No economist thinks the Fed is subjected to a COMPLETE audit every year. Furthermore, Federal Reserve General Counsel Scott Alvarez testified that an annual audit would cause interest rates to increase: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=adDANopNzewM

“Hands out” a half trillion dollars to foreigners is hasty language. It is a currency swap, although the Fed has been making a lot of loans as well. The swaps help to provide liquidity to foreign financial institutions. For the readers, here’s a rundown of the process: http://macroblog.typepad.com/macroblog/2008/09/thursdays-post.html

I was trying to illustrate the point that a lot of what the Fed does isn’t transparent. Loans and currency swaps by the Fed with other nations is something people should be aware of and have the ability to question. Without transparency, we’re taking it on faith that the actions they take with our money and the nation’s credit are “best for us”. Like TARP money being funneled abroad through AIG, there can be legitimate descent to a secretive Federal Reserve wielding great power in our financial/monetary system.

So when the Fed monetizes debt, that has no effect on our money and national credit? Right. There is no mechanism in place to hold the Federal Reserve accountable for mistakes they make managing our money supply and interest rate policy. That is a problem.

All of the Fed’s dealings don’t sit on their website for everyone to see, which is why some call for a COMPLETE independent audit. Keeping their credit and interest rate policies secretive, they say, is vital to them functioning. Given they have presided over a 96%+ devaluation of the dollar since 1913, and have contributed to bubbles, I would say it is vital their dealings are out in the open.

I didn’t say the Fed spent the TARP money. I used it as a parallel example of our financial and political leadership engaging in dubious actions, both of which are deserving of legitimate dissent (and happened to route money overseas).

I make a valid point, and you call a couple people morons. And then you ask me if open Fed policies should be for the purpose of politicizing. No, they should be open because of the original valid point.

We could let markets set interest rates, and institutions fail for running themselves into the ground, followed by a liquidation of their debt and eventual reclaiming of their assets by solvent/healthy institutions. Crazy idea.

Jim, take it easy on putting words/ideas in people’s mouths on this message board. I love the debate, and representing multiple points of view but, seriously, take it easy on extrapolating people’s comments you pull out in quotes.

Having said that, I know inflation/deflation occurred before the Fed. I know human nature has a hand in asset bubbles. But I’ll take interest rates that aren’t artificially contrived and a profit/loss system without moral hazard before the secretive Federal Reserve and bailouts any day. I don’t know much about Alan Grayson, but I can guarantee you Ron Paul knows the difference between the Fed and the Treasury.

Markets don’t set rates by themselves, though. That’s what I’m talking about. The Federal Reserve has an interest rate target aka the federal funds rate, which represents their desired rate. The federal funds rate is the rate which banks charge each other for overnight loans to balance their reserves, and thus influences the rate banks charge their customers. The Fed can add or remove funds from the banking system to approach this target. The federal funds rate target has covered a span from about 0.25-20% over the last half century. Also, the GSEs underwriting policies help set mortgage rates, which the government allows. So I’m fully aware that demand for capital helps set interest rates, but so, too, does the fed funds rate, which is closely related to the money supply. Anyone who thinks the fed funds target rate has been set appropriately for the last 50 years, should probably take a closer look.

For some interesting futures markets, readers should check out Intrade.com. You can bet on the direction of pretty much anything.

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