Ron Paul’s Wet Dream May Come To Fruition

Ben Bernanke passed the Senate and can now start his second term. It wasn’t pretty but Bernanke made it out alive. The WSJ article about Bernanke’s approval was laced with comments about the Fed losing its credibility. It was filled with quotes from angry senators talking about translucency and accountability, and it all sounds nice.

Dr. Ron Paul’s bill passed the House of Representatives that would allow the General Accountability Office to audit the Fed. There some talk that Congress wants all the Fed’s bankers to be presidentially appointed and approved by Congress. This all sounds nice. It really does. Accountability, translucency: these are nice words.

Head of the Federal Reserve Bank of Dallas, Richard Fisher wrote an interesting Op-Ed in the WSJ about this subject. His feeling is that making the Fed less autonomous would turn the central bank into a highly politicized inflationary monster. Bankers would pander to Congress in the hopes of keeping their jobs, instead of looking out for “Main Street.”

Fisher touches on an important part of this issue but doesn’t outright say it: accountability and translucency don’t really matter if it’s Congress that’s holding you accountable. Is it really better to have an incompetent, imbecilic body with no macroeconomic expertise control the most powerful central bank in the world? Fisher’s argument is a little less valid. He argues that Congress will demand the Fed print away all of their problems and lead to massive inflation. He’s just using scare tactics to further his point, which is unnecessary since he has a valid point to make.

There is a reason this bill is picking up steam though. It is the inverse of the old phrase, “If it ain’t broke, don’t fix it.” In this case, “If it’s clearly broken, just do something.” The Fed has been increasingly autonomous for the last 40 years and it didn’t work. Greenspan ran the Fed without anyone second-guessing him anywhere along the way. Bernanke ran the Fed and didn’t see the bubble and there was no one else around to notice the bubble either. One of the major flaws of the Fed is that everyone there thinks the same way so nobody ever notices a mistake. Every Fed chairman has been an ideologue and this is a problem. The answer however, is not Congress.