From Congressman Alan Grayson, member of the House Financial Services Committee and representative to the 8th Congressional District of Florida:

Hi, Alan Grayson here. I just questioned Ben Bernanke in a Financial Services Committee hearing over the Federal Reserveís use of swap lines. You can watch the clip here.

There was some good discussion on the subject, and I enjoy reading the posts and the comments.

I asked the question because I genuinely wanted to know which foreign banks (or others) or else got the $500,000,000,000 in loans, and what they did with the money. Chairman Bernanke said he didn’t know. This is puzzling. Yves Smith wondered why Bernanke stonewalled, as did this anonymous economist.

For the record, I do not think the currency swaps in question — half a trillion dollars to foreign central banks — was what caused the US nominal dollar exchange rate to “appreciate”. In the past year, dollar appreciations have been perfectly correlated with declines in the Dow, the seizing up of financial markets, and a diminishing in investor appetite for risk. The Fed’s actions were almost certainly in response to this. What happened was, banks all over the world suddenly want to hold either T-bills or dollars, taking as little risk as possible, and not wanting to hold riskier assets such as the Pound or Euro. Everyone wants this at the same time, so to alleviate the demand, the Fed gives other countries half a trill in dollars in return for half a trillion their currencies… This, if anything, should slow the appreciation of the dollar, which is a good thing. I cannot fathom why Bernanke could not just elucidate this, except to say that perhaps Bernanke is taking his marching orders from someone else and doesn’t himself quite understand the rationale…..

This conventional storyline might be correct. Or China might have threatened to sell its Treasury bonds, so the Federal Reserve might have lent this money to friendly banks to backstop the Treasury market. Or you can spin out any number of possibilities here. We don’t actually know which one is correct. That’s the point . The Constitution grants to Congress power over the currency and power over the public purse strings for a reason – because we are accountable to ordinary citizens through the ballot box. The Federal Open Market Committee isn’t.

$500,000,000,000 is ten times the size of the entire State Department budget. Publicly elected lawmakers proposed and debated over 100 amendments to the much-smaller State department budget. Thatís how democracy is supposed to work — not through secret deliberations in which 12 unelected bankers trample on Congressís Constitutional authority to appropriate funds, approve treaties, and coin money.