Don’t Just Audit — Abolish the Federal Reserve

It is telling to see the kind of resistance Congressman Ron Paul’s H.R. 1207, Federal Reserve Transparency Act is getting in the U.S. Senate. To quote Congressman Paul directly, in part:

“Claims are made that auditing the Fed would compromise its independence. However, by independence, they really mean secrecy. The Fed clearly cherishes its vast power to create and spend trillions of dollars, diluting the value of every other dollar in circulation, making deals with other central banks, and bailing out cronies, all to the detriment of the taxpayer, and to the enrichment of themselves. I am happy to challenge this type of ‘independence’.

“They claim the Fed is endowed with special intellectual abilities with which to control the market and that central bankers magically know what the market needs. We should just trust them. This is patently ridiculous. The market is a complex and intricate thing. No one knows what the market needs other than the market itself. It sends signals, such as prices, that should be reacted to and respected, not thwarted and controlled. Bankers are not all-knowing and cannot ignore the rules of supply and demand. They might act as if they are, but their manipulation of the market just ends up throwing it wildly off balance, which gives us the boom and bust cycles.

“They claim the Fed must remain apolitical. No organization is apolitical that relies on the President to appoint the Chairman. In fact, it is subject to the worst sort of politics – power to create trillions of dollars and affect the value of every dollar in the country without the accountability of direct elections or meaningful oversight! The Fed typically enacts monetary policy that is favorable to particular administrations close to elections, to the detriment of long term considerations.”

The disincentive to those in government to allow the Federal Reserve’s activities to be laid bare should, just based on Ron Paul’s statements, be obvious. How though, specifically, does the Federal Reserve – not a government agency, mind you, but a private, run-for-profit monopoly – actually function?

Let’s say the U.S. government needs to borrow $300 billion. That’s a small amount based on present government spending, but let’s use that figure hypothetically. The Federal Reserve simply makes a log entry for that amount. They then write a check for $300 billion, and send it to a securities dealer. The securities dealer then issues the Federal Reserve a government security bond for the equivalent amount in U.S. government assets, in turn allegedly backed by the hollow “good faith” promises of the U.S. Congress, supposedly on behalf of all Americans, i.e., taxpayers. The securities dealer then deposits this check in his bank – a bank which is of course a member of the Federal Reserve System, as every one of them in America is. The bank then sends this check back to the Federal Reserve for payment. The Federal Reserve then credits the securities dealer’s account(s) $300 billion. The monies are then dispersed to the U.S. government.

The actual printing and shipment of Federal Reserve Notes, however, is not entirely without cost to the Federal Reserve. As of 1994, William H. Ferkler, Manager of Public Affairs for the U.S. Bureau of Engraving & Printing said: “As we have advised, the Federal Reserve is currently paying the Bureau approximately $23 for each 1,000 notes printed. This does include the cost of printing, paper, ink, labor, etc. Therefore, 10,000 notes of any denomination, including the $100 note would cost the Federal Reserve $230. In addition, the Federal Reserve must secure a pledge of collateral equal to the face value of the notes.”

Not a bad return on $230 created out of thin air in the first place! And what is, pray tell, the “collateral equal to the face value of the notes”? Why it’s the land, labor, and overall assets ostensibly owned by you and I. In other words, the members of the U.S. Congress, in supposedly “representing” us all, have arrogated the sum total of our live’s work and property, and handed it over to the Federal Reserve. Without the express consent of even one of us.

It is monetarily impossible to pay off the kind of debt that the U.S. government has created at the hands of the Federal Reserve System. The level of taxation required coupled with the economic growth necessary to accomodate this is purely a lunatic’s fantasy. How did this get so out of control?

The Creature from Jekyll Island is a good place to start. Though the title sounds like a horror novel, and the book reads like one, G. Edward Griffin’s volume is non-fiction. It details how the way was paved by bankers for the creation of the Federal Reserve and passage of the Federal Reserve Act on December 23, 1913 – just before the holiday recess when most members of Congress were out of Washington, D.C. Prior to 1913, the U.S. Treasury was exclusively responsible for printing and issuance of U.S. gold and silver certificates. The constitutional precedent for this was that tying a unit of currency to a specific weight of numismatic metal limited the amount of money in circulation. Consequently, those in government could only tax and spend on a very limited basis, and government would be then constrained in size and scope commensurately. When viewed in this light, it’s not hard to see why politicians were so eager to abdicate their constitutional responsibility by forming such an unholy alliance with the bankers. It also demonstrates just how ineffective things like constitutions are at keeping governments within specified “boundaries.” Moreover, giving any government authority and oversight of a standardized monetary system to begin with is very dangerous and ill-advised, to say the least. You’ve seen what has resulted from the advent of the Federal Reserve – runaway taxation and spending, massive government growth, corporate and bank bailouts to the tune of trillions, and future generations stuck paying the bill at the point of government’s guns.

No doubt, Ron Paul’s bill in the House of Representatives is shaking some people in the Federal Reserve up, and we’ve seen just how resistant those in the Senate are to it. They’re not about to bite the hands that feed them without a fight. The real issue though, is not about auditing the Federal Reserve, or holding its members accountable, or even returning the U.S. dollar to a gold standard overseen once again by the U.S. Treasury. What truly needs to be done is to eliminate altogether the elements that have allowed this situation to arise in the first place once and for all. Yes, that means outright abolishing the Federal Reserve – or at least, the U.S. government dissolving its bonds with the Federal Reserve to let it sink or swim on its own in a free market – which would of course mean its effective death sentence. However, as stated, what is needed is not any form of government-sanctioned currency, but a truly free market in money. This can only be a reality in the absence, not only of a Federal Reserve, but of the very institution of government itself.

In a free currency market, money – a mutually agreed upon form of exchange for goods and services among two or more parties – would be dictated only by what the market would bear. My personal guess is that gold – with a solid history of over 5,000 years of human history as an indicator – is poised quite nicely to assume that role, as is silver. All the more so now with e-technologies which allow for the transfer of minute grains of precious metals, in order to more effectively facilitate common everyday sales and purchases, as opposed to larger transactions. However, that’s just my opinion. Undoubtedly, the market would deal with the issue of money in numerous ways of which we can only speculate.

Speculate, that is, until both the Federal Reserve and government itself, are history.

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