Across the street from the Lincoln Memorial Reflecting Pool sits an ominous Georgia marble-clad fortress that houses the most powerful yet mysterious body in the country.
This is the headquarters of the Federal Reserve, where unelected technocrats and bankers have met for nearly a century to secretively pull the levers that control the money supply of the U.S. economy.
The Fed plays an enormous role in securing the short- and long-term stability of the U.S. economy. It recently signaled an end to one of the most radical experiments in U.S. economic history — one that entailed printing money and expanding credit to create the illusion of an economic recovery. The longer-term consequences will be much more peril: inflation, a recession, or worse, critics warn.
It would seem that for an institution with such a broad reach, some type of embedded accountability safeguards would be a good idea. But if you don’t like the idea of mysterious central bankers printing our way to prosperity — think the Weimar Republic of post-World War I Germany — don’t bother calling your congressman. Aside from its policies, the most alarming part about the Fed is that its decisions, and the process by which they are made, are shielded from any meaningful oversight and accountability by Congress and voters.
Yes, Janet Yellen, chair of the Board of Governors of the Federal Reserve System, must testify twice a year before the House and Senate to give updates on the Fed’s actions, but nothing that comes from these hearings — as much as congressmen may yell and complain — has any ability to influence or change the Fed’s decisions. Further, despite calls for greater transparency from Congress and the public, the Fed has staunchly opposed any intrusion into its laboratory, with Yellen asserting she would “forcefully” oppose any such action.
Such obstinance harkens back to 1836, when President Andrew Jackson became so fed up with the Second Bank of the U.S., the country’s central bank at the time, that he called its executives “a den of thieves” and a “tool of the moneyed aristocracy” and refused to renew the bank’s charter, forcing it to shutter its doors.
Nearly two centuries later, Jackson’s anti-central bank sentiments continue to resonate among critics, who launch similar attacks at the modern-day central bank as a puppet institution that distorts the economy to the benefit of financial and political elites.
In recent years, the man most responsible for crusading against the Fed’s actions and its secretive nature has been Ron Paul, the former Texas congressman who wrote a book entitled “End the Fed” and whose grassroots libertarian movement a decade ago drummed up significant populist outrage against the institution from both the Left and the Right.
Today, one is just as likely to hear calls to audit the Fed’s books from Sens. Ted Cruz, R-Texas, and Rand Paul, R-Ky., Ron’s son, who inherently distrust the body’s secretive workings and its policy prescriptions, as from ultra liberals like Democrat presidential candidate Sen. Bernie Sanders, I-Vt., who rail against the revolving door between the Fed and Wall Street banks that were bailed out by the Fed in the 2008 financial crisis.
“These are clear conflicts of interest, the kind that would not be allowed at other agencies,” Sanders wrote last week in a New York Times op-ed. “We would not tolerate the head of Exxon Mobil running the Environmental Protection Agency. We don’t allow the Federal Communications Commission to be dominated by Verizon executives. And we should not allow big bank executives to serve on the boards of the main agency in charge of regulating financial institutions.”
What gives the Fed cover against calls for more accountability is the narrative that it must remain independent from Congress to shelter itself from political pressures from members who may be pushing a particular policy for short-term political reasons.
There is a smidgen of truth to this. The Fed was chartered in 1913 as a quasi-government entity responsible for managing the country’s money supply independently of fiscal policy (taxation and spending authorized by Congress). This distinction was made specifically to prevent politicians from using the Fed to finance government deficits by printing money, said Alan Meltzer, an economist and author of “A History of the Federal Reserve.”
But the Fed overlords have twisted the bank’s “independent” status to mean that it cannot be answerable to Congress — the very body that established it — in any significant way.
While the bank brushes off calls for transparency under the pretext that its decisions are made by a benevolent batch of big-brained economists, the executive branch suffers from no such lack of influence. For example, President Obama appointed all seven members of the Fed’s Board of Governors, including Yellen, a liberal economist who served under President Bill Clinton, to 14-year terms.
So while the Fed can easily deflect criticisms from Republicans in Congress, it must tow a tighter line with the Obama administration and help bolster its argument that the U.S. economy is stronger than it’s ever been.
“This whole idea of independence is just myth, it’s propagated by central banks and by economists who directly or indirectly make a living from central banks,” said Thomas Cargill, an economics professor at the University of Nevada-Reno and Fed critic. “The Fed has become a lackey of the Obama administration. It’s been under tremendous political pressure to keep interest rates low” to create the appearance that Obamanomics is actually working.