Audit us and interest rates will rise, Fed warns Congress

5:08p ET Monday, September 28, 2009

Dear Friend of GATA and Gold:

The Federal Reserve’s general counsel, Scott Alvarez, is being disingenuous in the testimony to Congress reported today by Bloomberg News (see below) in regard to U.S. Rep. Ron Paul’s legislation to audit the Fed. That is, the threat to interest rates Alvarez warns about has nothing to do with potential congressional interference with monetary policy. Rather, the threat to interest rates — and the dollar, U.S. government bonds, the Fed itself, and the entire world financial establishment — arises instead from the possibility that the Fed’s surreptitious intervention in the markets might be exposed and the world might see that, in fact, because of the Fed there really are no markets at all, just systematic robbery by banking interests and certain nations.

What the Fed is really saying with its hysteria is that the world will end if what the Fed is doing becomes known. Of course the world won’t end; it will just change dramatically.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Fed’s Counsel Says Audits Could Lead to Higher Interest Rates

By Craig Torres and Scott Lanman
Bloomberg News
Monday, September 28, 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=adDANopNzewM

WASHINGTON — Federal Reserve General Counsel Scott Alvarez said audits of monetary policy by the U.S. Congress could lead to higher interest rates and reduced confidence in central bank policy.

Congressional audits of monetary policy could “cause the markets and the public to lose confidence in the independence of the judgments of the Federal Reserve,” Alvarez told the House Financial Services Committee today in response to a question from Rep. Dennis Moore, a Kansas Democrat. Alvarez said in his prepared remarks the audits would probably “chill” the central bank’s discussions on interest rates.

Fed Chairman Ben S. Bernanke and his colleagues are trying to persuade lawmakers not to pass legislation sponsored by Rep. Ron Paul of Texas that would repeal the central bank’s immunity to audits of monetary policy. Fed officials used emergency powers to protect creditors of Bear Stearns Cos. and American International Group Inc. during the financial crisis, prompting congressional scrutiny.

“We don’t want to give the rest of the world or, more important, domestic investors the impression that we are somehow in a formal way injecting Congress into the setting of monetary policy,” said Rep. Barney Frank, a Massachusetts Democrat and chairman of the committee. “That could have a very destabilizing effect.”

Frank added that “a lot needs to be done” on Fed transparency and said that Congress can accomplish that without interfering with the independence of monetary policy decisions.

Paul’s legislation would remove Fed exemptions from audits in four areas: transactions with foreign central banks; deliberations on monetary policy matters, including discount- window operations; transactions made under the direction of the Federal Open Market Committee; and communications and discussions between the board, the reserve banks, and staff.

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