“Bernanke warns congress to butt out of interest-rate policy discussions . . .” is the headline up on the Drudge Report following the speech today by the Federal Reserve’s chairman at Indiana. It sounds to us like the chairman is warning Congress against passing Congressman Ron Paul’s audit-the-Fed legislation and Congressman Kevin Brady’s Sound Dollar Act, both of which would open up Fed policies to inspection. The chairman’s speech marks another step in the Fed and the Congress moving into what might be called open, if polite, confrontation.
It’s an important story. The fear the Fed chairman is trying to instill is that by conducting an audit of the Fed that includes its interest rate policy discussions, the Congress would open the Fed up to political interference. It strikes us as an illogical reach. The Fed, after all, is running one of the most radical interest rate programs in the history of the central bank. It’s been many an election since we’ve seen the Fed so close to the center of the presidential campaign.
Indeed, the Republican nominee is running on, among other things, a promise to replace the Fed chairman — and also to establish a gold commission to take a more fundamental look at monetary policy. The chairman himself has entered the fray, declaring at George Washington University that he is against advancing to a gold standard. He has also broken with tradition and started holding regular press conferences to get his own voice into the fray. Now he has the brass to suggest that the Congress butt out?
Our own view is that everyone — the Congress, the Federal Reserve, and the American people — would be better served were this issue opened up on every front. This is a moment for our leadership to acknowledge, nay, to declare that the topic of monetary reform needs to be put on the table and debated. Value was seeping out of the dollar even as Mr. Bernanke spoke. At the end of the day today, it was down to less than a 1,775th of an ounce of gold.
The value of the dollar, in other words, has collapsed to less than half of the number ounces of gold it was worth when President Obama acceded to the presidency and to less than a sixth of what its value on the day, say, George W. Bush acceded. Is there a candidate in either party — or for any seat in the Congress — who thinks this collapse, breath-taking in its rapidity and depth, is unrelated to our national economic travail?
What needs to be said is that it is way past time for the Congress to open up the Fed’s operations for a proper inspection. The audit-the-Fed bill, more formally known as HR 459 or the Federal Reserve Transparency Act, passed the House by vote of 327 to 98. Does one think the House could be trying to tell the chairman something? Where does the Federal Reserve chairman come off entering the political fray to campaign against the passage of such a measure by the Congress that created the Fed?
Congressman Brady’s Sound Dollar Act is even broader. It would just end the era of Humphrey-Hawkins, the law under which job creation was brought into the Fed’s mandate. It would bring gold into a role, if only a modest one, in respect of monetary policy. And it would radically increase the ability of Congress and the public to get a handle on what the Federal Reserve was trying to do. Mr. Brady gave a brilliant presentation on his bill in April at the meeting of the Shadow Open Market Committee in New York.
This week, as the debates are about to begin, is a perfect moment for the political leadership — and we would include most pointedly Governor Romney and Congressman Paul — to tell the American people that they are not going to stand for the Federal Reserve’s compulsive secrecy. Transparency is not the same as political interference, and every time Mr. Bernanke goes out on the hustings to argue otherwise, let the alarms go off. What is it that the Fed doesn’t want the Congress and the American people to know?