Audit the Federal Reserve

US congressman and long time libertarian Ron Paul has introduced a bill that would see the Federal Reserve (the US central bank) subject to routine audits by Congress. The Federal Reserve was formed in 1913 and some say it has never been formally audited. Ron Paul would like to see the Federal Reserve closed down but has actually pitched for something much more modest and to date the bill has received enormous support. From the Wikipedia article on the topic:-

H.R. 1207 now has 275 cosponsors, including all House Republicans, as well as 98 Democrats, suggesting broad bipartisan support. The total of 276 sponsors is 63% of the House membership.

It may even get the numbers in Congress to become immune to presidential veto. The Reserve Bank of Australia (our central bank) is routinely audited, so the reform hardly sounds radical. However it is amusing to watch the Federal Reserve chairman, Ben Bernanke, arguing against the idea and to ponder what his real concern is.

The second question in the video is incidental and digresses into a somewhat predictable semantic debate about the proper definition of inflation.

18 thoughts on “Audit the Federal Reserve

  1. “However it is amusing to watch the Federal Reserve chairman, Ben Bernanke, arguing against the idea and to ponder what his real concern is.” (Yep, I’m giggling)

    Terje! Something we can agree on 100%. Knew it would happen some day.

    When economic libertarians and socialists agree on something, it’s almost certain to be a valid position.

    (If you’d unequivocably advocated Ron Paul’s position, it would have been 80% agreement.)

  2. If Ron Paul ever comes out and says he thinks fractional reserve banking should be prohibited then I’ll have a big thing to disagree with him on. However he only ever hints at this idea so I’m never sure which way he really blows on this issue. Otherwise I generally find myself agreeing with Ron Pauls position on currency and money. The Federal Reserve should be closed down. The USA should return to the gold standard (so should Australia). Those that issue and use private currency should not be persecuted. Legal tender laws should be revoked. The government should not make currency other than as gold coin (the private sector would readily do it anyway so they should probably stay out of this as well). I also think a return to the gold standard should be a priority irrespective of whether you want mixed econonomy socialism or liberal democratic capitalism. So long as the world has a messed up accounting unit we are going to have recurring bouts of crisis that get blamed on the wrong things.

    A more modest option would be to keep our fiat currencies and to relink them to gold via open market operations. It would achieve most of the stability without as much reform and the technical aspects could be implemented in under 24 hours.

  3. Dear American brother,
    First and foremost, my intention is not to hurt or harm you in any way possible.

    It is only to make you see my point of view.
    It takes little time to put the pieces of the puzzle together which is this:
    – Every body needs oil (all transport(of people and goods) and construction work)
    – To buy oil, one needs dollars. (OPEC only accepts dollars, Iraq, Iran and Venezeula tried to take euros and faced US wrath)
    – So everybody needs dollars.
    – The Federal Reserve is the authority controlling dollar issuing powers.
    The Federal Reserve is opaque. It’s decisions are independent and cannot be questioned by anybody. Now having such powers at hand, one would expect the Federal Reserve to be as open and transparent as possible. But that is not what the Chairman of the Federal Reserve wants. This is too much power in the hands of a few people and also who are not accountable to any one.

    By allowing the Federal Reserve to work opaquely, it is a risk to the freedom of every individual (in every country including America).

    If you cherish your freedom, then please support this bill

  4. Rohit – Not many American brothers around here. This is an Australian blog. Although feel free to contribute.

  5. Is the RBA regularly audited? They are definately an ‘exempt organisation’ when it comes to freedom of information requests with respect to monetary policy.

    I would be interested to know how frequent/comprehensive these audits are

  6. “The Reserve Bank of Australia (our central bank) is routinely audited”

    By whom and where can these audits be downloaded?

  7. The reason they don’t want to be audited is that the audit will allow people to calculate inflation based on the amount of bonds that are brought when the reserve goes to inject cash. Once this happens all the credit holders will instantly shift their lending bid rates to at least match the inflation rate, once they achieve this the injection is essentially nullified. The whole idea of injecting money is to make the money people currently whole worth less.

  8. yes but the fed have this type of audit aswell

    Click to access audits.pdf

    i think what ron paul is saying is needed is a more comprehensive audit than just financial statement accuracy, as is the case in the US and here

  9. Pingback: HR 1207 « Thoughts on Freedom

  10. MikeD – but we already know the inflation rate. Why doesn’t that happen now?

    You’re inferring a private, quasi central bank in free banking couldn’t expand the total money supply or even the base.

    It actually happened all the time, simply at a rate low enough to keep inflation very low and fluctuating around zero.

    Correct me if I am wrong.

  11. If the money supply is fixed (gold standard) and the number of goods in the economy increases (economic growth) then prices per good will by definition decrease (deflation). In order to have constant prices or zero inflation you must increase the money supply as the economy grows.

    Deflation is an excellent economic occurrence – such a shame it is given a bad name by keynesians

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