Testimony of Hon. Ron Paul, Chairman of Campaign for Liberty, former Representative and Chairman of Subcommittee on Domestic and Internal Monetary Policy, Technology, and Trade
Before the House Committee on Financial Services
“Legislative Proposals to Reform the Federal Reserve on its 100th Year”
July 10, 2014 – Chairman Hensarling, Ranking Member Waters, and other members of the Committee, thank you for holding this hearing on “Legislative Proposals to Reform the Federal Reserve on its 100th Year Anniversary.”
Since the collapse of the Federal Reserve-created housing bubble in 2008, an increasing number of Americans have joined a movement demanding an end to Federal Reserve secrecy. One notable result of this is the massive public support for the Federal Reserve Transparency Act, H.R. 24, better known as the Audit the Fed bill. I introduced this bill in the 111th and 112th Congress, and in July 2012, it passed the House of Representatives by a vote of 327-98.
In this Congress, the Audit the Fed bill was introduced by Representative Paul Broun and currently has 224 cosponsors, a majority of the House of Representatives. Having once again obtained majority support in the House, there is no reason why the House leadership should not schedule a roll call vote on the bill this month.
Passing the bill in the House would put more pressure on Senate Majority Leader Harry Reid, who despite having publicly declared his support for an audit on numerous occasions, has refused to schedule a vote on the bill in the Senate.
H.R. 24 simply repeals the section of federal law prohibiting a full audit of the Federal Reserve’s monetary policy operations, and authorizes an audit of the Fed’s discount window operations, open market operations, agreements with foreign governments and central banks, and Federal Open Market Committee directives and requires a GAO audit within a year of it becoming law. Contrary to the claims of its critics, Audit the Fed in no way gives Congress any new power over monetary policy.
In contrast, the legislation that is the subject of the hearing today, H.R. 5018, the Federal Reserve Accountability and Transparency (FRAT) Act, does not guarantee a full GAO Audit. Under this legislation, a GAO audit is only performed if the GAO first determines that the Fed has not met the statue’s requirements for establishing a “valid rule” and either the House Committee on Financial Services or the Senate Banking Committee request an audit. There is also no guarantee that the audit will be complete as the requesting committee will have full power to set the “parameters” of the audit.
It is thus a misnomer to refer to this bill as an audit bill at all. Instead, the bill uses the threat of an audit to get the Federal Reserve to adopt a policy preferred by certain members of this committee. The bill thus goes beyond increasing Congressional oversight of monetary policy to give Congress a direct role in setting monetary policy. This may seem like a step forward, but those who understand the teaching of the Austrian School of Economics recognize that a “rule-based” monetary system does little to address the fundamental problem with the Federal Reserve’s monopoly on the nation’s money supply. It is also doubtful, to say the least, if giving Congress more say over monetary policy is likely to result in improved monetary policy any more than giving Congress more control over education has improved test scores.
In conclusion, I thank the Committee for holding this hearing. However, I am disappointed that instead of taking a first step toward real reform of monetary policy, the Committee is instead introducing a bill that will not likely increase Federal Reserve transparency, and could increase the problems with our monetary policy. Instead of this bill, the Financial Services Committee should immediately mark-up the Federal Reserve Transparency Act (H.R. 24).