dismal failure by playing the envy and race cards to exploit “selfish and gullible” voters.

        • What hasn’t he done that isn’t pandering towards the banks, hedge funds, Israelis, war mongerers, etc. etc. He does what all politicians do, they lie. They do whatever they have to do to get elected and stay elected. That’s what happened in Mass. That’s whats happening now.

          And no, Obama is no different. The Democratic party is just as much a sellout as the republican party. But your belief that the Republican are any better is quite gullible if not delusional. That is the point. There is no choice. And your moral superiority and Republican ideals does not equate to your beloved Republican party. Think I have to fail you for common sense. Completely lacking any.

    • Don. Aziz et al

      My hotmail account was hacked and I am now using

      cvpages.buddy at gmail dot com

      I don’t remember the info when I set it up so I decided to just abandon it.

    • Agreed. The founding fathers were very wise. They were Deists but did not promote it. The gullible people would have burnt them at the stake.

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  12. The Federal Reserve is the central bank of the United States. It has many tasks, but essentially, it controls the supply of U.S. currency in the market.
    One would think an entity of this magnitude would be handled by no one but the government, however, the Federal Reserve is not owned by the government.
    According to Federal Reserve.gov, it is an independent entity operating under the authority of Congress but not subject to it.
    Sounds pretty good until you dig a little deeper.
    Federal Reserve stock is owned by private banks, which are not allowed to sell the stock, but which pay dividends of 6 percent a year.
    When the government needs money, it goes to the Fed. These banks decide whether or not to lend the money to the government at interest, which it will eventually have to pay back to the non-profit Fed.
    The Fed may not profit, but the banks that hold stock do. Where else would the 6 percent come from?
    Banks profit from loans, especially when those loans aren’t paid off in time and interest begins to compound.
    Thus, the deeper the country gets into debt, the more money somebody will eventually make. Unless we go bankrupt or
    China invades.
    One would think the task of controlling the money supply would be delegated to the government. The Treasury makes the money, shouldn’t it look after it too?
    The whole history behind the founding of Fed is screwed up.
    The Federal Reserve Act was written on the private island of J.P. Morgan by a bunch of rich banking patriarchs.
    I can’t imagine a more sinister movie scene than scheming bankers with their tuxedos, top hats and monocles writing legislation giving them the power to control the money supply of the whole country.
    It’s Looney Tunes without the anvil. Tom caught Jerry and ate the crap out of him in the first episode.
    These bankers then backed Woodrow Wilson in the upcoming election, who won and signed the Federal Reserve Act into law.
    Bankers are controlling the money supply, lending the money the government prints back to itself and eventually profiting off of returned loans.
    The Wall Street bailout would have happened regardless of who was president at the time. The banks loaned themselves the money through the medium of the federal government, which is also known as money laundering.
    Yes, money laundering, like the mafia. The Federal Reserve is nothing more than a cartel, a system controlled entirely by a few very wealthy banks.
    The only candidate who showed any interest in ending the Fed was Ron Paul, who would likely get a substantial amount of both Republican and Democrat votes if he stood a frozen turd’s chance in Hell of winning.
    Most Americans are rational — 60 percent of the time, they are rational every time — and rational people realize the current system of controlling the U.S. dollar is in need of a serious face lift. Imagine charging interest on printing paper Fed reserve Notes (you know them as $100 bills) and charging interest on lending them to the government. if the government ma deits own money it would save $450 Billion Dollars in interest annually.. This inflation has taken the dollar’s value down to $0.05 . And 7% of the population of this planet now owns 57% of the world. 1% of the U.S.Population now earns 51% of the total annual national income.

    • You need to speak to Kim Kardashian and Justine Bieber. Also One Direction band.

      Most people reading this are already aware.

      I did my best to explain to a non economist friend. He thought the money we use is backed by the Gold at Fort Knox. When I explained to him he had a brain melt down and said I can’t get my head around. Sorry.

    • Wrong. The Federal Government does not go to the FED when it needs money, as you say. It can raise money through taxation and through issuing Treasury Bills and Bonds. These being issued by the US Treasury, which is most certainly a part of the Federal Government. Drinking the Ron Paul koolaid is bad for your brain.

      Ps You may be confused by the FED buying and selling T-Bills and Bonds (QE 1 and 2). But they Do it through the open market like any other participant.

    • Peter, you are correct, the (so-called) “Federal” Reserve Bank isn’t, and never has been, an “American” bank run and controlled by any American government. It is owned and controlled by international bankers, and the interest on the national deficit – over a billion dollars PER DAY – mostly ends up in Swiss banks as best I know. Let’s look at that in terms of “over a billion dollars a day is being siphoned out of America!” Even if that money wasn’t actually leaving the country but being used to “invest” in, say, mortgages (hmmm?), it equates to over a billion dollars a day of property value being transferred over to non-Americans. Bernicke makes it sound like the Fed is doing that for the benefit of Americans and the economy. All I can say is, “Hah!”
      The Federal Reserve Bank has never allowed the government to audit it and never will, and that shows how much power over the government they have.

  13. Hey, Buddy — most people are aware of WHAT? Would you, or he, please explain what Peter Palms is saying, assuming we laymen should believe it. “It’s Greek to me”, other than welcome reminders that the Federal Reserve Bank was not part of the federal government until the 20th century and is complicit in our current crisis.

  14. The Federal Reserve is NOT a part of the Government, it is an independent bank chartered by the Government in 1913. It operates with the blessing and oversight of congress but is not controled by congress. It has never ever been audited. Congress can only guess at it’s performance. Yet it is allowed to collect taxes as the IRS, supposedly under the watchful eye of the treasury department. The collected tax money is then used to pay down the loans it has given the govenment to sustain operations. Without an audit we accept, as fact, what the Fed says we the Nation owes to it.

    • Jeez guys, where do you get your information? Again, the FED does not directly lend money to the Federal Government. It can buy Treasury Bills and Bonds just like you or I. Yes the Government taxes through the IRS, which is under the US Treasury, and pays the money owed to the FED just as it would pay you or I for the Bills and Bonds we may hold. The FED absolutely has NO power to levy taxes. Please do a little research before spreading misinformation like this.

      That said, more transparency at the FED may be a good thing, but using silly arguments like this just makes you sound like a conspiracy theorist.

      • Sorry but you misinterpreted my point. If the Federal reserve can print money and buy a US Government Bond, and charge that US Government interest (The rate implicit in the Treasury Bond), then I am sorry but they are debasing the currency. This printed money is being channeled into the economy by paying US Government workers and Tender Contract recipient (Defense, Road Building, Welfare etc etc)

        • I see. My original comment dealt with the tax question, hence I assumed that was what you were referring too. As for ‘debasement,’ a weakened currency is not necessarily a bad thing, as it can make your products and labor costs more competitive on world markets. Look at Poland as a recent example. They took actions to devalue their currency and have weathered the global crisis fairly well. Of course their central bank could do this because they aren’t part of the euro zone. The fact that PIIGS can’t do this is one of the main reasons for their dire straights.

  15. To Triple-Blah of Aug 03: Your unsupported accusations and blindfold cynicism are not going to switch my support from Romney (and Ron & Rand Paul, Rubio, Cruz, Issa, Ryan, Cantor, Jindal, Daniels, Christie, Walker, Kasich, Bachmann, Palin, et al).

    1. I don’t love the Republican party — I’m with the grass roots “tea party”. For decades I have been saying, “Washington Republican politics are bad; Democratic politics are worse”. “Bi-partisan is not NON-partisan.” “It’s Washington versus the people.”

    2. Just what is all this pandering and lying by Romney?

    3. “All politicians” — Pay attention: Romney is not a George Washington, Ross Perot or Herman Cain, but he is far less a career politician than most, and infinitely less than Obama who has never had a real job.

    • DG, why support people that you know are going to make things worse? Eventually, things are going to change [in the body-politic], but this happens one person at a time.

      Supporting a virulently corrupt/dys-funtional system just doesn’t seem like such a good idea.

      • Imp.: I DON”T support people who I know/think/guesstimate are going to make things worse — only those who will make things better (or less worse}. Dropping out doesn’t help in a Republic. Yes, REAL reform can happen only one person at a time. The Sermon on the Mount is the guide for that. The US Declaration of Independence and Constitution empower individual persons. So each of us must strive to reestablish rule of law and restore Constitutional rights and limits to government power.

        • And each of us must also strive to inform and awaken our fellow citizens, one person at a time.

        • “The US Declaration of Independence and Constitution empower individual persons.”

          Not so much. The “rule of law” is 99.9% about property rights. This is why the very few own just about everything [worth owning, i.e., debt-free]. In other words, they write these laws [for themselves].

          “So each of us must strive to reestablish rule of law and restore Constitutional rights and limits to government power.”

          Understand, but even if you could achieve this objective, you still have very serious problems. THIS is what everybody seems to [conveniently] forget.

          People are served a fine meal on a poisonous plate and feel as if the plate MUST accompany the meal. It’s the same way that bankers [parasite] have convinced the people [host] that they [the host] will die if anything happens to them.

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  17. Imp.: I’m trying to understand — looking for your solutions/actions/initiatives/etc. Or do you think/feel that we can only “Curse God and die”?

    The US Bill of Rights establishes “rule of law” on freedom OF religion, speech, press, assembly, bearing arms, and FROM unreasonable search (and seizure) and unjustified or oppressive prosecution or punishment. Are these rights about PROPERTY?? Jefferson, Madison, et al believed they were to protect individual PEOPLE from GOVERNMENT.

    I submit that we Americans have good basic rules for the (always competitive) game of life; BUT we need to replace a lot of corrupt, self-serving, lazy, senile umpires and referees. To repeat — that’s what “tea parties” are all about!

    • OK, DG, fair enough. Let me give you an example. Let’s take education.

      Many [if not most people] realize that the public schools are a mess. Some blame the parents, some blame poor teachers, and others blame the organization of education, i.e., the “factory style” of educating made popular in the 19th century.

      And although you can lay fault in the lap of each of these factors [and more], this is not what is driving the demise of education. Most educators [that I have spoken with] agree that, if it was a priority, you could educate a fairly high percentage of the population to a reasonably high level. The problem with doing this is, what the hell are all these people going to do?? THERE ARE NO JOBS.

      In other words, the education system is designed to FAIL the vast majority of people because there are only so many decent jobs out there. And although this is what’s going on, people can not deal with this reality.

      In the same breath, the health care system in the U.S. is designed to generate enormous profits for the corporations. They will be more than happy to spend 100% of GDP to this end.

      DG, the bottom line is that things are the way they are because this is EXACTLY how they are designed to be. The propaganda branch of the government and corporate America spend billions attempting to tell us otherwise.

      Therefore, step 1 is in seeing what is actually going on. Only THEN can you begin to find solutions [which are always simplistic]. In health care, you go to a prevention-only “non-system,” in education, you get the government out and get the parents involved.

      If people don’t want to take responsibility for their own health/their children’s education, well, that’s their problem.

      • Attaboys to you, Imp.! To REVERSE an old joke, you have “quit a-meddlin’ and gone to preachin'”. If you recognize that an additional part of the problem is that teachers’ unions slant teaching materials, contribute members’ dues, and promote bloc voting to please certain politicians, I will make you a promise: when I am elected President, I will restore the Department of Health, Education and Welfare and appoint you Secretary for as long as you need to divest its powers and shut it down. I am only 84.

  18. All of my respect to you for your 84 years, but that matters not; what does matter is that you can not pound a square peg into a round hole no matter how many institutions have a hand on the hammer!

    • I don’t know what is your “square peg” or your “round hole”, but if we elect a president and congress dedicated to Constitutionally limited government, things will begin to fit.

      • That not how it works. The constitution is an ideal, not a potential reality.

        People seem to elect representatives similar to how most 25 yo people enter into marriage, with the hopes and dreams that they will live, “happily ever after.”

        It would seem that once you took a spouse for the forth or fifth time, one would have a more realistic outlook on the marriage proposition, but noooooooo, people who vote for the 10th time still believe that President Tom, Dick, or Harry is going to save them.

        People need to save themselves.

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  20. Have you gone back to “meddlin'” ? Do you advise young people not to marry? Or, would you urge them to think long run and choose more carefully?

    Shall we quit voting and let the current politicians complete their power monopoly? Or, shall we “highly resolve … that this nation … shall have a new birth of freedom*” by recruiting and electing better officials and keeping them under surveillance?

    * Lincoln

  21. Aziz, I think you have a decent blog here, but you should not use Ron Paul as an expert for your arguments. His ideas about economics really are nutty. I think most economists, of whichever ideology, would agree with me. Including Hayek.

    As to this post, more transparency at FED is intuitively appealing, but I think there are some valid arguments against. Besides the fear of politicizing the FED, some argue the FED’s actions would lose power if they broadcast them. Of course, this is precisely what Paul and his ilk want. Most people with a basic understanding of macroeconomics know that a complex economy needs a central bank. Could the FED be better? Without question. But of course this is true of all human institutions and endeavors.

    • A complex economy needs a Central Bank, if it is a Command economy. A free market economy only needs community banks, with Bank Managers who understand the local conditions and the entrepreneur who wants to invest the savings of the locals into profit making schemes.

      When the economy is 40% government reliant, then of course the government needs business to borrow at zero percent when they need the businesses to borrow and spend the money that the government is printing to filter through the economy. If you don’t borrow you don’t get the benefits of the money printing.

    • You’re wrong Matt, most people don’t understand what the function of a central bank is, or for that matter who owns them. Central banks masquerade as public entities with titles such as “Bank of England”, Federal Reserve”, the common man from the street would laugh in your face if you informed them that these banks are in fact privately owned. The idea of private interests controlling a nations money supply is insane. Also, why are these banks so against transparency, because it will interfere with there ability to function correctly. Come on, I wasn’t born yesterday! That is a terrible response to transparency, terrible!

  22. Matt: I trust Aziz and others will answer for the economists, but I am one of many citizens who find Paul attractive as a non-politician/”contrarian”/libertarian politician. Where are we wrong? Would he eliminate the Fed? Reduce its functions to money-supply as proposed by Friedman?

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