Audit the Fed?

The US Republican Party’s proposal to restore some kind of metallic monetary standard is so outlandish as to be an almost irresistible target. More serious, however, is the Republicans’ proposal for an annual audit of the Federal Reserve, which is a recipe for politicization of monetary policy and financial-market turmoil.

BERKELEY – The party platform adopted at the Republican National Convention includes a number of remarkable planks. To a monetary economist, for example, the party’s proposal to restore some kind of metallic monetary standard is so outlandish as to be an almost irresistible target.

More serious is the Republicans’ proposal for an annual audit of the United States Federal Reserve. This, like the gold-standard plank, is partly designed to appeal to the libertarian followers of Ron Paul, the Texas congressman and perennial presidential candidate who is hugely popular with the Republicans’ “Tea Party” wing. While Paul would go further, and abolish the Fed altogether, several bills in the US Congress have mandated an annual audit; earlier this year, one such bill was passed by the House of Representatives (but not the Senate).

The Republicans’ embrace of the audit idea taps into libertarians’ general distrust of government. But there is also distrust of the Fed on more specific grounds – distrust that extends well beyond the ranks of the Tea Party. The Fed, its critics complain, has used its expansive powers to engage in a range of unprecedented interventions that have propped up large financial institutions. So the monetary authorities, they argue, must be in the pockets of powerful bankers.

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