The Fed’s Right Mind?

It looks like the Federal Reserve is starting to worry about Senator Rand Paul’s plan to audit the central bank. The way the Hill newspaper, which covers Congress, puts it this week is that the Fed is “lashing out” at Mr. Paul’s plan, which, it said, could gain traction now that the Republicans are in control of the Senate as well as the House. It quotes the president of the Dallas Fed, Richard Fisher, as demanding, in an interview, “Who in their right mind would ask the Congress of the United States — who can’t cobble together a fiscal policy — to assume control of monetary policy?”

Who in their right mind? How about George Washington, James Madison, Alexander Hamilton, and the rest of the rest of the authors of the Constitution. The parchment creates the Congress in Article 1. In Section 8 of the same article, Congress is granted a list of powers. These are known as the enumerated powers. The first one is to levy taxes. The second one is to borrow money on the credit of the United States. And the fifth is to coin money and regulate the value thereof and of foreign coin. The monetary powers go to Congress, to exercise at its discretion. That is American bedrock.

It is tragic to see a figure like Mr. Fisher, who is normally a responsible leader within the Federal Reserve system, sneer at the constitutional powers of Congress — and suggest that it “can’t cobble together a fiscal policy.” It happens that the New York Sun has an even lower opinion of the federal budget than Mr. Fisher does. But here’s a question: If the Congress is so inept at budgeting, why has the Federal Reserve been buying up the paper it’s kiting? The Fed has taken onto its books more than two trillion dollars in federal debt.

For the Fed to start mocking its creator strikes us as crazy — particularly at this juncture. It has been a century since the Congress created the Fed, passing the Federal Reserve Act in 1913. The central bank began its operations in 1914. It is just now setting out on its second century. Its principle assignment was a stable monetary system that protected prices. Since then the value of the dollar has plunged more than 98%, to less than a 1,250th of an ounce of gold — to judge by current prices — from about a 20th of an ounce of gold at which it was set by law when the Fed was founded.

In that collapse there is a lot of blame to go around. Some to the Fed. Some to the president and the Treasury Department. And a great deal to Congress. All the more glaring is the fact that Senator Paul and his reform colleagues are way ahead of Mr. Fisher and his fellows at the Fed. They are not talking about an audit of the pencil pushing kind (the central bank is regularly audited by certified accountants). They are talking about a deep review of the whole central banking system, including its methods and philosophy and international entanglements.

People discounted this idea when, a decade ago, it was being advanced by few others than Senator Paul’s father, Ron Paul, then a congressman. But only a few months ago, Audit the Fed passed the House by an overwhelming, bi-partisan vote, 333 to 92. In the last senate, Harry Reid blocked the Fed from this sunlight, but the Nevadan is no longer majority leader; the bill has 30 co-sponsors in the upper house alone. President Obama may threaten a veto, but given the margin by which Audit the Fed passed the House, the idea that officers of the Fed should be mocking the Congress strikes us as reckless.