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EDITORIAL: Polish loose lips’ sinking of zloty is lesson for Fed

A scandal shows the need for greater transparency

- - Wednesday, July 2, 2014

The National Bank of Poland and its governor, Marek Belka, are in some serious hot water. Last month, recordings of a conversation in 2013 in which Mr. Belka talked about a scheme to oust the Polish finance minister made it into the newspapers.

Uncertainty over the Polish central bank, which like the Fed in America sets monetary policy, sent investors looking elsewhere for places to put their money. Over the following few weeks, the Polish zloty fell 3 percent. Calling something "as sound as a zloty" no longer reassured investors; ambitious Polish diplomats no longer fantasized about "zloty diplomacy." What happens in Warsaw pretty much stays in Warsaw, but the Polish scandal is a caution for the folks at the Federal Reserve. Careless talk is dangerous anywhere.

The Fed sets interest rates and has some oversight over banks, for example. The board of governors is supposed to be above politics, but like every decision made in Washington, the politics of it is carefully calculated. That's why Fed chairmen are renowned for their ability to say absolutely nothing in hundreds of words. An innocently stray remark to a congressional committee can send the stock market into a panic. No jokes, quips or witty japes allowed. Leaders of the central bank practice studiously to make sure they never frighten the horses.

The imagination quails at the thought of Janet Yellen, the Fed chairman, being overheard, for example, joking about a plot the overthrow Jacob Lew, the Treasury secretary. Wall Street, ever eager to panic about something, might take the limberneck if it learned that Mrs. Yellen has an opinion on the weather. This is a problem that comes from the Federal Reserve being invested with too much power over the economy, along with the public not knowing anything about the way it goes about its business.

If the public had a good idea of what the Fed was doing, it wouldn't matter much what the chairman says. But the workings of the central bank are so mysterious that it can get away with "losing" $9 trillion dollars. That's the amount that the Bloomberg business wire reports as "discrepancies" in the Fed's balance sheets in the eight months leading up to January of this year.

An "Audit the Fed" bill has been proposed annually for many years to clear up the mistakes on the central bank's books. The measure passed the House this spring on a bipartisan 327-98 vote, but it can't break through Harry Reid's blockade in the Senate.

A change in leadership of the Senate in November would solve that problem. Such legislation would commission the comptroller general to comb through the Fed's books, and a comptroller general is not the sort of accountant who overlooks 9 trillion missing dollars.

WikiLeaks exposed what the State Department really thinks of various countries around the world. The National Security Agency listens to everyone's telephone calls and snoops through emails. So it's not hard to imagine a Polish-style scandal here in America. Opening up the Fed to sunshine would ensure that the stock market remain stable, even if Mrs. Yellen is overheard complaining about the mercury breaking a hundred.