Federal Reserve lacks adequate oversight

When Congress passed the stimulus bill in February, there were plenty of detractors of the bill. Unlike the Federal Reserve, however, the votes of individual representatives and senators can used to hold elected officials accountable at the ballot box. Should the stimulus bill not work as expected, and the economy not recover in a timely manner, voters will have an opportunity to elect new leadership.

Congress and the President, however, are apparently not the only branches of government which can finance expensive ventures. According to Senator Bernie Sanders of Vermont, the Federal Reserve has given a total of $2 trillion to various businesses since the AIG mess began last year, without any approval from either Congress or President Obama. To whom the money was given and under what conditions remains a mystery, since Fed chairman Ben Bernanke has declined to provide such information to either Congress or to the public.

How is the Federal Reserve legally able to carry out such operations? According to the Office of the Inspector General for the Federal Reserve (http://www.federalreserve.gov/oig/), which is tasked with auditing and overseeing the actions of the Fed, the answer lies in Title 12 of the United States Code, Section 343 paragraph 2. For a PDF download of Title 12, go to http://uscode.house.gov/pdf/2007/ and click on the 2007usc12.pdf link. On page 112 of that document, look for paragraph 2 of Section 343 in the upper right-hand corner. If you can decipher the maze of legalese, you’ll realize that Congress has granted the Fed unlimited access to printing money and handing it out to whomever it pleases, so long as five members of the Board of Governors of the Federal Reserve concur. This authority is not subject to either presidential or congressional oversight – in effect, both the executive and legislative branches have agreed to turn a blind eye to the Fed’s actions and hope for a speedy end to the recession.

Members of both parties in Congress are aware of this issue, and have reported that there has been significant debate over how to properly regulate the Fed. And yet there is strangely little mention of this problem in either Republican or Democrat press releases, which is unusual in that both parties excel in criticizing the policies of the other. What better opportunity for Republicans to denounce Democrats when the Fed has given away $2 trillion, especially considering that the entire stimulus bill was “only” $787 billion? Could it be that big banks line the pockets of all congressional delegates, in order to ensure easy access to free money? Or is it that there is uncertainty concerning the proper method to regulate the Fed’s authority while not causing concern in the private sector?

One possible solution has been presented by Congressman Ron Paul, R-Texas, who has introduced house bill H.R. 779 to abolish the Federal Reserve System. Given the bank panics and failures of the early 1930s, this would seem to be an extreme measure which would prevent the federal government from insuring deposits and could lead to consumer fears over losing their deposits in a bank failure. But Congressman Paul is correct in raising concerns about the operation of the Fed, and of the notion of a central bank in general. Although a central bank is required in order to secure the full faith and credit of the United States, and to promote a healthy monetary policy, recent events have demonstrated a need for proper congressional oversight of the Fed and to restrict its role to regulating the healthy operation of commercial banks, not in acting as a regular bank in its own right.