Below The Beltway

After beating back efforts to weaken it substantially, H.R. 1207,  the bill first proposed by Congressman Ron Paul to authorize a General Accounting Office audit of the Federal Reserve System, has passed a crucial House committee vote:

WASHINGTON — In a display of populist anger toward the Federal Reserve, a House panel voted on Thursday to let Congress carry out sweeping new oversights of the central bank’s policy decisions and operations.

The House Financial Services Committee approved a measure proposed by Representative Ron Paul of Texas that would allow Congress to order audits of all the Fed’s lending programs as well as of its basic decisions to set monetary policy by raising or lowering interest rates.

If the measure becomes law, it would expose the Federal Reserve to far more political pressure than it has faced for decades. Fed officials have adamantly opposed the measure, saying it would undermine the central bank’s political independence and gravely threaten its credibility as a bulwark against inflation.

The vote on Thursday occurred despite the opposition of Representative Barney Frank, Democrat of Massachusetts, who had wanted to shield the Fed’s decisions on monetary policy from political pressures.

Mr. Paul, a libertarian Republican who has called for abolishing the Fed entirely, has introduced a version of his bill in every session of Congress since the early 1980s and never made any progress. But the Fed’s trillion-dollar efforts to bail out major banks and rescue the financial system provoked a popular firestorm that ignited both right-wing Republicans and left-wing Democrats.

Mr. Paul’s amendment would instruct the Government Accountability Office, the investigative arm of Congress, to carry out audits of all the Fed’s operations. Those include an array of emergency lending programs, bailouts of giant financial institutions, dealings with foreign central banks and the central bank’s efforts to drive down interest rates by intervening in bond markets.

Mr. Frank had already agreed that the G.A.O. should be authorized to audit all of the Fed’s rescue programs, but he had wanted to wall off the Fed’s more basic job of setting interest rates to steer the economy.

Mr. Paul’s bill would abolish a longstanding exemption that shielded the Fed from Congressional audits of its monetary policy. Supporters of the Fed’s independence have argued the shield provided crucial insulation from political pressure, which would make it much harder for Fed officials to take unpopular action aimed at heading off inflation.

A few highlights from today’s hearing, including Ron Paul arguing why Fed transparency is important:

A debate between Congressmen Alan Grayson and Congressman Mel Watts regarding Watts’ proposed amendment that would have effectively gutted the bill:

And, the final roll call vote on the bill:

The fight for the bill isn’t over, but this is a great development.