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As mandated by the Humphrey-Hawkins Full Employment Act of 1978, Federal Reserve Chairman Ben Bernanke presented a report to Congress on monetary policy on Tuesday and Wednesday. In order to assist lawmakers in developing insightful questions for the Fed chairman, FreedomWorks released a confidential memo written by our Director of Monetary Policy Dr. Judy Shelton that was obtained by The Hill newspaper. Listed in the five-page memo is a series of hard hitting questions on monetary policy and the real economy, the impact of inflation and domestic vs. international effects of monetary policy.
Some of the suggested questions were:
Will you please discuss what is meant by an economic ‘boom-and-bust-cycle’ in the context of a central bank’s role?
Do you believe the core inflation rate accurately measures the impact of rising prices for average Americans?
The inflationary effects of the quantitative easing are being felt outside of the United States. Rising food prices have been linked to protests across the Middle East and other areas of the world. Do you feel the Federal Reserve has any responsibility for maintaining monetary stability beyond our borders?
The U.S. holds the largest quota membership within the International Monetary Fund, which is comprise of 187 member countries. Does it concern you that its leader, Dominique Strauss-Kahn, who is a member of France's Socialist Party, is proposing a more prominent role for the IMF's own monetary unit, the Special Drawing Right, or SDR, to reduce global reliance on the dollar as the dominant reserve currency? Or what about IMF ideas for going further, towards a global currency managed by a global central bank?
The purpose of the memo was to get more informative answers out of Bernanke. It was a great success to help set the tone. Compared to previous testimonies by Federal Reserve chairmen, the questions were much tougher. This made it noticeably difficult for him to escape the question using extensive jargon or offering vague declarations. Sen. Jim DeMint asked a specific question from our memo about former Fed Chairman Alan Greenspan's proposal to have the Treasury issue five-year bonds payable in gold. This sparked an interesting discussion on price stability under the gold standard. Bernanke looked nervous and rightfully so.
Just a few short years ago, the American people and their elected representatives largely ignored the Federal Reserve. Things have greatly changed. We are now waking up and demanding to know what the Fed is doing behind closed doors. According to a recent Rasmussen poll, a record number of 74 percent of adults favor auditing the Fed. With the popularity of the movement, it seems like just a matter of time before Ron and Rand Paul’s Federal Reserve Transparency Act passes both chambers.
In his testimony, Bernanke expressed confidence that the economic outlook was promising. He stated that we were “likely to lead to a somewhat more rapid pace of economic recovery in 2011 than we saw last year.” This prediction is difficult to believe since Ben Bernanke's economic forecasts have virtually never been correct.
In June 2007, he said that “overall, the US economy appears likely to expand at a moderate pace over the second half of 2007 with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.” He was uncannily wrong.
Bernanke was asked about the controversial QE2 or quantitative easing Fed policy. Back in November, the Fed announced their plans to create $600 billion out of thin air. He claimed that the policy has been success although he couldn’t answer how he determined “success.” It’s clear that QE2 has made our dollar weaker. Just look at how grocery and gas prices are rising rapidly throughout the country. Bernanke claimed that this had nothing to do with inflation.
He also stated that there was no evidence that the dollar could no longer be the world’s reserve currency in a short matter of time. He told the House Financial Service Committee that "I just don't see at this point there is a major shift away from the dollar.” Many economists disagree with that assertion. In yesterday’s Wall Street Journal, Berkeley economics Professor Barry Eichengreen wrote “The dollar's reign is coming to an end. I believe that over the next 10 years, we're going to see a profound shift toward a world in which several currencies compete for dominance.”
The first step to restoring sound money is a comprehensive audit of the Fed. This can be done with enough grassroots pressure on legislators. With the U.S. facing a dollar crisis and prices skyrocketing across the nation, I urge you to call your lawmakers to ask them to support the Federal Reserve Transparency Act today.
Click here to read Dr. Judy Shelton's A Guide to Sound Money co-published by FreedomWorks and the Atlas Economic Research Foundation.