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The Fed Defend Their Independence to Try and Stop the Federal Reserve Transparency Act of 2009

By: Steve Johnson

9/28/2009 - 17 Comments

On Friday, the Committee on Financial Services, heard testimony from Scott G. Alvarez, the Legal Counsel of the Federal Reserve. 

The Federal Reserve Transparency Act is gaining momentum, with 295 cosponsors.

The testimony of Mr. Alvarez was very interesting, arguing that this bill would undermine the Fed’s ability to act independently of political pressure and would undermine confidence in the market because any scrutiny of their actions would lead investors to second guess their monetary policies, which could destabilize markets.

You can read the entire testimony here.

Mr. Alvarez pointed out that the Fed has increased the detail in which it provides information during the economic crisis.

“Since the System began operations in 1914, the Federal Reserve has published its balance sheet every week, showing the assets and liabilities of the Reserve Banks, both individually and on a consolidated basis.4 During the crisis, we have added significant new information to these weekly balance sheets, including information about the amount of credit outstanding under each of our credit facilities.”

Yet they have not given out much information relating to many special programs like currency swaps between nations and there involvement in the gold industry or who they all gave money to in bailing out banks during the economic crisis. 

“Altogether, we now provide more information about our operations than ever before, and we continue to explore whether additional information can be provided without jeopardizing the effectiveness of our efforts.”

Mr. Alvarez failed to mention that although the Chairman of the Fed Ben Bernanke does testify before congress, he often refuses to answer questions related to information that the Fed is unwilling to share.

Under the current system, the Federal Reserve has complete authority to "independently conduct the Nation's monetary policy."  But the actions of the Fed go beyond our nation because the dollar is used as the Reserve Currency of the world; therefore they control the monetary policy of the entire world. 

When questioned about why the policies of the Federal Reserve have lead of the housing market crash followed by the stock market crash and how they are now leading us to a dollar crisis, Mr. Alvarez deferred those questions to the Chairman Ben Bernanke, who has deferred the same questioning by congress to the Treasury – round and round we go.

This argument Mr. Alvarez put forth to protect the Fed from a congressional audit is a poor one because the markets has shown to be much more speculative with a secret monetary policy than a transparent monetary policy.

The market crashed while they were keeping secrets and large banks took unprecedented risks to become 'too big to fail', proving that a secret monetary policy didn’t stop these things from happening. 

Secret monetary policy has already proven to fail.  Faith in the Federal Reserve has been lost because their monetary policy didn't work.  Even faith in the Chairman of the Fed has been lost.

Ben Bernanke has said many things that were completely wrong over the last few years like when he said; “The problems in the sub-prime housing market are contained”.  If he didn’t understand the market when he said that, then why would he understand it today when he says, “The recession is coming to the end”. 

It has also been shown that the previous Chairman, Allan Greenspan, is to blame for the technology and housing bubble.

If the Fed audit was to take place, my suspicion is that we would find political influence on a grand scale, which would completely undermine the very notion that the Fed is trying to suggest that they are independent of politics.

The primary job of all central banks is to protect the value of its nations’ currency while maintaining a monetary policy that promotes growth.   The dollar has lost 95% of its value since the creation of the Fed, which clearly shows that the Federal Reserve has failed and continues to fail at protecting the value of the dollar, as the dollar continues to hit all time lows against many other major currencies just in the last two weeks.

The only reasonable explanation for the willingness of the Fed to sacrifice their own currency that they are suppose to be protecting is if their political independence has been compromised. If the dollar is going to be saved, the Fed needs to be audited.

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