The Fed Undermines Foreign Policy PDF Print E-mail

Last week I was both surprised and pleased when the Supreme Court upheld lower court decisions requiring the Federal Reserve Bank to comply with requests for information made by Bloomberg under the Freedom of Information Act ("FOIA"). Bloomberg simply wanted to know who received loans from the Fed's discount window in the aftermath of the 2008 financial market crisis, and how much each entity received.  Surely this is basic information that should be available to every American taxpayer.  But the Fed fought tooth and nail all the way to the Supreme Court to preserve their privileged secrecy.  However, transparency and openness won the day.  There are some 29,000 pages to decipher, but a few points stand out initially.

The Fed lent huge sums of our money to foreign banks.  This in itself was not surprising, but the actual amount is staggering!  In one week at the height of the crisis, about 70% of the money doled out went to foreign banks.  We were told that bailing out banks was going to stave off a massive depression.  Depression for whom?  We now know that the Fed's bailout had nothing to do with helping the American people, who have gotten their depression anyway with continued job losses and foreclosures.  But now we learn that a good deal of the money did not even help American banks!

In light of recent world events, perhaps the most staggering revelation is that quite a bit of money went to the Arab Banking Corp., in which the Libyan Central Bank owned about a third of its stock.  This occurred while Libya, a declared state sponsor of terrorism, was under strict economic sanctions!  How erratic the US must appear when we shower a dictator alternately with dollars and bombs!  Also, we must consider the possibility that those loans are inadvertently financing weapons Gaddaffi is using against his own people and western militaries.   This would not be the first time the covert activities of the Fed have undermined not only our economy and the value of the dollar, but our foreign policy as well.

Of course I can't say I'm surprised by the poor quality of the data provided by the Fed.  The category of each loan made, whether from the "Primary Discount Window", the "Secondary Discount Window," or "Other Extensions of Credit," is redacted.  Thus, we don't know with certainty how much discount window lending was provided to foreign banks and how much was merely "other extensions of credit".  Also, some of the numbers simply do not seem to add up.  We are of course still wading through the massive document dump, but it does seem as though several billions of dollars are unaccounted for.

As the world economy continues to falter in spite of - or rather because of - cheap money doled out by the Federal Reserve, its ability to deceive financial markets and American taxpayers is coming to an end.  People are beginning to realize that when the fed in effect doubles the worldwide supply of US dollars in a relatively short time, it has the effect of stealing half your money through reduced purchasing power.  Rapid inflation will continue as trillions in new money and credit recently created by the Fed flood into the commodity markets. 
 
It is becoming more and more obvious that the Fed operates for the benefit of a few privileged banks, banks that never suffer for bad decisions they make.  Quite the opposite - as we have seen since October 2008, under our current monetary system politically-connected banks are paid to make bad decisions.
 
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Audit the Fed FAQ

1. Why audit the Federal Reserve?

The Federal Reserve is an enormously destructive and unaccountable force in both the U.S. economy and the greater global economy. Federal Reserve policies affect average Americans far more than fiscal, spending, and tax policies legislated by Congress; indeed the Fed “spends” more than Congress when it creates trillions of new dollars on its balance sheet to bail out favored financial institutions.

For several decades the Fed has relentlessly increased the supply of U.S. dollars (both real and electronic) and kept interest rates artificially low. These monetary policies punish thrift, erode the value of savings, and harm older Americans living on fixed incomes. The Fed’s expansion of the money supply, combined with artificially low interest rates, creates terribly destructive cycles of malinvestment. This malinvestment results in housing, stock market, and employment booms and busts that destroy lives.

While the Fed was created by Congress, current law prohibits Congress from fully auditing the Fed’s monetary policy actions—the Fed actions that impact Americans the most. An entity that controls the value and purchasing power of the dollar should not be permitted to operate in the dark without oversight by Congress and accountability to the people. H.R. 459 would bring much-needed transparency to the Fed by requiring a full audit.

2. Isn’t the Fed already audited?

No. The Fed's financial statements are audited annually, but the Fed's monetary policy operations are exempt from audit. Congress’ investigative arm, the Government Accountability Office (GAO), currently is prohibited by law from examining discount window and open market operations; agreements with foreign governments and central banks; and Federal Open Market Committee (FOMC) directives. It is precisely this information that should be made public. The American people must know how and why Fed officials expand the money supply and set interest rates. It is not enough for the Fed to provide just an updated balance sheet after crucial decisions and transactions have already occurred. H.R. 459 allows GAO to audit the Fed’s monetary policy operations and directs GAO to report the audit results to Congress.

3. Didn’t the Dodd-Frank financial reform legislation passed in 2010 mandate a Fed audit?

Yes, but not a full or substantive audit. The audit mandated in the Dodd-Frank Act focused solely on emergency credit programs, and only on procedural issues (such as the effectiveness of collateral policies, whether credit programs favored specific participants, or the use of third-party contractors) rather than focusing on the substantive details of the lending transactions. H.R. 459 does not limit the focus of the audit.

4. Hasn’t the Fed already published details of its emergency bank lending?

Yes, but only partially. The Fed was required by the Dodd-Frank Act to disclose data from its emergency credit lending programs created during the financial crisis. Most of the data on its other activities, such as open market operations and discount window lending, have only been published as a result of lawsuits—not because of Congressional action. Dodd-Frank requires this information to be disclosed going forward, but with a two year time lag and with GAO restricted to auditing only the procedural components of any programs. H.R. 459 grants GAO and Congress access without special exemptions and ensures that ALL of the Fed’s lending actions will be subject to oversight.

5. Doesn't an audit harm the Fed's independence?

Absolutely not. The Fed was created by Congress and remains subject to full oversight and regulation by Congress—up to and including abolishing it altogether! The Fed’s hyped “independence” is largely a myth created by Fed officials and its Wall Street/financial sector supporters who benefit from its lack of transparency. The Fed is independent from the Executive Branch (Treasury Department), but not from Congress. H.R 459 does not change or set monetary policy: it merely grants Congress retrospective access to the information used to determine and carry it out, so Congress can properly understand, oversee, and evaluate the Fed.

6. Don’t foreign transactions need to be exempt from a Fed audit?

No. Given the Fed's establishment of dollar swap agreements with foreign central banks (which lent up to $600 billion at a time in 2008), and the increasing economic uncertainty surrounding Spain, Greece and the European Union, the Fed's continued financial assistance to Europe should not be exempt from public accountability and Congressional oversight. H.R. 459 brings transparency to the Fed’s agreements with the European Central Bank and other foreign entities.

7. Is this bill the same bill as H.R. 1207, the Audit the Fed bill from last Congress?

Yes. Some technical changes had to be made to the language as a result of changes made by the Dodd-Frank Act to the underlying code.