Audit the Federal Reserve

This week the Federal Reserve responded to the American people’s increased concerns over our monetary policy by presenting new initiatives aimed at enhancing the Fed’s transparency and accountability. As someone who has called for more openness from the Fed for over 30 years, I was pleased to see the Fed acknowledge the legitimacy of this need.

The Federal Reserve controls the flow of money and credit in our economy because Congress has abdicated its responsibility over the nation’s currency. This process therefore occurs centrally, and almost completely outside the system of checks and balances. Because of legal tender laws, people are left with no real choice, except to build their lives and futures around this monopoly currency, vulnerable to powerful central bankers. The Founding Fathers intended only gold and silver to be used as currency, however, inch by inch over the decades, this country has backed away from this important restraint. Our money today has no link whatsoever to gold or silver. For many reasons, this is extremely dangerous, and has a lot to do with the boom and bust cycles that have resulted in the crisis in which we find ourselves today.

The Fed is now pledging to reveal to the public more about its economic predictions, and calls this greater transparency. This is little more than window-dressing, at best, utterly useless at worst. Many analysts, especially those familiar with the Austrian school of economics, saw the current economic crisis coming years ago when the Federal Reserve was still telling the American people their policies were as good as gold. So while it might be nice to know what fantasy-infused outlook the Fed has on the economy, I am much more interested in what they are doing as a result of their faulty, haphazard interpretation of data. For instance, what arrangements do they have with other foreign central banks? What the Fed does on that front could very well affect or undermine foreign policy, or even contribute to starting a war.

We also need to know the source and destination of funds provided through the Fed’s emergency funding facilities. Information such as this will provide a more accurate and complete picture of the true cost of these endless bailouts and spending packages, and could very likely affect the decisions being made in Congress. But with so much of the Fed’s business cloaked in secrecy, these latest initiatives will not even scratch the surface of the Fed’s opaque operations. People are demanding answers and explanations for our economic malaise, and we should settle for nothing less than the whole truth on monetary policy.

The first step is to pass legislation I will soon introduce requiring an audit of the Federal Reserve so we can at least get an accurate picture of what is happening with our money. If this audit reveals what I suspect, and Congress has finally had enough, they can also pass my legislation to abolish the Federal Reserve and put control of the economy’s lifeblood, the currency, back where it Constitutionally belongs. If Congress refuses to do these two things, the very least they could do is repeal legal tender laws and allow people to choose a different currency in which to operate. If the Fed refuses to open its books to an audit, and Congress refuses to demand this, the people should not be subject to the whims of this secretive and incompetent organization.

Downsizedc.org wrote:
The nation's money supply is soaring. Here are the numbers for the past year, as measured by M2 . . .

* In January of last year the money supply stood at $7.3 trillion
* As of this January the money supply now stands at $8.2 trillion
* This means the Federal Reserve has created nearly $1 trillion new dollars out of thin air, in the space of just one year

The Fed claims they're doing this to save the economy. They also claim they'll be able to withdraw this new money as soon as the economic recovers. They'll do this buy selling various financial instruments they've purchased with their funny money. They'll then retire the dollars they receive in return for these assets, thereby shrinking the money supply before it causes price inflation.

This sounds feasible, but can they really do it? Will the market want to buy what the Fed has to sell? The Fed has purchased huge amounts of distressed assets from the private economy, as well as vast quantities of Treasury notes from the government. Will the market want to buy these "assets?"

The Federal government has sold trillions of dollars of Treasury notes to fund their many bailouts and interventions, and they aren't done yet. The market is already flooded with government debt instruments, but Congress wants to sell more and more of them to fund additional vast new bailouts. Will investors want to buy more of these government debt instruments when the Federal Reserve decides they need to sell the ones they own?

And what about the distressed assets the Federal Reserve holds? The Fed bought them because supposedly no one else wanted them. Will that suddenly change once the economy recovers? Doesn't the very idea of an economic recovery imply that people will have better ways to invest their money?

And doesn't an economy that seems to be recovering because of an influx of counterfeit dollars risk collapsing again if those dollars are withdrawn, or suffering through both inflation and stagnation if the dollars can't be withdrawn?

We believe the federal government has created another bubble, this time in their own debt instruments. We believe this bubble will burst, just like the previous bubbles. People will not want to buy the Fed's Treasury notes, just as people currently do not want to buy houses.

The Fed will not be able to sell enough of its assets at a high enough price to withdraw their funny money from the economy. The money supply will remain inflated and prices will rise. Your cost of living will increase and the value of your savings will decline.