Yesterday (July 9th, 2009),  Vice Chairman of the Federal Reserve Donald L. Kohn, sat down with the Domestic Monetary Policy and Technology, Committee on Financial Services, to discuss why the Federal Reserve needs to remain independent.  Ranking member Ron Paul, along with Chairman Watt and other members of the subcommitee were presented with tesimony provided by Chairman Kohn on why it is esential for the health of the economy to maintain and potentially remove some accountability of the Federal Reserve.

Kohn notes that "A well-designed framework for monetary policy includes a careful balance between independence and accountability." with "appropriate checks and balances within our government".  The case Kohn presents is one which paints the Federal Reserve as a strong defender of sound policy which requires indenpendance in order to protect and watch over the American economy.  Ironicaly making the claim that "political interference with monetary policy can damage the economy by promoting an undue focus on the short term."  Which we can only infer from that statement that the current operations of the Federal Reserve has not put a focus on the short term...

However Chairman Kohn fails to explain how artificially setting interest rates by the Federal Reserve has indeed accompliahed exactly what he claims would be the result of additional auditing.  The Internet and Real Estate Bubbles, which are the latest example of the policy of artifically lowered interest rates, has set the tone for the past 10 years of short term gain without long term vision.  Artifically lowered interest rates have lured investors into markets that did not deserve the level of investment they recieved, creating bubbles, which has caused more damage to investor confidence than any short term gain artifical rates could repair.

The Irony of Kohn's testimony is that he actually makes the case that the Fed understands the need of the public to know what they do behind closed doors, while defending their need for privacy and independence.  Kohn continues with "Americans have a right to know how the Federal Reserve is using taxpayer resources and they need to be assured that we are acting in a responsible manner that minimizes risk and maintains the integrity of our operations".  Which only prompts the question, how have they performed their "responsibility" of minimizing risk and integrity over the past, let's say 2 years?

To send Chairman Kohn's message home with policy makers, he ends his testimony with, the "Federal Reserve policymakers are highly accountable and answerable to the government of the United States and to the American people."  Of course that applies until they are asked to actually answer to the people, Bankers Privalge says hello Chairman Kohn.

( Source: Vice Chairman Donald L. Kohn - Federal Reserve Independence )