Analysis

Rand Paul is on the warpath to audit the Fed

Everything you need to know, in four paragraphs

Sen. Rand Paul (R-Ky.) is on the warpath to audit the Fed's $4.5 trillion balance sheet, said Byron Tau at The Wall Street Journal. In a blistering op-ed published on Breitbart​.com, the likely 2016 GOP presidential candidate accused the central bank of having too much debt and of being leveraged "nearly three times greater than Lehman Brothers when it failed." The Fed needs to be subjected to stricter oversight, Paul said, which is why he introduced a bill in Congress last month that would require regular audits and "restore fiscal sanity to our nation's checkbook." Fed officials are sufficiently alarmed by Paul's assault that they're going on the offensive, said Patrick Gillespie at CNN Money. In a speech last week, Richard Fisher, the president of the Federal Reserve Bank of Dallas, said he could "think of nothing that would do more damage to our nation's prosperity" than Paul's proposal, which he insisted would dangerously politicize the Fed's deliberations.

Paul "gets many of his arguments about the Fed flat wrong," said Ben White and Katie Glueck at Politico. For starters, the central bank isn't leveraged like a regular bank; it doesn't borrow money, it creates it. So his Lehman Brothers comparison is silly, since a run on the Fed just isn't possible. Paul's call for more transparency is equally disingenuous, said Catherine Rampell at The Washington Post. The Fed and its 12 regional banks already undergo regular audits by their own inspector general, the Government Accountability Office, and independent private auditors. The central bank also releases detailed data about its finances and policy meetings. Paul is clearly trying to burnish his libertarian bona fides ahead of 2016, but if he really cared about the long-term health of the U.S. economy, he would "stop undercutting our central bank's credibility."

But why shouldn't the Fed be subjected to more scrutiny? asked Mark Calabria at The Hill. The central bank has taken "extraordinary measures" since the financial crisis, buying trillions of dollars of securities and keeping interest rates unprecedentedly low. The American public deserves more insight into those actions. Paul isn't simply calling for a more detailed financial audit of the Fed, but for a "programmatic audit" as well, to examine why the Fed does what it does. The fact that Fed officials currently disagree about the vitally important issue of when to raise interest rates demonstrates the need for "informed congressional oversight."

I understand why many Americans remain "deeply suspicious of the Fed," said Noah Smith at BloombergView. Modern monetary policy is complex and difficult to understand, and Paul taps into an old fear that "mysterious faraway elites" will devalue the hard-earned savings people have "sweated so many decades to squirrel away." But in reality, it was the Fed's creative measures that saved us from a depression in 2008 and put us on the path to our current economic recovery. Perhaps the central bank does need to be more open about what it does and why its independence is so important. It just might "forestall disastrous blunders by the likes of Sen. Paul."

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