Saturday, August 25, 2012

NY Sun: Romney, the Fed and the Constitution

From the New York Sun:
Governor Romney’s latest statement in support of the independence of the Federal Reserve has brought a sharp warning from Congressman Ron Paul that the Constitution vests responsibility over monetary policy in the Congress.

The congressman’s riposte came in response to a statement by Mr. Romney — quoted Wednesday in the Christian Post — that, while the former Massachusetts governor supports an audit of the Federal Reserve, the Fed should maintain its independence from Congress.

Dr. Paul’s riposte suggests that even though Mr. Romney is preparing to run for president on a platform calling for an audit of Fed monetary policy and the establishment of a commission to look at a modern gold standard, it’s not yet clear whether Mr. Romney is on the same wavelength as the long-time campaigner for monetary reform.

“The Federal Reserve should be accountable," Mr. Romney was quoted by the Post as saying at a New Hampshire campaign stop Monday. "We should see what they're doing." But the online newspaper reported that in response to a question later, the governor qualified his support for an audit of the Fed by saying, "I want to keep [the Fed] independent.”

“There are very few groups that I would not want to give the keys to,” Mr. Romney was quoted by the Post as saying. “One of them is Congress.”

In an email Friday, Congressman Paul was asked by The New York Sun whether he was with Mr. Romney on the point. The congressman emailed a reply saying, “But weren't the ‘keys’ or responsibility over monetary policy given to Congress by the Constitution.” He added, “but of course without power to create money out of thin air to buy up debt in secrecy.”

The congressman was referring to Article One, Section Eight of the Constitution, which grants to Congress the power to coin money and regulate the value thereof, and of foreign coin, and to fix the standard of weights and measures. It also grants to Congress the power to borrow money on the credit of the United States.

The monetary powers are some of the most clearly enumerated grants to Congress in the entire Constitution. It is hard to remember a presidential candidate laying down such a blunt marker against Congress at the outset of a general election campaign.

The comments by Messrs. Romney and Paul come as the struggle over a Fed audit is heating up in the Congress. The House passed late last month and by a bi-partisan majority a measure that would authorize a major audit of the Fed — not only of its financial books but of its closed door deliberations. The measure, which faces an uphill battle in the Senate, is opposed by the chairman of the Fed, Ben Bernanke, on the grounds that it would interfere with the central bank’s independence. The plank calling for an audit of the Fed in the draft Republican platform emerged this week, on the eve of the Republican National Convention at Tampa.


MAX Redline said...

I tend to agree with Ron Paul on this. Congress has ceded far too much of its responsibilities to others. In and of itself, that might not be a bad thing - except that they have likewise ceded their oversight responsibilities.

This is precisely why agencies such as the fed, EPA, and others are presently out of control.

T. D. said...

Boy, are you right on that, Max. Lack of political oversight of agencies that create policies and rules with the force of law is a problem that is overwhelming us. And the EPA is a big part of our growing economic problem.

Ten Mile Island said...

Independent Fed?

Yes. Replace our system with the Scottish system? Sure. But T.D. points out that our monetary system was created by (Hamilton) Article One of our Constitution.

It can be argued that the Fed has always been politicized. Effectively argued. Compare (Fed Chairman) Miller to Volcker. The effects of policy do influence the value of the dollar inter other specie, as the supply of dollars effects interest rates. And while one can find fault with the policies of the Bernanke, I don't hear the chorus of complaints that was raised by the policies of Volcker, whom Representative Paul refers to in kindly fashion.

Could Chaiman Volcker reigned in inflation if rates had been set by Congress?

I don't think so.

T. D. said...

TMI, you're right that the Fed has been politicized. Rightly so.

To make political means to make accountable to the public (the people who have to bear the brunt of the results) rather than to bureaucrats and "experts".

And sure, there's a seamy underside to political manipulation, and it's often harmful. But, to modify the phrase about democracy:

Making the Fed accountable to elected officials like Congress is the worst system except all the rest that have been tried.

Ten Mile Island said...

I don't believe the natural impluse for the Fed Governors is political. There's a reason why the New York Fed has a permanent seat on the Board.

The current connivance of the Executive through Treasury, and the Fed Chair is unusual. Flawed. Dangerous. Elections have consequences.

But I shudder to think of interest rates being pinned by Congress.

T. D. said...

TMI, you have a much better grasp of economics than I do, and, of course you are right that the policy impulse for the Fed is not political--which is why they have 14 year terms. But, when you give power to an individual or group to make policies with the power of laws, if they are not subject to the will of the people, by default you tilt towards tyranny because "power corrupts".

I would say that Congress wouldn't be so stupid as to set interest rates, but that's less intrusive than wage and price controls, which Congress laid the legislative groundwork for and Nixon imposed.

Still, my opinion is it's better to have oversight by congressional representatives who can be voted out of office in 2 years, rather than hoping for a change of only 1/7th of the Fed by appointment every 2 years.

Shoot, I wouldn't want someone handling my personal finances who couldn't be fired overnight. Which is probably why the Framers put money matters into the hands of representatives who are up for election every two years. As opposed to the military under the president, and judicial confirmations and treaties under senators.

But, I'm open to convincing. :-)