The Time To Audit The Fed Is Here

Authored by Jeffrey Tucker via The Epoch Times,

This week, Sen. Rand Paul is pushing an amendment to a major spending bill that would finally do what should have been done decades ago.

It should have been an annual undertaking for the past 100 years.

He wants a thorough and external audit of the Fed, using prevailing accounting standards to figure out where the billions and trillions are coming from and where they're going.

Maybe the time has finally arrived. It’s just in time. The Fed has put the country through an upheaval without precedent, causing outrageous distortions in the production structure, enabling lockdowns, funding despotic government programs, then reversing course and raising interest rates sky-high just when people had more debt than they could handle. This is all on the Fed, even if its managers will never take responsibility.

It doesn’t take too much thought or understanding to realize that the Federal Reserve is truly at the very center of the problem of the overweening power and reach of the federal government in all its brutality and unconstitutionality. In colloquial terms, the central bank enjoys the legal right to print money. That’s a metaphor. It really means to purchase and hold government debt with money of its own creation.

This sounds technical but what it does in fact is give the government a blank check. This is why government debt has gone up as it has without any real recourse from the bond market. Every state government issues bonds, but they're subject to a rating standard by the markets. They're priced on the market according to risk.

The federal government, on the other hand, issues debt that's universally considered AAA-rated and the safest place for money other than cash itself. The only reason for this is the legal power to create unlimited amounts of bailouts. No state government has this power. Only the central bank does.

The United States should never have created a central bank.

The very idea of a national bank was fought throughout the 19th century by people who knew for certain that it would be a magnet for government growth, graft, and fiscal profligacy. That's exactly what the Fed has enabled.

And this doesn’t come at zero cost.

The Fed’s willingness to fund government expansion has come at the expense of the dollar and U.S. living standards, plus created endless waves of economic and financial instability in the form of business cycles.

(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)

So, yes, a full-on abolition of the central bank would be a great idea and should be achieved forthwith. But as a step toward that goal, does it not make sense to at least gain a great understanding of what’s going on under the hood over there? Every public company faces external audits. These are the documents that investors look over most carefully for making crucial decisions about the soundness of companies.

At the very least, the Fed needs to face these, too. That transparency would be a first step.

The second step concerns what to do with the information. I can recall after the 2008 bailouts that the Fed was suddenly under enormous pressure to release detailed information about where all the bailout money went. The Fed did exactly that in massive spreadsheets. I looked through them and they showed exactly what we might expect: The Fed lent vast reserves to beef up the capital of all the biggest banks that it favors.

To me, this was a smoking gun. I can recall writing article after article about this. But what happened then? Essentially nothing. No one knew precisely what to do with the information. Quite simply, the Fed is so powerful, so essential to big government, so loved by the insiders in financial markets, and so opaque and off-limits to journalists that it can get away with anything.

That's a huge problem in a democracy that imagines itself to be free.

Looking back, it appears that Mr. Paul has been all over this issue during the time that it was needed most, right when the Fed was generating the inflation from which we are all suffering today. Back in 2021, he called for the very thing.

He wanted the Government Accountability Office to fully audit “transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization; deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations; [and] transactions made under the direction of the Federal Open Market Committee; or a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)-(3) of [Section 714b of Title 31 of the U.S. Code].”

That’s a great beginning. Having any outside penetration of the hallowed walls of the bankers and financiers is a great first step. It’s weird that nearly all the corruption of government is buried and enabled. Truly, if there were some restraint on the Fed, Washington itself would have a total meltdown. Government bonds would be subjected to a serious default premium. Congress could no longer expect an automatic market for all the debt that it creates. You wouldn't even need a balanced-budget amendment because normal accounting would require it.

The core problem is that the Fed itself disables normal accounting and replaces it with magical fairyland finance in which the taxation takes the form of ever-lower purchasing power from the U.S. dollar. The mischief that this institution has created is boundless. If we can't scrap it completely, at least the public and lawmakers need to gain a more granular look at what goes on behind the curtain.

As an undergraduate economics major, I personally became enthralled with Mr. Paul's father’s work on trying to restrain and ultimately abolish the Fed and replace it with a gold standard. This is the topic that got me fired up about economics in the first place. It's more important now than it was decades ago.

It’s time to ask your own representative to support this bill. Why? For the sake of freedom. For the sake of sound money. For the sake of the Constitution. So long as the completely unaccountable Fed is in a position to print and throw around trillions of dollars without any real oversight, this nation’s catastrophic problems will continue. We're looking at forever wars, forever debt, forever lockdowns, and forever corporatism, until something gets done.

Recall that Mr. Paul is the man who held Dr. Anthony Fauci’s feet to the fire. He should now do the same for Fed Chair Jerome Powell, who enabled Dr. Fauci’s dictatorship.