What Money Can Buy
By Peter Duveen
Peter Duveen photo.
The front window of the new congressional offices of U.S. Rep. Scott Murphy in Glens Falls, New York.
new offices of U.S. Rep. Scott
Murphy come with his election to a House seat in March. But will the
investment of taxpayer money for the flashy digs reap benefits, or
obfuscation, for the public at large? Rep. Murphy's answer to a
constituent's question about auditing the Fed indicates that it may be
PETER'S NEW YORK, Friday, July 3, 2009--Democratic U.S. Rep. Scott
Murphy, D-NY, must bill himself as a populist, since he recently had occasion to mingle
with his constituents. In the event you do not recognize his name, Murphy
was the candidate who won a special election in March to fill the
vacancy created when Rep. Kirsten Gillibrand was appointed by New York Governor David Paterson to replace U.S. Sen.
Hillary Clinton, who in turn became Secretary of State for the Obama
Administration. Murphy put in an appearance earlier this week at his
brand new congressional offices in Glens Falls, New York, a mile from
where he resides. It's been a very wet summer so far in the Northeast,
but impending rain did not discourage people from coming out to meet
Peter Duveen photo
U.S. Rep. Scott Murphy, right, addresses constituents and officials in front of his new offices in downtown
Glens Falls, New York.
Murphy arrived a few minutes late, followed by cadre of attractive
young staff members, all carrying calling cards emblazoned with the insignia of
the United States of America. The staff cordially
greeted constituents who had gathered to hear their new
congressman and to air their grievances. As an impending rain storm
threatened to disperse the crowd, Murphy, trying to keep his remarks
brief, delivered a summary of what he had encountered in the House of
Representatives thus far, and the bills he had voted for. One bill that
it became clear he did not support calls for an audit of
the Federal Reserve.
An audit merely means an examination of the Federal Reserve's actions,
thus enabling Congress to exercise oversight regarding that
In case you don't already know what the Fed does, it is a bank that
issues the United States currency, something that the U.S. government
is supposed to do. It also regulates the supply of that currency, and
therefore its value. And it uses the aforesaid functions to manipulate
what is supposed to be a free market, in the name of promoting a
healthy economy. It also has some bank regulatory powers.
A previous U.S. president, Andrew Jackson, killed an earlier version of
the Fed by letting legislation for it expire. That was in 1836, and it
was about 77 years before Congress ushered in the latest version of a
national bank, a concept that had haunted the nation since its very
"I did some research," Murphy said in response to a question about the
audit by Glens Falls businessman and Albany Times-Union newspaper
blogger Matthew Funiciello. "It turns out the Federal Reserve is
privately audited." Later, repeating the point, he said, "I'd love to
get out the fact that it's been audited, and make sure people can read
That may have been reassuring to some, but five minutes of looking into
the matter on the web might change their minds. Surely Murphy could not
have missed the fact that 244 members of the House have signed up as co-sponsors of a
bill to "audit" the Fed. If it is being audited regularly, are these
members making fools of themselves and wasting taxpayer money pushing
for a law to carry out what is already being done? Not very likely.
A quick internet search will reveal the cause these members are
supporting. The name of the bill is HR 1207, "The Federal Reserve
Transparency Act of 2009." What does this bill do? It strikes some
important language from the U.S. Code that restricts the power of the
Comptroller General to audit the Fed.
What is it that cannot be audited under current law? The law says that audits of the Federal Reserve shall not include:
1) transactions for or with a foreign central bank, government of a
foreign country, or nonprivate international financing organization;
2) deliberations, decisions, or actions on monetary policy matters,
including discount window operations, reserves of member banks,
securities credit, interest on deposits, and open market operations;
3) transactions made under the direction of the Federal Open Market Committee; or
4) a part of a discussion or communication among or between members of
the Board of Governors and officers and employees of the Federal
Reserve System related to clauses (1)–(3) of this subsection.
Peter Duveen Photo
Constituents and officials gather to greet Rep. Scott Murphy at the opening of his headquarters in Glens Falls, New York.
In other words, the Comptroller General shall not ask questions about
the Fed's dealings with, say, the Bank of International Settlements,
the International Monetary Fund or any other of the world's central
banks, according to the first point. We may not know how much money has
changed hands between the Fed and any of these institutions, nor may we
know what kind of instructions or dialogue has passed between them, or
even whether Fed policy is controlled by the banking interests of
another country or by the executive branch of a foreign government.
The Comptroller General's audit shall not apply to any matters
regarding monetary policy. Now the conduct of monetary policy
determines such parameters as interest rates and the purchasing power
of the currency, matters which have a direct and deep impact on the daily
life of the average citizen. We're talking here about people's
mortgages, inflation, and the ability to obtain financing for
businesses. The conduct of monetary policy may extend to matters of
market intervention, which may include transactions in the foreign exchange, stock, bond and
commodities markets in which many Americans hold a stake or are
Third, the Comptroller General shall not audit transactions made at the
direction of the Fed's "Open Market Committee." The Open Market
Committee votes on measures the Fed will take in implementing monetary
policy. This includes measures that affect the growth of the money
supply, interest rates and the value of the dollar.
Finally, the Comptroller General may not audit any part of the
communications among the Board of Governors of the Fed or officers or
employees of the Fed relating to the above three matters.
The four prohibitions permit Congress to exercise only very limited oversight of the Fed's activities.
In light of the above restrictions, the Fed is what one must term a very
closed institution, and it is no wonder that half the U.S. Congress is
interested in seeking a change. The Fed was supposedly established to
ward off economic downturns such as occurred a few years before it was
established. It did not, however, do a very good job, as only a decade
and a half after its founding, the country entered the Great
Depression. So much for the intent of Congress.
Now why would anyone
want to restrict Congress from overseeing what is going on at one of the nation's major economic institutions? It is said
that an audit minus the restrictions on the books would interfere with the Fed's independence, and turn
policy into a political football. But should a body, whose actions have
such a great impact on the daily lives of citizens, be as independent
as it is? Perhaps if angelic personages were guaranteed to populate the
world of finance, one could answer "yes," but the history of that
sector does not support such a contention.
Murphy, in answer
to Funiciello's question, touched on whether the General Accounting
Office of the Federal government, rather than a private accounting
firm, should audit the Fed. "That could make sense," said Murphy. "I
actually talked with (Fed) Chairman (Ben) Bernanke about it; he said 'I
think it's kind of duplicating the work.'" In other words, No. Not that
Bernanke is the right person to ask, as it is unlikely he would support
greater Congressional oversight of his turf. What is interesting is how
Murphy handled a question from a constituent by deflecting its true
intent, and turning it into a meaningless issue, namely, auditing by
the GAO. One ought to study his technique carefully, because it is in
It would seem a
bit out of place for a man of
Murphy's intelligence to respond to a constituent the way he did.
The legislation in question, which was introduced by former
presidential contender Rep. Ron Paul (R-Tex.), has been well publicized
and has often been
characterized in the media and by its supporters as a bill to "audit
the Fed." He could not mistake the meaning of Funiciello's query. But
then, we Americans are accustomed to having our government lie right to
our faces, as it did when it told us that there were weapons of mass
destruction in Iraq before committing wealth and blood to a destructive
invasion and occupation of that country. So what's a little obfuscation
on the part of a freshman congressman?
Yes, technically Murphy is probably
correct in saying that the Fed is audited. But he used that information
the issue at hand--namely, the question of whether or not to lift
restrictions on the audit--and to mislead his constituents on a vital
matter. Murphy is up for reelection in 2010.
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