The Federal Reserve’s Powers. Constitutional? YOU decide.

On November 19, 2009, the House of Representatives Financial Services Committee passed Rep. Ron Paul’s and Rep. Alan Grayson’s initiative to audit the Federal Reserve.  This initiative basically calls for the Government Accounting Office to audit the Fed’s balance sheets, credit facilities, securities purchase programs and similar items.  The initiative specifically states that nothing in it shall be construed as interference in or dictation of monetary policy by Congress or the Government Accounting Office.

On February 24, 2010, Federal Reserve Chairman Ben S. Bernanke told Congress “We support legislation authorizing the GAO to audit the operational integrity, collateral policies, use of third-party contractors, accounting, financial reporting and internal controls of these special credit and liquidity facilities.”  But the Fed Chairman said the Fed’s decisions on interest rate policies should not be included as that authority must remain independent of Congress.

Where do these issues stand in relation to the Constitution?

Article I and its Sections of the U.S. Constitution tells what powers our Congress has.

Quoting from The People’s Guide to the United States Constitution:

Section 8.  The Congress shall have the power…

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights [such as ounces, pounds, etc.] and measures [such as inches, feet, yards, acres, etc.];

“To coin money” means, literally, to make coins.  The authors of the Constitution had lost confidence in paper money during the Revolutionary War, but expected that banks would issue paper money that could be redeemed in gold or silver.

In 1913, the U.S Congress passed a law that delegated the right to create money to the Federal Reserve System.  The unusual mixture of public and private ownership is directed by a Board of Governors, located in Washington, D.C.  At the next level are twelve Federal Reserve banks, which are legally private corporations, whose stockholders are commercial banks that are members of the Federal Reserve System.  The president of the U.S. appoints the seven members of the Board of Governors of the Federal Reserve System, and the Senate must confirm them.  They serve fourteen year terms.  The Board of Governors supervises the operations of the twelve regional Federal Reserve Banks and has a major influence on the United States’ financial system.