By Drew Pierson

WASHINGTON (MNI) – Retiring U.S. Rep. Ron Paul Wednesday sparred
with Federal Reserve Chairman Ben Bernanke in what was likely the
long-time Fed critic’s last opportunity to grill the Fed chief in a
committee setting.

First on Paul’s list of questions: “auditing” the Federal Reserve.
That’s the subject of Paul’s bill, HR 459, called the “Audit the Fed”
bill by its supporters, currently scheduled for a House floor vote next
week.

Paul’s bill would, for the first time, give the Government
Accountability Office the authority to obtain communications between
members of the Federal Open Market Committee and foreign banks, Federal
Reserve employees and others with regard to FOMC decisions on monetary
policy, including interest rate adjustments.

Bernanke said his “nightmare scenario” was not only of lawmakers
requesting such an audit following an unpopular monetary decision and
using internal deliberations against members of the committee, but also
of the GAO issuing its own set of policy recommendations about FOMC
decisions.

“I think the term ‘audit the fed’ is deceptive,” Bernanke said.

Bernanke said such a bill would have a chilling effect on the
ability of the Fed to make independent decisions, and would have a
negative impact on the economy in the long run.

On the subject of transparency, Bernanke said the Fed’s financials
were regularly audited by outside parties, and pointed to new FOMC
communications policies that he said were helping to allay market fears
and educate the public.

For example, Bernanke said he would soon be participating in a
video conference with teachers around the country on how best to teach
financial issues to American students.

“I would argue we are quite transparent already,” Bernanke said.

Committee Chairman Spencer Bachus noted Paul’s bill had not come
before the committee before going to the House floor.

Wednesday marked the second consecutive day Bernanke went before
Congress to deliver his semiannual Monetary Policy Report, after
speaking to the Senate Banking Committee Tuesday.

House lawmakers had many of the same questions as their Senate
counterparts, and Bernanke had many of the same answers: the economic
recovery was “decelerating,” unemployment was likely to stay above 7%
through 2014, and the Fed was still considering options for intervention
if the outlook deteriorates.

Among other lawmakers’ concerns, Rep. Lacy Clay noted that
unemployment numbers for the general American population were high, but
specific groups were faring even worse: African-American males currently
face 14.2% unemployment, Clay said.

Bernanke said he sympathized with the struggles many Americans were
still facing, and defended Fed actions, saying monetary policy had
“certainly” contributed to the recovery, and that purchasing programs
could be unwound without causing inflation.

Bernanke pointed to unfulfilled newspaper op-ed predictions of
inflation soon after the first round of quantitative easing was
implemented, and noted that instead, the economic recovery began only a
few months afterwards.

As he did Tuesday, Bernanke warned of two near-term headwinds to the
still-tepid recovery, the first being issues related to the eurozone.

“I don’t think they [European leaders] are close to a long-term
solution that will solve the problem, and until they find a long-term
solution, I think we will see periodic volatility in the financial
markets,” Bernanke said.

As for the second obstacle, the so-called “fiscal cliff” that would
result in a tax hike and budget cuts equivalent to 4% of GDP if
unchanged, Bernanke said larger but more gradual deficit-reduction was
needed.

“There is very little disagreement that the U.S. fiscal situation
is unsustainable ,” Bernanke said.

The Federal Reserve Chairman found himself in a rare position of
agreement with lawmakers on one subject related to the economy — that
there is a limit to what Fed policy can do, and that Congress needed to
act.

“I would like to see the other parts of government play their
roles,” Bernanke said.

Besides questions on the economy, Bernanke once again responded to
inquiries from members of the committee that he had personally become
aware of potential issues with LIBOR in 2008 through press reports, and
that all Fed employees had turned over information to the appropriate
authorities as they became aware of it.

Some Republican committee members ceded their time allotted for
questioning to Paul out of respect for the outgoing congressman. First
elected to Congress in 1976, Paul will retire at the end of the year.

Paul said the dual mandate made Bernanke’s job “unmanageable,” and
added that his criticisms were not aimed at the Fed Chairman personally.

“It’s a flawed system,” Paul said, pressing Bernanke on issues that
included whether the U.S. should return to the gold standard.

Bernanke said in his opinion a return to the gold standard could be
at odds with the Fed’s mandate to preserve price stability because the
price of gold fluctuates often.

“A gold standard doesn’t imply stability,” Bernanke said.

** MNI Washington Bureau: (202) 371-2121 **

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