Rebuttal to Nita Lowey’s stand on H.R.

1207 to Audit the Federal

Reserve.

The letter

Dear Mr. Lombard:

Thank you for contacting me to request that I cosponsor H.R. 1207, the Federal Reserve
Transparency Act. I appreciate having the benefit of your views, and I welcome the opportunity
to respond.

Like you, I believe that the Federal Reserve's actions should be transparent, which is the intent of
the legislation. However, I have not cosponsored the bill out of concern that if enacted in its
current form, it could lead to unintended consequences. The bill would require an initial
investigation, as well as a series of policy recommendations, to be presented to Congress by the
end of 2010. This could be the first step toward eroding the Fed's political independence, which
is central to its mission and effectiveness. More than 250 prominent economists have warned
that congressional interference could put the independence of U.S. monetary policy at
risk. Central banks that are subject to political influence perform poorly. Even the perception of
weakened independence could undermine the U.S. economy.

I wholeheartedly agree with the premise that the Fed's actions should be as transparent as
possible. That is why I am committed to working with the bill's cosponsors and my other
colleagues to include oversight and transparency requirements in a financial services regulatory
reform package that Congress will consider.

Thank you again for sharing your thoughts with me. If you would like more information on this
or other issues, or to sign up for my regular e-newsletter, visit my website
at www.lowey.house.gov. Please do not hesitate to contact me if I can help you in any way.

Sincerely,

Nita Lowey
Member of Congress

Rebuttal

Lowey's objection is that the legislation "could lead to unintended consequences" and it "could
be the first step toward eroding the Fed's political independence." The objections are
hypotheticals and she gives no details.

Instead she supports a "financial services regulatory reform package," but doesn't explain how
that legislation won't lead to unintended consequences and erode the Fed's political
independence. Why the contradictory support of this new bill? What is it exactly about H.R.
1207 that she doesn’t like?
Lowey fails to give a substantive explanation of her position, or a rebuttal of the simple and short
H.R. 1207.

The bill authorizes an audit of the Federal Reserve, which Congress is not allowed to see today.
It also allows - "such recommendations for legislative or administrative action as the Comptroller
General may determine to be appropriate."

This does not authorize anyone to change Fed policy - only for the Comptroller to recommend.
There is no substantive change in Fed independence. According to the Constitution Congress has
the authority today to take "legislative action." Lowey's argument therefore is that the Fed gains
security through secrecy - the Fed must be allowed to act in secret, because if Congress knew
what they were up to, Congress would take away their independence. This begs the question -
what exactly is the Fed is doing that is so great and yet would so offend Congress?

The Federal Reserve has seen the value of the dollar decline by 95% and is today giving trillions
of dollars to US banks and foreign central banks. It will not explain to Congress exactly what it
is doing.

Lowey also doesn’t consider whether the Fed is truly independent today or in the past.

Nixon said about his Fed Chairman Arthur Burns "I respect his independence … I hope that
independently he will consider that my views are the ones that should be followed." As it turned
out Nixon did apply continual pressure and did get the Federal Reserve to go along with him.
This created the kinds of long term disastrous results that concern economists today about central
banks reacting to short term political concerns.

When ex-Fed chairman Arthur Burns arrived at the Bonn airport as ambassador to Germany, a
reporter asked him how he could have agreed to Nixon’s desire to inflate so massively? The Fed
chairman must do as the president wants, he answered, or the Fed would lose its independence.

Anyone familiar with the last few decades knows that the Federal Reserve is clearly not
independent from the executive branch.

http://www.forbes.com/2009/07/31/bernanke-volcker-greenspan-fed-independence-opinions-
columnists-john-tamny.html

http://www.forbes.com/2009/08/11/federal-reserve-volcker-nixon-opinions-columnists-thomas-f-
cooley.html

Policies like Nixon’s are exactly the reason economists fear a loss of the Fed’s independence.
However if the public and Congress can’t find out what the Federal Reserve is doing, and the
Fed is only accountable to the Executive Branch, then the Fed, whether willing or not, will be
able to implement the desired policies of the Executive Branch. It won’t be independent when
operating in secrecy at the behest of the politically powerful banks and people in the executive
branch.

It is quite probable that an audit will show the negative effect of the Executive Branch’s
undermining of the Fed's political independence. Trillions of dollars are being created out of thin
air and entering circulation and bailing out politically powerful US and foreign banks, the exact
kind of policies that led to disastrous Nixon era inflation. The perception now is that no one
really knows what is going on and what kind of corrupt bargains are taking place. If "Even the
perception of weakened independence could undermine the U.S. economy" how much more will
the continued reality of weakened independence undermine the US economy? Won’t exposing
the reality can help build the public pressure to resist executive branch interference