Leadership and Independence at the Federal Reserve
From the Great Depression, to the stagflation of the seventies, to the current economic crisis caused by the housing bubble, every economic downturn suffered by this country over the past century can be traced to Federal Reserve policy." Ron Paul, a Republican from Texas, offered this damning diagnosis on the floor of the U.S. House of Representatives on February 3, 2009, as he introduced a bill to abolish the Federal Reserve (also known as the "Fed"). Paul had opposed the Fed for decades and had offered several bills to dismantle it, dating back to 1983. As with all of his previous attempts, the 2009 bill died in committee. Although few members of Congress shared Paul's desire to eliminate the Fed, the central bank's unprecedented interventions during the 2007-2009 financial crisis provoked new sources of resistance. At a minimum, many more Americans were curious about the inner workings of the Fed, whose activities and decisions were frequently wrapped in secrecy. From its earliest days, the Fed's supporters had insisted that monetary policy had to be separated from electoral politics to prevent the manipulation of the money supply and interest rates for short-term political gain. Increasingly, however, critics questioned whether the costs of Federal Reserve independence and secrecy might outweigh the benefits. By late 2009, mounting concerns in Congress had breathed new life into one of Representative Paul's milder proposals for containing the Fed. Though his ultimate goal was to "end the Fed," Paul had also repeatedly proposed a full audit of the institution. By November 19, 2009, his latest audit bill had attracted 313 cosponsors, a record level of support, and the House Financial Services Committee was scheduled to vote that very day on whether to append a version of the proposal to a major financial reform bill that was then taking shape in Congress. If the audit provision became law, it would represent a notable change in policy, providing an unprecedented window on Fed activities and raising significant new questions about the nature of central bank independence in America.