In the Fall of last year, Congress was ‘persuaded' as a matter of urgency to vote $700,000,000,000 for the Troubled Asset Recovery Program, or TARP. It was the largest money vote in history. Now, Congress is concerned that TARP money has been misspent and that the Federal Reserve Board is deliberately concealing many recipients. Some politicians feel the Fed has managed a giant slush fund on behalf of the Administration and that its resistance to Congressional demands for full disclosure amounts to a political cover-up.
There is increasing pressure in Congress to audit the Fed. The Fed is resisting strongly asserting that such an audit would interfere with the Fed to an extent that threatened it constitutional independence.
In this growing constitutional struggle it is in the vital interest of America that both Congress and the Fed recognize the most important distinction between ‘transparency' and ‘independence'. A failure to do so could result in catastrophe for the dollar that would be felt by all Americans and many others throughout the world.
By late 2008, it was clear that many of the banks such as Citi and Bank of America, shadow banks like Goldman Sachs and Morgan Stanley and other financial institutions such as AIG, had behaved more like casino gamblers than as bankers doing business in the ‘old fashioned way'.
All this had happened under the eyes of the Fed.
The Fed, or central bank, was established in 1913 as a private bank. This ‘independence' from Politics was and rightly remains of key importance. Throughout most of recorded history, gold has proved to be an effective break on the abuse of excessive spending by governments.
Since the progressive erosion and ultimate abolition of the gold standard in 1971, the only effective break on excessive Government spending has been an independent central bank.
Today, with Government spending far in excess of revenues and in amounts of many trillions of dollars, the independence of the Fed is of increasing importance.
Under former Fed chairman Alan Greenspan the Fed compromised its vital independence progressively and became a virtual arm of the Bush Administration. It led to an explosion in Government spending and a doubling of U.S. Treasury debt to $10 trillion, excluding more than $30 trillion dollars of off-balance sheet debts. The result was the largest asset boom in history. The lure of cheap, easy money drew in even the most prestigious names in finance. By mid 2007, the bursting real estate bubble burst, threatened the world's financial system.
By mid September 2008, even inter-banking lending had tightened and bank credit evaporated. The recession was about to be turned into a severe depression by a lack of credit.
Although deeply resented by the public, the Government rightly concluded that, in the national interest, the banks had to be rescued to save the economy.
As its name implies, TARP relief was designed originally to enable the U.S. Treasury to purchase or insure ‘troubled assets' such as residential or commercial mortgages along with any obligations, securities or other instruments related to them. The aim was to relieve the banking system of these so-called ‘toxic assets' and restore banking liquidity and lending.
Subsequently, however, the Administration decided that any purchase of toxic assets would establish the reality of a ‘real' price causing many related toxic assets to be ‘marked down to market', threatening further mayhem. The Administration decided to retarget TARP spending towards banks and ‘others'. The vagueness of this Fed spending on behalf of the Administration has caused Congress to feel it was ‘bounced' into approving TARP, to become alarmed and to demand a full audit.
The fact that Fed Chairman Bernanke is resisting a full independent audit while protesting openness has rightly aroused intense suspicion in Congress. Recently, Bernanke took a public stance in threatening Congress that disclosure could lead to increased interest rates and the potential loss of America's triple ‘A' credit rating. The fact that these two issues would result not from disclosure but the massively excessive level of Government debt has served only to fuel Congressional suspicions.
Congressional anger is now such that the vital ‘independence' of the Fed is becoming threatened in the name of ‘disclosure'.
Such an event might suit the political purpose of President Obama by placing the Fed, with its ability to print unlimited amounts of fiat money under Presidential ‘control'. It would allow any president total power over the Nations money. Furthermore, dispersal of such money could remain largely hidden, making it potentially the largest slush fund in history.
Clearly, it is morally and constitutionally indefensible for the Fed to resist full ‘disclosure'. On the other hand the ‘independence' of the Fed has never been more vital to the ultimate security and freedom of all Americans from dictatorial martial law.
The independence of the Fed has nothing to do with its accountability. Its obligations for disclosure will make it a stronger not a weaker institution. Congress should be mindful of this.
Subscribe to The Daily Bell and immediately access our free guide:
Freedom in Two Years
How to stop caring about political “sides” and focus your efforts on what will truly make a difference in your life.
This is a guide to individual, not political, action.Yes, deliver THE DAILY BELL to my inbox!