A Clarification on Auditing the Fed
I believe I have already linked to Lew Rockwell’s qualified case for letting Congress run the Fed (as opposed to a cartel of private bankers with no accountability at all). Robert Wenzel disagreed with Rockwell here.
I am not taking sides on this one. In general, I think it’s dangerous to ever say you “are for” or “support” something that increases economic liberty in one sense, but reduces it in another. Of course Rockwell is not “for” Congress running monetary policy; he’s just saying it beats our current arrangement.
I do want to clarify one thing though. Wenzel repeats an argument that a lot of anti-Fed-audit people are saying, but I think it misses the point that someone like Rockwell is making. Here’s Wenzel commenting on Rockwell:
Most of [Rockwell’s] argument is the theoretical one that Congress is less evil than the forces of power coming out of the executive branch. On a theoretical level, this may be generally the case. But we are talking realeconomik here, not theoretical odds. We are talking Ben Bernanke versus this Congress which is run by the likes of Nancy Pelosi and Barney Frank. A Congress that gains votes by passing out dollars.
Should we really turn the printing presses over to them? Remember, we are talking realeconomik here, Ben Bernanke versus this Congress.
Yeah, maybe if many read Ron Paul’s book End the Fed, or if inflation hits 10%, the public will yell and scream, the way they are over Obamacare. But remember, many who are yelling and screaming about Obamacare are on medicare and don’t see a damn thing wrong with medicare. Can we count on such an uninformed public to put the right kind of pressure on Congress, when it comes to money printing?
As I have said before, Bernanke wants to rob us by dishing out dollars to the elite, but there are elements in Big Government (and some of these elements are in Congress) who want to print and print money, they don’t have to answer to Goldman Sachs, but they have to answer to the parts of the masses that think government is one big piggy bank. Goldman probably cashed in chips worth just under $20 billion, are we anywhere confident that Congress would stop anywhere near this number, if it was in charge of money printing?
Yeah, sure, if the stars are aligned properly, in the world of realeconomik the boobsie might awake to pressure Congress to stop printing money. But it is a crap shoot with about 10,000 sided dice, with only a few possible positive outcomes out of all the combinations.
Based on hardcore realeconomik evaluation, Berrnanke’s actions to date (He hasn’t printed any money since March), appear to be a better option than this Congress running the show. [emphasis in original]
Now Wenzel is actually far more accurate in his response than I’ve seen a lot of people, who say, “For all his faults, Bernanke’s better than Pelosi and Reid.” Wenzel doesn’t actually say that; he makes the proper comparison of the entire Congress versus Bernanke.
And that distinction is crucial. It’s not the case that Pelosi and Harry Reid would personally run monetary policy, the way Bernanke (at least officially) can almost singlehandledly determine the Fed’s course.
Obviously we will never know what would have happened, but I don’t think Congress would have placed us in such a precarious position if they had been running the Fed last year. I can’t yet prove my case (since it hasn’t come true yet), but I really think we are going to see massive price inflation as a result of Bernanke bailing out Wall Street cronies. In contrast, if the ghost of William Jennings Bryan had been in charge, then the Fed may have run the printing presses, yes, but that money would have flowed out into new bank loans. So the public would have gotten its cheap money fix, prices would have started rising fairly rapidly, and Congress would have told the Fed to back away from the abyss.
Instead of that, we now have the worst of both worlds, with a dollar ready to crash (I claim) and with all of the new reserves being pumped into a narrow group of connected bankers. (See my favorite chart if you want to see the sharp contrast between Bernanke’s handouts to the banks versus credit available to the general business community.)
One last point: Look at how hard it was for Congress to push through TARP. We really almost stopped it; they needed to take a Mulligan.
In contrast, Bernanke handed out much more than that with no resistance at all. I grant you, some of the difference there was probably because the general public “gets” what it means for Barney Frank to issue more Treasurys to then give $700 billion to bankers, whereas it doesn’t seem real if Bernanke writes checks on the Fed. But it’s still an interesting difference in the resistance to each move, the Treasury bailouts versus the Fed bailouts.
Some of us purists like to pooh-pooh the Constitution, but let’s give credit where it’s due: The Founders realized that the way you slow the growth of the State is by dividing power among different branches. They purposely ensured that one-third of the Senate was up for re-election every two years, etc. When it comes to preventing the outright destruction of the dollar, you want “gridlock,” not a strong man whom you hope is very smart and has your best interests at heart.
To repeat, in closing: I am not saying I think the Fed audit will be a good idea. I agree with Wenzel that if it goes through Congress, they will pervert it and use it to enrich the regulatory power of the Fed in exchange for having to file quarterly reports or some other meaningless concession. But I just wanted to clarify the logic behind putting something devastating (like the printing press or the power to declare war) in the hands of Congress, rather than the hands of an elite group.
