The U.S. Federal Reserve building in Washington, D.C. (Aug. 9,...

The U.S. Federal Reserve building in Washington, D.C. (Aug. 9, 2011) Credit: Getty Images

Perhaps it was a farewell gesture to Ron Paul, who, after serving in Congress three different times and running for president three times, is retiring at age 76.

The House finally approved legislation long sought by the libertarian Republican, a bill calling for a comprehensive audit of the Federal Reserve and its 12 regional banks.

Paul has been a longtime proponent of dismantling the central bank, saying in a statement, "If Congress were really serious about limiting the size of government, it would eliminate the most important enabler of government profligacy by ending the Fed." Basically, the Fed is in charge of the nation's monetary policy, playing a central role in controlling the money supply and setting interest rates and keeping the dollar competitive against other currencies.

Paul's measure easily passed, 327-98, but the Senate, even though Ron Paul's son, Sen. Rand Paul (R-Ky.) introduced a companion measure, is unlikely to take it up this year, meaning advocates of a full-scale audit of the Fed will have to start all over again.

The Fed is already subject to a number of annual audits and the minutes of the deliberations of its board of governors are a matter of public record, although on a delayed basis.

The Fed doesn't object generally to the audit, but it objects vehemently to audits that would demand documents by Fed policy makers on the pros and cons of supporting changes in interest rates, decisions that affect everything from home mortgages to car loans to saving accounts.

Chairman Ben Bernanke said it would be a "nightmare scenario" that could open up the Fed's deliberations to political interference from Congress and the White House. Being able to open a spigot of cash would be a powerful political tool but one dangerous to the health of the economy.

However far the Paul bill goes, Congress must ensure that nothing jeopardizes the independence of the Fed and or is even seen as an encroachment on its economic impartiality.

Dale McFeatters is a senior writer for the Scripps Howard News Service.


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