Volcker says Fed may finally face scrutiny

Former Fed Chairman Paul Volcker is suggesting that the unthinkable may happen.

When it comes to monetary policy and the Federal Reserve, both Ds and Rs alike are a bunch of Rubber Stamping, Kool-Aid drinkers. And have been largely that way since the passage of the Federal Reserve Act in 1913.

But with the recent market upheaval and the now well-known monarchical authority with which Bernanke and Geithner have acted... Congress may have actually found a backbone?

Paul Volcker seems to think so.

From Bloomberg News' Timothy R. Homan:

“I don’t think the political system will tolerate the degree of activity that the Federal Reserve, in conjunction with the Treasury, has taken,” Volcker, head of President Barack Obama’s Economic Recovery Advisory Board, said today at a conference at Vanderbilt University in Nashville, Tennessee.

U.S. lawmakers from both political parties have expressed concern in recent months that the central bank has overstepped its authority

I didn't see this coming. I think I missed it because I had been seeing Washington through the perspective of members of Congress who:

1) seemed to give a damn,
2) didn't drink the kool-aid and
3) asked questions.

I respect the likes of Russ Feingold and Jim Demint. But for years, they were considered outsiders. And I loved the likes of Ron Paul and Dennis Kucinich. They never cared what the press called them. They spoke their minds. But in turn, the word "fringe" was often used to describe them.

But the Populists in Washington have been questioning the Fed for years. I suspect the only reason Volcker is now raising this topic is because The Political Class in Washington realizes that people are angry and The Political Class is worried about what could happen in 2010.

Look no further than our own Chris Dodd. He's running scared right now and realizes his opposition to transparency will be doing him no favors in his campaign. So he's stuck between a rock and a hard place... does he continue kowtowing to Bernanke and Geithner and ensure Washington's Revolving Door remains welcoming after his "public service" has finished? Or does he try to retain his seat and actually start representing the voters, instead of The Political Class?

I suspect Dodd is central to Volcker's comments. And if I'm correct, it is sad that Dodd would be looking for "consensus" before demanding good government. But good government - in this case asking questions and demanding accountability - is worthwhile regardless of the motivations of individual public officials.

The article continues:

“It’ll be very interesting to see what the role of the Federal Reserve will be,” Volcker said. The possibilities “range all the way from giving the Federal Reserve more supervisory and regulatory responsibility to largely taking away” those powers.

I say End the Fed. 96 years is long enough. We should return to sound money and transition away from fractional reserve banking. We've been living on credit and it simply doesn't work.

Tim White