The Fed Should Be More Transparent - By Ron Paul

Posted by ProjectC 
By Ron Paul

Another argument the Fed has trotted out is that an audit would erode trust in the central bank and raise borrowing costs for the Treasury. An audit could only erode trust if the Fed had in fact been up to no good. If the Fed acts in good faith and with the interest of the American people in mind, it should have nothing to fear from enhanced transparency.

However, trust in the Fed from our foreign creditors has been waning for a while, and ongoing secrecy on the Fed’s part continues to erode that trust. For far too long our government has spent far too much and issued debt to fund its profligacy. Our creditors understand this and are reluctant to invest any further until they can be assured that the Fed will stop pursuing policies that devalue the dollar.

A final argument that the Fed uses is that publicizing the names of firms that receive financial assistance could lead to investors selling those firms’ stock and potentially cause the firms to collapse. In fact, it has been shown that the stock prices of firms receiving bailout funds actually improve. As misguided and wasteful as bailouts are, the firms that receive them are viewed by many investors as “winners,” at least temporarily. Even if bailed-out firms eventually collapse, the bailouts signal that the government will not let them collapse in the near term, which allows investors to remain invested in the companies and continue to profit from movements in the stock price.

There really is no viable reason to continue to withhold from the American people the names of firms receiving Federal Reserve assistance and the amount of money they receive. The Treasury Department has been relatively transparent in publicizing the disposition of bailout funds and the terms of agreement it signs, so why should the Federal Reserve be any different?

The march toward financial services reform seems to be inevitable at this point. Whatever legislation is passed in the next year will create a new financial system framework that will very likely remain in place largely unchanged for decades to come. It is absolutely imperative that we get a detailed look at all of the Federal Reserve’s past actions and ensure that any future government intervention into markets is fully and completely transparent.

Rep. Ron Paul (R-Texas) is sponsor of H.R. 1207, the Federal Reserve Transparency Act of 2009.