Paul poised to take on 'atrocious' Fed at head of Financial subcommittee

By Peter Schroeder - 11/26/10 01:45 PM ET

Now, thanks to the GOP’s commanding victory in the midterm elections, Paul may finally have the chance to take on the central bank from the dais of a congressional hearing room. 

Paul is poised to take over the Financial Services subcommittee that oversees the Federal Reserve in the next Congress. With the power of that pulpit, Paul said he hopes to shine a light on the Fed’s policies, which he has long criticized as opaque and secretive, and make the case that the bank’s monetary policies harm the U.S. economy.

Speculation has swirled that Paul would immediately use his subpoena powers as chairman of the subcommittee to compel testimony from Federal Reserve officials, but in an interview with The Hill, the Texas lawmaker said he has other plans. 

“I’ve thought about it, [but] I don’t think I would start with [subpoenas],” Paul said.

“They’re likely not to yield … so that has to be held in reserve,” he said. “I just don’t think I should start off with that.”

Instead, Paul said he wants to foster a debate about the Fed’s role in the American economy and begin the push for greater congressional oversight. He said he wants to use the subcommittee to “discuss the relationship of monetary policy to the business cycle and particularly how they create the booms and the busts” in the economy.

But that doesn’t mean Paul plans to ignore the subpoena card in his hand.

“The idea that the Fed can create trillions of dollars and not have to respond to Congress is pretty amazing,” he said.

Paul’s elevation to the lead spot on the subcommittee is no sure thing, since the GOP leadership has yet to decide the chairmanships. But as ranking member of the Domestic Monetary Policy and Technology Subcommittee, Paul is the most likely choice for the gavel.

The Texas lawmaker’s pending chairmanship comes at a time when the Fed is increasingly under attack from both the right and the left. 

A slew of Republican leaders, ranging from former Alaska Gov. Sarah Palin to Speaker-designate John Boehner (R-Ohio), have criticized the Fed’s decision to buy $600 billion worth of Treasury bonds in an attempt to boost the economy. Republican critics argue the action, which essentially amounts to printing money, will only lead to a less valuable dollar and higher inflation.

On the left, meanwhile, Fed opponent Dennis Kucinich (D-Ohio) has announced plans to hold a hearing on Nov. 30 to review the Fed’s $600 billion plan. Kucinich is the chair of the Domestic Policy Subcommittee of the Oversight and Government Reform Committee.

His office said the hearing will come “in light of massive unemployment and the seeming inability of government to invest in infrastructure or to intervene to stop the loss of jobs” and explore will ways to boost the U.S. economy through “changes in the role of the Fed.”

The central bank is clearly feeling the heat from lawmakers and the public. The minutes from a Federal Reserve meeting released on Tuesday revealed that officials are considering whether Chairman Ben Bernanke should begin holding “occasional press briefings” to explain the agency’s actions — a significant change of course for the notoriously tight-lipped institution.  

Paul, who first came to Congress in 1979, was a critic of the Federal Reserve long before it was fashionable. In a recent blog post on his website, Paul wrote that it’s “amazing what a global economic meltdown will do to the political and media landscape.”

“While it is gratifying to see so many formerly uninterested politicians, economists, talk show hosts, and pundits suddenly rally to attack the Fed,” Paul wrote, “one can only wonder whether they truly understand that central banking is inherently incompatible with our Constitution and a free market economy.”

Sen. Bob Corker (R-Tenn.) and Rep. Mike Pence (R-Ind.) last week said they plan to introduce legislation that would eliminate the Federal Reserve’s dual mandate of pursuing maximum employment and price stability. They argue the bank should focus exclusively on controlling inflation. Rep. Paul Ryan (R-Wis.), one of the leading voices in the GOP on economic issues, has expressed support for the idea. 

But Paul argues that a smaller policy portfolio won’t solve the problems with the central bank.  

“I don’t think it will make much difference if you remove that mandate if it does what it wants anyway,” Paul said. “They’re always going to influence and probably bring about unemployment.”

While some GOP members have couched their Fed criticism with the caveat that they are not challenging the Fed’s independence, Paul is not worried about the impact his increased scrutiny would bring. Independence does not equate to secrecy, he argues. 

Paul also emphasizes that the Fed is not authorized in the Constitution, and says it is Congress’s responsibility to maintain a sound currency. 

The Texas Republicans said he plans in the next session to re-introduce his “audit the Fed” legislation, which cleared the House this year as part of financial reform legislation before being stripped out in the Senate.

Regardless of what happens legislatively, it’s a safe bet that there will be more activity on the subcommittee is Paul is at the helm. 

The subcommittee hasn’t held a hearing since July, according to the panel’s website, when Chairman Rep. Mel Watt (D-N.C.) sought testimony on U.S. currency and coins.