The Case Against An Unaccountable Federal Reserve

For almost a century, the secretive and unaccountable Federal Reserve has silently manipulated the economy and the value of the dollar, and they are understandably upset about the increased scrutiny and criticism their abnormal and undemocratic activities have started to attract. In his latest column, Ron Paul explains why this arcane institution is doing everything in its power to preserve its ability to quietly create and spend trillions of dollars, make deals with other central banks, engage in backdoor negotiations with foreign governments, and bail out its cronies as it sees fit.

Fed Independence or Fed Secrecy?

by Ron Paul

Last week I was very pleased that hearings were held on the independence of the Federal Reserve system. My bill HR 1207, known as the Federal Reserve Transparency Act, was discussed at length, as well as the general question of whether or not the Federal Reserve should continue to operate independently.

The public is demanding transparency in government like never before. A majority of the House has cosponsored HR 1207. Yet, Senator Jim DeMint’s heroic efforts to attach it to another piece of legislation elicited intense opposition by the Senate leadership.

The hearings on Capitol Hill provided us with a great deal of information about the types of arguments that will be levied against meaningful transparency and how the secretive central bankers will defend the status quo that is so beneficial to them.

Claims are made that auditing the Fed would compromise its independence. However, by independence, they really mean secrecy. The Fed clearly cherishes its vast power to create and spend trillions of dollars, diluting the value of every other dollar in circulation, making deals with other central banks, and bailing out cronies, all to the detriment of the taxpayer, and to the enrichment of themselves. I am happy to challenge this type of “independence”.

They claim the Fed is endowed with special intellectual abilities with which to control the market and that central bankers magically know what the market needs. We should just trust them. This is patently ridiculous. The market is a complex and intricate thing. No one knows what the market needs other than the market itself. It sends signals, such as prices, that should be reacted to and respected, not thwarted and controlled. Bankers are not all-knowing and cannot ignore the rules of supply and demand. They might act as if they are, but their manipulation of the market just ends up throwing it wildly off balance, which gives us the boom and bust cycles.

They claim the Fed must remain apolitical. No organization is apolitical that relies on the President to appoint the Chairman. In fact, it is subject to the worst sort of politics – power to create trillions of dollars and affect the value of every dollar in the country without the accountability of direct elections or meaningful oversight! The Fed typically enacts monetary policy that is favorable to particular administrations close to elections, to the detriment of long term considerations. They do this partly because of the political appointee process for the Chairmanship.

The only accountability the Federal Reserve has is ultimately to Congress, which granted its charter and can revoke it at any time. It is Congress’s constitutional duty to protect the value of the money, and they have abdicated this responsibility for far too long. This was the issue that got me involved in politics 35 years ago. It is very encouraging to finally see the issue getting some needed exposure and traction. It is regrettable that it took a crisis of this magnitude to get a serious debate on this issue.

  • Lee

    I read most of the posts above. Too much arguing is taking place by certain ‘intellectuals’ who write posts like they want to stump us with big words and meaningless data.
    The simplicity is obvious. The Bank of England owns the Federal Reserve Bank.
    The Federal reserve loans money it does not have collateral for, to the US treasury and other large banks like Morgan/Chase and Central bank.
    When the US treasury borrows to pay federal bills to private entities it causes a debt. Now it is what? Over 16 trillion? Is that including interest? If the US Treasury became a ‘bank’ using “our own collateral” like gold etc. Or,the same collateral the Federal Reserve uses (which is nothing), they can pay bills and loan to private entities interest free. Meanwhile the treasury is able to payoff the debt to the fed while never borrowing a dime again. I know it is dangerous. President Lincoln got shot for trying this. But it needs to be done.


  • Larry Hughes

    To Heather: When a bank; any bank-whether the Fed or a state owned bank, lends money it never lends (creates) all that is necessary to pay it back. That is, it doesn’t lend the interert
    component of the loan. Where does this interest component come from? It obviously comes from the money already in circulation. That lessens the amount of money available for other purposes. When $100 is lent and $105 is payed back, the amount of money in circulation has diminished by $5. If everyone paid there loans off we would have negative dollors left. It’s like pouring a gallon and a pint out of a gallon jar; it can’t be done. All paper money schemes are the same. The only solution is to have commodity based
    money. I vote for gold and silver. To those who claim we don’t have enough gold and silver for monetary use; I say the less there is the more valuable it is; thaerefore we have all that is necessary. Until then we we all be slaves to the money masters at the Fed.

  • Christine

    The Fed Inspector General, Generally Knows Nothing.

    …one thing IS clear…the FED needs to be abolished!

    • Agree. We need state-owned Federal Reserve, see also

      But Governor, You CAN Create Money! Just Form Your Own Bank

      reply to Arnold Schwarzenegger: “I understand that these cuts are very painful and they affect real lives. This is the harsh reality and the reality that we face. Sacramento is not Washington – we cannot print our own money. We can only spend what we have.”
      – Governor Arnold Schwarzenegger quoted in Time, May 22, 2009