Mishkin Calls Ron Paul Fed-Audit Bill ‘Incredibly Dangerous’

Hmmm...it could lead to second guessing the feds....how very dangerous indeed!



Representative Ron Paul’s proposal to allow audits of the Federal Reserve’s monetary policy is “incredibly dangerous” and could stoke inflation, said Frederic Mishkin, a former Fed governor.

“The Ron Paul bill is incredibly dangerous,” said Mishkin, who is now a Columbia University professor, in a Bloomberg Radio interview. “It is remarkable the kind of attacks that are occurring on Fed independence.”

Fed Chairman Ben S. Bernanke has opposed the proposal by Paul, a Texas Republican, saying it might open the door to interference in monetary policy. A separate proposal in the Senate backed by Banking Committee Chairman Christopher Dodd would strip the Fed of authority to supervise banks.

Paul’s bill “would be very dangerous in terms of promoting inflation,” Mishkin said. “If you make the central bank beholden to politicians on a short-run basis, you get very bad outcomes: high inflation and less of the ability to deal with shocks like the ones we had recently.”

Bernanke goes before Dodd’s Senate panel Dec. 3 in a confirmation hearing for his second term as central bank chief. He is likely to face questions about the central bank’s record of supervision during the financial crisis and its role in taxpayer-funded rescues of firms including insurer American International Group Inc.

The Fed chairman, in a Nov. 29 commentary in the Washington Post, said curbing the central bank’s authority to supervise the banking system and tampering with its independence would “seriously impair” economic stability in the U.S.

Core Functions

“A number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions,” he wrote. The measures “would seriously impair the prospects for economic and financial stability in the U.S.”

Paul, who wrote a best-selling book this year titled “End the Fed,” said provisions in his amendment would limit interference in monetary policy. The measure, co-sponsored by Representative Alan Grayson, a Democrat from Florida, would exclude any unreleased transcripts or minutes of Fed policy meetings. It calls for an audit of the Fed and its 12 regional banks by the GAO within a year after enactment.

Mishkin, 58, said government audits could lead members of Congress to second guess Fed decisions and prompt them to call on Fed governors and bank presidents to explain their interest- rate decisions.

“This is not the way to do monetary policy,” he said. “There are a whole bunch of proposals about regulatory authority and the Federal Reserve, which are potentially extremely damaging to the economy.”



[link to www.bloomberg.com]