Inflationomics

Why Should We Audit the Fed?

 I can only think of ten reasons:

  1. Let’s start with the fact that the Federal Reserve Bank of the United States (Fed) has a monopoly on printing U.S. dollars and that the U.S. dollar is the world’s reserve currency.  This makes the Fed the most influential central bank in the world.  Many other central banks follow its lead.  As a leader, not only does the Fed have tremendous influence on the world’s economy, but it should also set a good example for other central banks.  The world has an interest in knowing how the Fed uses its influence.  Let’s find out what they’re up to.
  2. Because it doesn’t cost the Fed anything to create more dollars, it is very difficult for businesses/investors to compete against the Fed in obtaining dollars.  Businesses must produce something of value for consumers, while the Fed doesn’t have to produce anything for its money.  This unfair advantage gives the Fed extraordinary purchasing power which should be viewed once in a while by all concerned parties (world-wide dollar users) to learn whether the Fed is using its power wisely; i.e., what is the Fed buying with all those printed dollars?
  3. In modern history (that means since paper money has become widely used), many central banks have lost control of their printing presses and caused hyperinflation.  From Argentina to Germany to Zimbabwe, central banks have all fallen victim to the temptation of printing money out of thin air.  What’s to keep the Fed from following other central banks down the same path?  Perhaps it would be good for the world to see what sort of safeguards the Fed has to keep it from printing too much money.
  4. In 1914, when the U.S. Fed started printing paper money, a $20.00 bill would purchase a $20.00 gold double eagle.  Double eagles were .9675 ounces of 90% pure gold. Today, that same gold double eagle costs roughly $1,530.00, but part of that is numismatic value.  If we simply multiply .9675 by the price of one ounce of gold ($1,230.00 on February 15, 2015), we get $1,190.03 per ounce.  If we are generous and multiply that by 90%, we get $1,071.27.  In short, the Fed has printed enough paper money over the years to decrease the purchasing power of the U.S. dollar to about 1.87 cents of the 1914 dollar or less than 2% of its original purchasing power.  Not a very impressive track record!  Could it be time to consider alternatives?
  5. The Fed has a lousy record of predicting bubbles.  By stimulating the economy through its quantitative easing (QE) programs, the Fed has stimulated the prices of various assets; i.e., created bubbles in various assets, like commodities, real estate, and the stock market.  And yet, it hasn't seen the bubbles coming ahead of time.  It's like a blind person pointing a gun.  With so much power in its hand and such poor eye sight, shouldn't the rest of the world be allowed to see what the Fed is up to?
  6. The Fed never saw the 2008 financial crisis coming.  One of the reasons for establishing the Fed in the first place was to eliminate financial crises.  They’re not doing a very good job.  Perhaps we should see why?  An audit might give the world some insight into the Fed’s failures.
  7. Sooner or later, when the Fed screws up beyond repair, the U.S. government will take over the management of the money supply, interest rate policy, and capital flows anyway.  At that point, any independence the Fed may ever have had, will disappear.  Some people question whether the Fed is truly independent anyway…with the way it purchases U.S. government debt, not to mention bank debt worldwide. Can you imagine what would happen to the Fed’s “independence” if it stopped purchasing U.S. federal government debt?  Better audit the Fed now…once it’s taken over by the U.S. government, there will be no more auditing it then…national (government) security and all!  Then it will be the United States vs. the world.
  8. The Fed’s interest rate policy discourages savings and capital accumulation. When investors/savers cannot earn a decent return on their investments/savings, they turn to riskier investments (and corporations buy back their stock rather than invest in new products/services). In short, they become speculators, rather than investors.  This is especially difficult for retirees who may be living off the interest paid on a lifetime of savings.  Millions of retirees and workers are affected by the Fed’s zero interest rate policies and its inflationary ups and tapering downs.  Where’s the stability there?  Perhaps if the results of a Fed audit were made public, the world would better understand why people are becoming poorer through the Fed’s interest rate and monetary policies.
  9. As the NSA and IRS like to point out, you have nothing to fear unless you have something to hide…so, what could the Fed possibly have to hide?  Perhaps, as some experts believe, the Fed is doctoring statistics.  So, which came first, the doctoring or the reason for doctoring; i.e., the Fed’s poor performance?  Wouldn’t the world like to know the answer to that question?
  10. Transparency is becoming ever more important in a world that lacks privacy, especially for such powerful entities as the Fed and the U.S. government.  They are so large that no one entity or individual can see the entire picture…not even the president of the United States knows what’s going on half the time.  Consider Obama’s denial of knowledge about NSA’s snooping on foreign leaders, or his supposed lack of knowledge about the IRS’s profiling of conservative entities, or the ATF’s Fast and Furious scheme.  If nothing else, an audit of the Fed would reveal to the world what the Fed is up to and allow businessmen and foreign countries to anticipate the coming stupidity and plan accordingly.  As it is, only the Fed insiders are benefiting from the Fed’s manipulations.  Why not let the rest of the world in on the secret?  Why do we want a Fed that plays favorites when it affects the whole world?

At some point, if the Fed continues to create bubbles and proceeds to burst them, the rest of the world will tire of the Fed's manipulations and try to make the Fed's actions irrelevant.  Perhaps that's why the Fed doesn't want to be audited...if everyone knew how incompetent it is, they might try to get rid of them sooner rather than later.

Do you see any other reasons to audit the Fed?

Robert F. Sennholz

For comments, suggestions, or replies to the author, please e-mail