Marketplace Scratch Pad

Stress testing the Fed

Scott Jagow May 14, 2009

A couple months ago, Congressman Ron Paul introduced a bill that called for the Federal Reserve system to be audited. At first, there wasn’t much support for the idea, but now the bill has about 150 co-sponsors. Paul believes if the Fed gets audited, there might be an outcry to shut it down.

Paul, a Libertarian turned Republican, would like nothing more than to see the Fed disappear. That’s an unlikely outcome, but it’s an understatement to say the Fed needs more scrutiny and accountability considering the actions it has taken during the financial crisis.
From the bond market newsletter, Cbonds:

Paul made it clear what he was after when he introduced the bill. “The Treasury gets hundreds of billions, which is huge, of course,” Paul said in a speech on the floor, “and then we neglect to talk about the Federal Reserve, where they are creating money out of thin air, and supporting all their friends and taking care of certain banks and certain corporations. This, to me, has to be addressed.”

Paul’s supporters are coming from unexpected places. Last month, former Fed Chairman Paul Volcker said the Fed using emergency powers without any congressional review cannot continue.
So far, a companion bill to Paul’s legislation has no co-sponsors in the Senate. But I expect that to change. All the talk is that the Fed might become a super-regulator, charged with monitoring “systemic risk” under a new era of regulation.

There is no way that should happen without first pulling back the curtain on the great and powerful Fed.

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