On a variety of Senatorial hearing, Jon Kyl was a very vocal opponent of the Fed and the secrecy embedded in the system. Which is why we were pretty amused, if not surprised, by his recent vote against the Vitter amendment. Here is his explanation. We hope you buy it more than us. We also hope you enjoy this the next time Mr. Kyl theatrically crucifies Bernanke for daring to operate blatantly on behalf of bankers, but at least without a shade of hypocrisy.
Dear Mr. ____:
Thank you for inquiring about recent votes in the Senate on amendments authorizing audits of the Federal Reserve.
First, it is important to note that the Federal Reserve's Board of Governors, the Federal Reserve Banks, and the Federal Reserve System as a whole are already audited annually by an independent outside auditor (currently, Deloitte and Touche). The Government Accountability Office (GAO) also already audits the supervisory and regulatory functions of the Federal Reserve to the same extent that it audits the supervisory and regulatory functions of other federal banking agencies.
Moreover, Congress already has the authority to conduct oversight of the Federal Reserve's operations: the members of the Federal Reserve Board are, for example, subject to the advice and consent of the Senate; the Fed Chairman testifies regularly before the Congress; and, of course, the Fed was created by an act of Congress and remains accountable to it.
What is excluded from the scope of the GAO's existing audit authority is the Federal Reserve's monetary policy deliberations and operations, including open market and discount window operations, and transactions with foreign central banks, foreign governments, and public international financing organizations. Those activities are excluded in order to preserve the independence and efficacy of the Federal Reserve's monetary policy decisions. In other words, the exclusion is intended to keep politicians from undermining the Fed's independence and injecting political considerations into the conduct of monetary policy - something that could lead to rampant inflation.
The Senate considered two audit-related amendments on May 11, 2010. The first was an amendment by Senator Bernie Sanders. The original version of his amendment would have authorized a full GAO audit of the Fed, including its monetary policy operations. But the administration had indicated that the President might veto it; so, Senator Sanders worked with members of the Banking Committee and the administration to reach a compromise.
What they came up with was a modified version of the amendment that would require the Federal Reserve to provide details about the emergency lending programs that it implemented since 2007 in an effort to address the liquidity crisis that gripped the financial markets. The Fed would be required to provide information about how much money went to borrowers, the dates the assistance was provided, terms of repayment, and the rationale for the creation of the lending programs. The modified Sanders amendment would also require the GAO to complete an audit within a year, but preserve the exclusion for the Federal Reserve's monetary policy deliberations. The amendment passed on a vote of 96 to 0. I supported it.
The second amendment was offered by Senator David Vitter and largely tracked the original version of the amendment that Senator Sanders had offered. It would have permitted the GAO to probe the Fed's monetary deliberations, and it was rejected on a lopsided vote of 37 to 62. I voted against it.
In addition to the concern noted above about injecting political considerations into monetary policy decision-making, I am concerned that a GAO audit of the Fed's open market operations could end up costing taxpayers billions by giving investors a road map to the Fed's trading strategies and the securities it intends to buy. Armed with information about the securities the Fed intends to buy (that is, information gleaned from an audit), investors could acquire the securities and then sell them to the Fed at a premium.
I hope this information is helpful. If you have any other comments or questions, please don't hesitate to let me know.
United States Senator
P.S. If you wish to share additional comments about this or any other matter, please visit my website at http://www.kyl.senate.gov/contact.cfm. Do not reply to this email.