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Bruce Fein

Bruce Fein

Posted: November 19, 2010 01:34 PM

Congressional Abdication to the Fed

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Abdication of responsibility mothered by political poltroonery, thy name is Congress. Emblematic is the congressional delegation of staggering authority over the nation's monetary and economic policy to the 7-member independent Board of Governors of the Federal Reserve System. The open-ended delegation is indistinguishable from a law entrusting the Director of the Internal Revenue Service to promulgate an income tax code that is fair, promotes economic growth, and raises revenue sufficient to balance the budget.

The Fed was conceived in 1913 by the Federal Reserve Act, dedicated to the proposition that rule by omniscient Platonic Guardians was preferable to a republican form of government. It was initially tasked by Congress to create an elastic money supply to accommodate changing seasonal needs for currency. But via congressional amendments to the 1913 Act, the Fed has grown from a modest acorn into a towering oak. Congress has delegated to the Fed responsibility for "maximum employment, stable prices, and moderate long term interest rates." But the Fed's outlandish interpretation of the amendments is reminiscent of airbrush artistry. In a 2007 address, Frederic S. Michkin, then member of the Board of Governors, preached that the Fed's ultimate statutory purpose was "social welfare," for example, diminishing "human misery," including poverty, the incidence of divorce, suicide, violent crime, and "loss of self-esteem." The multiple purposes thrust upon the Fed by Congress authorizes the concoction of a monetary recipe for any social ill it discerns. To borrow from Shakespeare's Julius Caesar, "Now in the name of all the Gods at once, upon what meat doth this our Federal Reserve Board feed that it has grown so great?" The answer: monumental unconstitutional congressional abdication of legislative power.

Article I vests all "legislative" power granted by the Constitution in the House and Senate. Article I, section 8, clause 5 empowers Congress, "To coin Money" [and] "regulate the Value thereof." Nowhere does the Constitution's text support congressional abdication of its responsibilities to circumvent accountability to the people--the signature of government by the consent of the governed. Yet Congress has crowned the Fed with plenary authority to print money and to cheapen the currency. QE1 (quantitative easing) entailed the Fed's printing $1.7 trillion to purchase toxic mortgage-backed securities from faltering banks. That sum is 50% of the annual budget of the United States. QE2 will occasion the printing of an additional $600 billion to purchase treasury securities from banks, further inflating the money supply. Tomorrow, the Fed could announce QE3, mandating the printing of $3-4 trillion more to buy treasury bonds in a quixotic quest to depress unemployment. Indeed, it is impossible to conceive of any QE decision that would overstep the Fed's congressional deputation. But unchecked power is not the rule of law, but the rule of men condemned by Chief Justice John Marshall in Marbury v. Madison more than two centuries ago.

As a bow to the modern bureaucratic Leviathan, the United States Supreme Court has upheld the delegation of legislative power to "expert" agencies. But the Court has insisted that Congress also enact an intelligible principle to delimit the legislative choices available to presidentially appointed experts and passing the buck for major policy to unelected officials. In Yakus v. United States (1944), the Court elaborated that to pass constitutional muster a delegation must be "sufficiently definite and precise to enable Congress, the courts and the public" to ascertain whether the expert agency is acting within the law. More recently, the Supreme Court added in Whitman v. American Trucking Associations (2001) that, "we repeatedly have said that when Congress confers decisionmaking authority upon agencies Congress must 'lay down by legislative act an intelligible principle to which the person or body authorized to [act] is directed to conform.'" The Federal Reserve Act, as amended by Humphrey-Hawkins in 1978, does no such thing. Whatever monetary policy is decided by the Fed fits within the congressional delegation.

The financial fallout for individuals and companies is too important to be left to an unaccountable and secret economic Tzar. QE2, for instance, will drive interest rates to zero or less and penalize tens of millions of savers while shrinking the pool of savings available for lending to business. It will cheapen the currency, make hundreds of billions of dollars of exports more attractive, and make one trillion dollars of imports more expensive. These are cornerstone economic choices that the Constitution intended Members of Congress to make and thus risk losing their jobs for error or folly. To borrow from philosopher Sam Johnson, the knowledge that a Member may be ousted at the next election concentrates his mind wonderfully on mastering his legislative subject and making prudent decisions. In contrast, when was the last time a member of the Fed's Board of Governors lost his or her job for economic witlessness?

Congressman Mike Pence (R. Ind.) and Senator Bob Coker (R. Tenn.) have voiced a desire to rewrite the congressional delegation to the Fed. They would confine it to an intelligible mission of price stability. But President Obama would likely veto the bill, even if it passed a Democratic Senate. At present, the superior course is to challenge the constitutionality of the current delegation to the Fed in a suit brought by frugal savers who are being injured by the Fed's prodigality.