Rand Paul is suspicious of the Federal Reserve, and I don't blame him for that. The Federal Reserve is not very transparent about what it does, and it is not very accountable to Congress or even the President.
Rand Paul, on the other hand, is pretty transparent. He wants to be President, and he needs the Tea Party to support him in his bid for the Republican Party nomination. Like most Tea Party members, Rand Paul seems to be a primitivist with regard to economics. When the economy fails, that is always blamed on Socialism, even though there was precious little socialism to be had in the United States when the economy failed in 1929.
Rand Paul and other primitivist free-market faithful also tend to believe in the Gold Standard, the idea that only the metal gold is real money. Rand Paul's father, Ron Paul, is a famous proponent of gold. Which is to say, he ignores history when it interferes with his ideology.
Winston Churchill (best known to Americans for his leadership of the British Empire during World War II) was appointed Chancellor of the Exchequer by Conservative Party Prime Minister Stanley Baldwin in late 1924. On April 25, 1925 he proposed that Britain would return to the gold standard, and it did. Unlike many people, Winston was able to learn from experience. In September of 1931, Churchill said:
"I accept my share of the blame for restoring the gold standard in 1925. We were promised reality and stability by our financial experts. We have had neither. The price of gold has increased by 80 per cent. That is as though the foot rule had become twenty-two inches and the pound weight twenty-eight ounces. Think what that means in terms of debt—the extra production demanded to satisfy existing mortgage indebtedness. This financial condition amounts to a hideous oppression." [quoted in A History of England by Goldwin Smith, third edition, page 747]The Federal Reserve may need better over sight by the public, but nothing, like imposing a gold standard, should be allowed to compromise its historic mission. Modern economies need an elastic money supply. We are long past the era of paper money. Money now consists of electronic accounting book entries.
Even when the Federal Reserve is doing its job, things can go wrong. The main problem with the modern (post-Depression) Fed is that it has been too lenient about asset bubbles. Such bubbles (the Internet stock bubble and the Housing prices bubble) cannot grow to a dangerous size if the Fed keeps the money supply inside of reasonable bounds.
I don't think there is any doubt that the way the Fed is set up favors banks (in particular the banks that it uses for its bond trades), and works on a trickle-down system. As Rand Paul and others (including Democrats and independents like myself) have pointed out, at the very least we deserve transparency.
Holding up Janet Yellen's nomination confirmation as a tactic to pass a particular bill the Federal Reserve Transparency Act is inappropriate. Congress should make sure the act is really about having a full annual public audit of the Fed (changing nothing else) and pass the bill, and Barack Obama should sign it.
The American economy is big and complicated, and many parts of it are rotted to the point that a small-scale collapse should be expected from time to time. The Fed needs to encourage growth while discouraging bubbles. It needs the power and the tools to do that. In my opinion it could use some reforms beyond the Transparency Act. But they should be carefully considered, and should be in the interest of the economic welfare of the citizens as a whole, not the wealthy Wall Street aristocracy.
William Meyer's work in progress is The Accounting: Your Fate is in the Cloud