WASHINGTON, D.C. – U.S. Senator Rand Paul (R-KY) delivered the following remarks on the Senate floor today urging his colleagues to support S. 2232, the Federal Reserve Transparency Act of 2015, commonly referred to as “Audit the Fed.” The legislation would eliminate restrictions on the U.S. Government Accountability Office (GAO) audits of the Federal Reserve and mandate that the Federal Reserve’s credit facilities, securities purchases, and quantitative easing activities be subject to congressional oversight.
A bipartisan majority voted for taking up the bill 53-44, but because 60 votes were needed to invoke cloture, the vote failed.
Sen. Paul originally introduced the legislation for the 114th Congress in January 2015. In November 2015, Sen. Paul invoked Rule XIV, which allowed “Audit the Fed” to be placed directly on the Senate Legislative Calendar so that the legislation can be called up for immediate consideration.
Cosponsors of the Federal Reserve Transparency Act of 2015 include: U.S. Senators Mitch McConnell (R-KY), Kelly Ayotte (R-NH), John Barrasso (R-WY), Roy Blunt (R-MO), John Boozman (R-AR), Richard Burr (R- NC), Shelley Capito (R-WV), John Cornyn (R-TX), Mike Crapo (R-ID), Ted Cruz (R-TX), Steve Daines (R-MT), Cory Gardner (R-CO), Chuck Grassley (R-IA), Dean Heller (R-NV), Johnny Isakson (R-GA), James Lankford (R-OK), Mike Lee (R-UT), David Perdue (R-GA), Rob Portman (R-OH), James Risch (R-ID), Marco Rubio (R-FL), Tim Scott (R-SC), Dan Sullivan (R-AK), Pat Toomey (R-PA), and David Vitter (R-LA).
Click HERE to read the Federal Reserve Transparency Act of 2015 in its entirety.
The video and transcript of Sen. Paul’s remarks can be found below.
Sen. Paul: 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 Federal Reserve, an institution that has been far too long 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 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 D.C. 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 not worked. Think back to the housing bubble. Artificially low interest rates led to too 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 $4.4 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 the average American.
From 2009 to 2012, the incomes of the top 1 percent increased by a whopping 31 percent, while everyone else’s incomes increased by a measly 0.4 percent. The reason for this is simple: big banks, corporations, and government entities receive the Fed’s money long before anyone else, and they bid up the prices of assets before the rest of us can get to purchasing 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. 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 many at the 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 do have the luxury of receiving the near-zero interest rates that the wealthy do. As a result, one thing is for certain: the Fed’s price-control on interest rates acts 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 in interest.
There is a revolving door between the Fed, the Treasury, and Wall Street – 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 that it’s about time we pull back the curtain to uncover this cloak of secrecy once and for all.
Who is receiving loans from the Fed today? Who is the Fed paying interest to? Are there any conflicts 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 purchased in 2008. Yet they did it anyway.
Given all these unanswered questions and given the sharp increase in the risk. Fed’s balance sheet, it is unquestionably necessary for the fed to be audited more thoroughly than it has in the past. Audit the fed is just three 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 monitor the fed’s monetary deliberations or open market 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’re not allowed to know what occurred, to whom this 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 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 Rep. 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 the half-trillion worth of funds.
That’s right: the Fed 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 to anyone. But it gets worse: Democratic Senator Bernie Sanders also asked Bernanke who received $2.2 trillion that the Fed lent out during the financial crisis. Again, Bernanke refused to give a direct 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 over $16 trillion to domestic and foreign banks during the financial crisis – a figure we would never have known if we only relied on the Fed’s internal audits.
Both Republicans and Democrats agree that it is absurd we do not know where hundreds of billions 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 of Representatives, and over 100 Democrats.
Some say that an audit will politicize the Fed. I find this claim odd given both sides of the aisle’s support for the bill. The GAO is a nonpartisan, independent, 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 that work within our central bank should begin curbing their own actions. Unlike the actions of current Fed officials, my bipartisan bill will not politicize monetary policy. I simply want to in overseeing the fed to ensure that our central bank is not picking favorites, and I want to make sure 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 you think interest rates should be higher or lower – everyone can and should agree that for the sake of our country’s economic well-being, we need to know what has been going on behind the Federal Reserve’s cloak of secrecy.
It’s time we quit this guessing game. It’s time we audit the Federal Reserve once and for all to restore transparency to our nation’s checkbook.