Rebuttal to Nita Lowey’s stand on H.R. 1207 to Audit the Federal Reserve.

The letter

Dear Mr. Lombard: Thank you for contacting me to request that I cosponsor H.R. 1207, the Federal Reserve Transparency Act. I appreciate having the benefit of your views, and I welcome the opportunity to respond. Like you, I believe that the Federal Reserve's actions should be transparent, which is the intent of the legislation. However, I have not cosponsored the bill out of concern that if enacted in its current form, it could lead to unintended consequences. The bill would require an initial investigation, as well as a series of policy recommendations, to be presented to Congress by the end of 2010. This could be the first step toward eroding the Fed's political independence, which is central to its mission and effectiveness. More than 250 prominent economists have warned that congressional interference could put the independence of U.S. monetary policy at risk. Central banks that are subject to political influence perform poorly. Even the perception of weakened independence could undermine the U.S. economy. I wholeheartedly agree with the premise that the Fed's actions should be as transparent as possible. That is why I am committed to working with the bill's cosponsors and my other colleagues to include oversight and transparency requirements in a financial services regulatory reform package that Congress will consider. Thank you again for sharing your thoughts with me. If you would like more information on this or other issues, or to sign up for my regular e-newsletter, visit my website at www.lowey.house.gov. Please do not hesitate to contact me if I can help you in any way.
Sincerely, Nita Lowey Member of Congress

Rebuttal

Lowey's objection is that the legislation "could lead to unintended consequences" and it "could be the first step toward eroding the Fed's political independence." The objections are hypotheticals and she gives no details. Instead she supports a "financial services regulatory reform package," but doesn't explain how that legislation won't lead to unintended consequences and erode the Fed's political independence. Why the contradictory support of this new bill? What is it exactly about H.R. 1207 that she doesn’t like?

Lowey fails to give a substantive explanation of her position, or a rebuttal of the simple and short H.R. 1207. The bill authorizes an audit of the Federal Reserve, which Congress is not allowed to see today. It also allows - "such recommendations for legislative or administrative action as the Comptroller General may determine to be appropriate." This does not authorize anyone to change Fed policy - only for the Comptroller to recommend. There is no substantive change in Fed independence. According to the Constitution Congress has the authority today to take "legislative action." Lowey's argument therefore is that the Fed gains security through secrecy - the Fed must be allowed to act in secret, because if Congress knew what they were up to, Congress would take away their independence. This begs the question what exactly is the Fed is doing that is so great and yet would so offend Congress? The Federal Reserve has seen the value of the dollar decline by 95% and is today giving trillions of dollars to US banks and foreign central banks. It will not explain to Congress exactly what it is doing. Lowey also doesn’t consider whether the Fed is truly independent today or in the past. Nixon said about his Fed Chairman Arthur Burns "I respect his independence … I hope that independently he will consider that my views are the ones that should be followed." As it turned out Nixon did apply continual pressure and did get the Federal Reserve to go along with him. This created the kinds of long term disastrous results that concern economists today about central banks reacting to short term political concerns. When ex-Fed chairman Arthur Burns arrived at the Bonn airport as ambassador to Germany, a reporter asked him how he could have agreed to Nixon’s desire to inflate so massively? The Fed chairman must do as the president wants, he answered, or the Fed would lose its independence. Anyone familiar with the last few decades knows that the Federal Reserve is clearly not independent from the executive branch. http://www.forbes.com/2009/07/31/bernanke-volcker-greenspan-fed-independence-opinionscolumnists-john-tamny.html http://www.forbes.com/2009/08/11/federal-reserve-volcker-nixon-opinions-columnists-thomas-fcooley.html Policies like Nixon’s are exactly the reason economists fear a loss of the Fed’s independence. However if the public and Congress can’t find out what the Federal Reserve is doing, and the Fed is only accountable to the Executive Branch, then the Fed, whether willing or not, will be able to implement the desired policies of the Executive Branch. It won’t be independent when operating in secrecy at the behest of the politically powerful banks and people in the executive branch. It is quite probable that an audit will show the negative effect of the Executive Branch’s undermining of the Fed's political independence. Trillions of dollars are being created out of thin

air and entering circulation and bailing out politically powerful US and foreign banks, the exact kind of policies that led to disastrous Nixon era inflation. The perception now is that no one really knows what is going on and what kind of corrupt bargains are taking place. If "Even the perception of weakened independence could undermine the U.S. economy" how much more will the continued reality of weakened independence undermine the US economy? Won’t exposing the reality can help build the public pressure to resist executive branch interference

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