We don’t mind saying it’s an odd position for us, since we have great regard for her capacity as a forecaster, her character, and her comportment. She displays none of condescension that Mr. Bernanke so often allowed to show (we once expressed surprise that he wasn’t held in contempt). What transports us into the opposition is Mrs. Yellen’s truculence on the issue of auditing the Fed.
This came into view after a discussion of the central bank’s regulatory role.
Senator Vitter asked about what he called “true openness” at the Fed. He asked whether Mrs. Yellen would support Senate 209, a bill introduced by Senator Rand Paul and known as the “Federal Reserve Transparency Act of 2013.” It is the Senate’s companion to the audit-the-Fed measure offered in the House by Senator Paul’s father, Congressman Ron Paul, and passed overwhelmingly on a bipartisan vote.
Mrs. Yellen insisted that she supports “transparency and openness on the part of the Fed.” She claimed that in terms of the “range of information and the timeliness of that information, we are one of the most transparent central banks in the world.” That’s not only irrelevant but wan. She then declared that she would not support “a requirement — any requirement — that would diminish the independence of the Federal Reserve in implementing, and deciding on implementing, monetary policy.”
“For 50 years,” Mrs. Yellen averred, “Congress has recognized that there should be an exception to GAO ability to audit the Fed to avoid any political interference in monetary policy.” She said she believes that “allowing a central bank to be independent in formulating monetary policy is critical to assuring markets and the public that we will achieve price stability, and I would be very concerned about legislation that would subject the Fed to short-term political pressures that could interfere with that independence.”
Mrs. Yellen may be no different than Mr. Bernanke, nor than most, if not all, of the chairmen who have come before him. All the more maddening is the fact that the committee proceeded to drop the matter. Mr. Vitter surely gets the issue, or he wouldn’t have raised it and co-sponsored Senate 209. But his colleagues made no follow-up about the Constitution of the United States. Not one senator who serves on the Banking Committee stood up for the prerogatives of the Congress. What is the Congress, chopped liver?
What needs to be confronted is the scandal of Federal Reserve independence. Where in the Constitution does it say that monetary policy is supposed — or permitted — to be independent of politics? If the Founders of America had wanted the monetary power to be given to a body independent of politics, they could have given it to the Army or the Navy or the Supreme Court. But they sat down in Philadelphia and gave the power to “coin money and regulate the value thereof and of foreign coin” to, in the Congress, the single most political institution in the entire constitutional system.
So where in the world does Mrs. Yellen come off lecturing the Congress on the need for independence? It’s not as if independence and opacity have produced much in the way of results. The value of the dollar has collapsed to levels that would have appalled not only the Founders of America but the congress that founded the Federal Reserve. Even after rising a bit in the past year or so, the value of the dollar is still, at a 1,250th of an ounce of gold, less than half of its value on the day Mr. Bernanke acceded to the chairmanship and a shadow of what it was when the Fed was founded.
Mr. Vitter speaks for a faction in the upper house that understands the need to open up the Fed to an audit. This isn’t only about, say, what gold it holds in its vaults. It also involves how it works, what its un-redacted minutes say, and what it has been doing overseas. These are not questions on which it makes any kind of constitutional sense to keep Congress in doubt. There is legislation before the Congress — introduced by the Joint Economic Committee — to review the record of the whole first century of the Fed. The right move for Mrs. Yellen would have been to welcome to this kind of inspection. The right move for the Senate would be to hold out for a chairman who is prepared welcome an audit.
Resource: S. 209: A bill to require a full audit of the Board of Governors of the Federal Reserve System