As it was said on the Naked Capitalism blog entry pertaining to this testimony, “Bernanke basically stonewalls and refuses to offer reasonable explanations. Not sure if he is treating the Congress as stupid or not entitled to know, but he backs himself into a real whopper with his non-defense defense (see 2:55 to 3:20).”
In answer to the Congressman’s question about who gave the Federal Reserve the authority to lend a half a trillion dollars to foreigners, Bernanke responds that it was enacted in the Federal Reserve Act of 1913. Basically what he’s saying is we can do what we want, lend money to whomever we please, and all this without any true approval from the Senate, which is exactly what has been happening since the fall and even before that.
Basically, when you get down to it, if you are of the persuasion that we’ve just recently lost our economic rights, you’re mistaken. We lost those rights almost a century ago through the groundwork that was laid in the Federal Reserve Act. It gave power to this super bank, or Bank of banks, who could then later use that power in any way it deemed fit. Bernanke’s rebuttals make that clear. They are acting without the authority of the people, in contradiction of the Constitution.
Without delving into the large issue of the independence of the Federal Reserve system (read about the Bank of Japan for an example of the benefits to our independent system), you are missing one HUGE issue. The Federal Reserve is highly independent (I believe necessarily so). HOWEVER, the Senate can outlaw the Fed. So, if the Fed does something that the senate deems too extreme, they could outlaw it. We have more freedoms than you may think.
Although freedom isn’t by nature good. Consider Proverbs 12:1
“Whoever loves discipline loves knowledge,
but he who hates reproof is stupid.”
Often time’s people don’t seek the wisdom of those learned in a specific area. Perhaps it is better that people are subject to such a body as the Federal Reserve as they themselves would simply make a mess. It seems to me that we often use “freedom” to deny authority–to extinguish reproof.
My only issue with that is that I believe in total depravity. Because I believe in that, an overarching financial organization outside of the government (being that the Federal Reserve is a quasi-public, quasi-private institution) has the great potential and likelihood (as history has shown) of becoming corrupt and inflicting its desires on those who “would simply make a mess,” as you said. I don’t disagree when you say, “Although freedom isn’t by nature good.” That is true in the eternal perspective of things surely. I’m speaking in the purely here and now. I desire to see our nation continue in its present form and I’m just not sure the Federal Reserve seeks to meet those desires. It increasingly appears they have their own agenda.
You gotta understand too: I come from more of the Austrian camp as opposed to the Keynesian/New Keynesian camp 🙂
One more thing I was thinking about too … I’m not calling for an abolition of the Federal Reserve, because at this point, that’s just systemically impossible. I’m calling for more transparency. That’s all.
Having now watched the video to see what exactly the “issue” is, I find it actually funny and sad at the same time. Grayson clearly has no idea what he is talking about.
Bernanke did not say he doesn’t know where the money went. The Fed lent the money to foreign central banks–basically the Federal Reserves of other countries. Who those banks lent to are not something he would know as those loans weren’t loans made by the Federal Reserve. Furthermore, it is entirely appropriate that he would do such a thing. He is loaning dollars specifically into foreign central banks in order to make more dollars available to foreigners to purchase American goods. As he said, it was a liquidity swap. Other central banks needed more dollars–the currency needed to conduct any business with any US firm. Note that they aren’t talking about handing over just any money–the need was US Dollars in particular.
Later, Grayson accuses the Fed of drawing funds from the Treasury. It is true that the Federal Reserve handles the Treasury’s deposits, however it does not simply draw money from the Treasury. It also has deposits from every bank in the United States. BUT, these funds cannot be loaned. They are literally held in vaults since they are the reserves required by the system. However, the Federal Reserve has additional funds it loans to banks and this is where the money came from. The Federal Reserve is still lending to US institutions as necessary. It is unreasonable to expect that 100% of the money in the Federal Reserve would be given to US firms as that would entirely undermine that targeting of interest rates (which are around zero anyway, allowing for banks to borrow as much as the want essentially for free). In fact, an argument could be made that more money was a made available to US citizens since the dollars will most likely come back to the US when they are spent.
Really all this shows is that Alan Grayson has a very poor understanding of the Federal Reserve system and Bernanke knows it. Bernanke adequately answered the initial questions. His later responses and short because Grayson’s question are ridiculous.
Anyway, as for which economical “camps” people come from–I think to stick to either one is dangerous. People often analyze what happened under different economic policies and claim some as great and others as poor while forgetting one HUGE factor: the time (and by time, I’m including that large number of outside variables that exist). For example, many consider FDR’s policies to be brilliant. And they were. They were great for an economy in the condition of the US’s in his time. However, the would have been catastrophic in the late 1980s and early 1990s.
The issue with Bernanke didn’t start with this one Congressional hearing. This is one in a long line of Bernanke not being forthcoming about where money is coming from and where it is going to, whether we’re talking about the bailouts, currency swaps, etc. It doesn’t matter what it is. And it’s not just the Fed. The Fed, the Treasury, Congress, under the leadership of the left (and honestly even under Bush and many Republican leaders), has all increasingly become quiet on things that are going on with cash, tax payer cash.
I don’t disagree with a lot of what you said about Rep. Grayson. There’s a number of Congressmen on both sides who know shockingly little about basic macro economics. He’s not really the issue. The issue is secrecy about the flow of funds. My question is why shouldn’t Bernanke know where this money is going? We’re just going to trust that other central banks will do the right thing? Just dangerous for a democracy in my opinion. I know Bernanke’s argument about the US basically gaining interest on the money we lend. And we likely will. That’s not the point though.
The exchange in the video was merely revealing about Bernanke’s continued refusal to be forthcoming about what’s going on in the Fed. He knows a lot more than he lets on. And it’s not just him, but a growing number of people, especially under Obama, who seem to insist on not disclosing all kinds of information, from the information in the climate bill, to the stimulus, just name it. As JFK said, “The very word ‘secrecy’ is repugnant in a free and open society.”
I just want more transparency from the Federal Reserve and find it odd this one institution seems to be immune from hard scrutiny of any kind (not that Rep. Grayson’s was all that hard-hitting, but you get my drift), especially since it is a super bank in control of what happens in the larger economy.
At this point, I’m all for a detailed audit of the Federal Reserve to see exactly what is going on behind the scenes and has been going on for years. If it was possible for Madoff to get away with a $50 billion Ponzi scheme, it is possible for an institution as large as the Federal Reserve (who frankly dictates the ebb and flow of the macro economy) to also be making under-the-covers deals with billions of dollars.
Corruption in government always has its ties to some form of monetary transaction. It’s hard for me to think of any exception to that rule, whether it be in local or federal government. I mean I guess corruption could come about for the purpose of mere power, but power in itself usually has a monetary root of some kind. The Federal Reserve, with all of its secrecy, seems to me to throw a wrench in the balance of power in the three branches of government that was originally designed, and seems to be outside of the checks and balances put into place for exactly the kind of corruption I’m talking about, in that those who control the flow of money, control a lot more than just money. History is flush with examples of this. Here’s just one: the Rothschild family.