Federal Reserve Transparency Act of 2015--Motion to Proceed
Floor Speech
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Mr. PAUL. Mr. President, I rise today in opposition to secrecy. I rise today in support of auditing the Federal Reserve. I rise in opposition to the lack of accountability at the Reserve, an institution that has for too long been shrouded in secrecy. The objective of the Federal Reserve Transparency Act is simple: to protect the interests of the average American by finding out where hundreds of billions' worth of our dollars are going.
The Federal Reserve has the ability to create new money and to spend it on whatever financial assets it wants, whenever it wants, while giving the new money to whichever banks it wants. Yet if the average Joe and Jane from Main Street printed their own money, they would be imprisoned as counterfeiters.
Nowhere else but in Washington, DC, would you find an institution with so much unchecked power. Creating new money naturally lowers interest rates, or the price of using money. Put another way, the Federal Reserve's unchecked printing press creates a price control on the cost of using money.
Throughout our country's history, price controls have never worked, and the Fed's price control on interest rates has also not worked. Think back to the housing bubble. Artificially low interest rates led to many individuals buying, selling, and investing in the housing industry. This in turn led prices to soar, which ultimately led the economy to spiral down to the great recession of 2008.
Since the 2008 financial crisis, the Fed has increased its balance sheet from less than $1 trillion to over $4 trillion. Although the Fed has created trillions of new dollars, it has become apparent that most of this money is not finding its way into the hands of average Americans. From 2009 to 2012, the incomes of the top 1 percent increased by a whopping 31 percent, while everyone else's income increased by only 0.4 percent. The reason for this is simple: Big banks, corporations, and government entities receive the Federal Reserve's money long before anyone else, and they bid up the price of assets before any of the rest of us can get to purchase them.
Former Federal Reserve Governor Kevin Warsh once referred to the Fed's easy-money policies as the reverse Robin Hood effect. ``If you have access to credit--if you've got a big balance sheet--the Fed has made you richer,'' he said in an interview. ``This is a way to make the well-to-do even more well-to-do.''
The side effect of this uneven distribution of money is painfully apparent to anyone who shops at a grocery store. Over the past 15 years, the price of white bread has increased by over 50 percent, while the price of eggs has more than doubled. The cost of housing has also appreciated significantly in many areas. When adjusting for inflation, the price of housing in San Francisco has increased by 58 percent over just 25 years.
Real household income for regular Americans has declined 10 percent over the past 15 years. Higher rent and higher grocery bills cause low- income workers to incur more loans and credit card debt, which involve far higher interest rates than what the banks and Wall Street are currently paying. These low-income workers do not get the luxury of receiving the Fed's newly created money first, nor do they have the luxury of receiving the near-zero interest rates the wealthy do. As a result, one thing is for certain: The Fed's price control on interest rates acts as a hidden tax on the less well-to-do.
The Fed also exacerbates income inequality by paying large commercial banks $12 billion in interest. This is a departure from nearly a century of practice. While individual savers earn practically no interest, the big banks are given $12 billion per year in interest. There often is a revolving door between the Fed, the Treasury, and Wall Street. It is a revolving door in a building that is all too eager to enrich big banks and asset holders at the expense of everyone else.
I think it is about time we pull back the curtain to uncover this cloak of secrecy once and for all. Who is receiving the loans from the Fed today? To whom is the Fed paying interest? Are there any conflicts of interest about how these payments are determined? Are there any checks and balances on the size of these payments?
The Federal Reserve Act actually forbids the Fed from buying some of the troubled assets they bought in 2008; yet they did it anyway.
Given all of these unanswered questions and given the sharp increase in the risk of the Fed's balance sheet, it is unquestionably necessary for the Fed to be audited more thoroughly than it has been in the past. Audit the Fed is just 3 pages long, and it simply says that the Government Accountability Office, the GAO, which is a nonpartisan, apolitical agency in charge--that they be allowed to audit the Fed, a full and thorough audit.
Currently the GAO is not allowed to audit the Fed's monetary policy deliberations or the Fed's Open Market Committee transactions. The GAO was also forbidden from reviewing agreements with foreign central banks. During the downturn in 2008, trillions of dollars were spent, much of it or quite a bit of it on foreign banks, and we are not allowed to know what occurred, to whom it was given, and for what purpose. The Fed audit in its current form is virtually futile.
When these restrictions were added to the audit in the 1970s, the GAO testified before Congress, saying: ``We do not see how we can satisfactorily audit the Federal Reserve System without the authority to examine [its] largest single category of financial transactions and assets. . . . ''
To grasp just how limited the current audit is, recall that in 2009 Democratic Congressman Alan Grayson asked then-Fed Chairman Ben Bernanke which foreign countries received $500 billion in loans from the Fed. Bernanke was unwilling to name which countries or banks received half a trillion dollars' worth of funds.
That is right. The Feds swapped half a trillion dollars to foreign countries in secret and did not even have the decency, under testimony before Congress, to report the details. But it gets worse. Democratic Senator Bernie Sanders asked Bernanke: Who received $2.2 trillion that the Fed lent out during the financial crisis? Again, Bernanke refused to give an answer.
In the 2011 Dodd-Frank law, Congress ordered a limited, one-time GAO audit of Fed actions. During the financial crisis, that audit uncovered that the Fed lent out over $16 trillion to domestic and foreign banks during the financial crisis.
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Mr. PAUL. I would be happy to ask unanimous consent for equal time.
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Mr. PAUL. Well, the unanimous consent would be to have 5 extra minutes and to give the Senator as much time as he needs to conclude.
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Mr. PAUL. Both Republicans and Democrats agree that it is absurd that we do not know where hundreds of billions of dollars' worth of our money is going. In fact, last year my audit the Fed bill received the support of nearly every Republican in the House and over 100 Democrats.
Some say an audit will politicize the Fed. I find this claim odd given the support of both sides of the aisle for the bill. The GAO is nonpartisan, independent, and works for Congress. It does not lean Republican or Democratic, and it is not interested in influencing policy. I can't seem to understand how a simple check by the GAO to ensure that there are no conflicts of interest will politicize anything.
Instead of criticizing a standard audit, though, maybe the individuals who work at the Fed and within our central bank should begin curbing their own actions. Unlike the actions of current Fed officials, my bipartisan bill will not politicize anything. I simply want the Fed overseen to ensure that our central bank isn't picking favorites, and I want to ensure that it remains solvent.
Like every agency, the Federal Reserve was created by Congress and is supposed to be overseen by Congress.
Auditing the Fed should not be a partisan issue. Regardless of one's monetary policy views, regardless of whether one thinks interest rates should be higher or lower, everyone can and should agree that for the sake of the country's economic well-being, we need to know what has been going on behind the Federal Reserve's cloak of secrecy. It is time we quit this guessing game. It is time we audit the Federal Reserve once and for all to restore transparency to our Nation's checkbook.
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