Massie’s Bill Passed Committee in May
By: Elias J. Atienza
Representative Thomas Massie (R-KY) wrote an op-ed in the Courier-Journal calling for an audit of the Federal Reserve. Massie’s bill, H.R 25 or the Federal Reserve Transparency Act of 2015, moved past committee earlier this year.
“Since 90 percent of bills die in committee, you could say that my legislation had a near-death experience, but that’s a good thing,” Massie writes.
He argues that his bill is “not a controversial bill.”
“H.R. 24 is not a controversial bill,” Massie writes. “In fact, Americans demand transparency, and the House of Representatives has responded by passing this same legislation twice in previous Congresses by huge bipartisan majorities.”
The last Audit the Fed bill to receive a vote was the 2014 version, which passed 333-92. Only one Republican and 91 Democrats voted against it, while 106 Democrats and 227 Republicans voted for it. Rand Paul’s Audit the Fed bill was defeated in January, though he is confident he is only a few votes away from passing a cloture vote.
The Federal Reserve is audited by the Government Accountability Office (GAO). However, the audit is limited in scope, as Massie points out.
The U.S. Code (31 USC § 714) makes several critical exceptions to the Fed’s audit protocol, and these exceptions cover the Fed’s most crucial activities. For example, the GAO is prohibited from examining Fed transactions or agreements with foreign governments, foreign central banks, and international financing organizations. Yet, hundreds of billions of dollars in loans regularly flow to foreign banks.
The Federal Reserve Transparency Act would remove restrictions in an audit. Some argue that this would endanger the Federal Reserve’s independence as Ben Bernanke argued in an article for Brookings.
Effective Congressional oversight of the Fed is essential, of course, but it involves some complex tradeoffs. On the one hand, Congress has the ultimate responsibility of assuring itself and the public that monetary policy is being conducted reasonably and in the national interest. On the other hand, institutionally, Congress is not well-suited to make monetary policy decisions itself, because of the technical and time-sensitive nature of those decisions. Moreover, both historical experience and formal studies (for example, here, here, and here) have shown that monetary policy achieves better results when central bankers are allowed to focus on the longer-term interests of the economy, free of short-term political considerations.
However, Massie counters this argument by asking if the Federal Reserve is truly independent.
“The answer is that without a full audit of the Fed’s decision-making process, how can we know that the Fed is acting independently of the executive branch?” he writes. “Its charter is not to be a second Treasury Department. How can we know that the Fed operates independently of big bank CEOs and Wall Street?”
Furthermore, Massie writes:
Given the revolving door of managers between the Fed, Treasury, and Wall Street, opportunity for outside pressure and conflicts of interest abounds. Only a full audit can demonstrate that the Fed makes decisions independently of the political whims of a president and the profit goals of commercial banks.
Massie is hopeful that his bill will receive a vote on the House floor.
“I am delighted that my colleagues voted my bill out of committee, and am hopeful that it will soon receive a vote in the full House,” he writes.
The House is in session until October 1, where it will be in recess until November 13.