Audit of Federal Reserve Bank unlikely
What hides behind that green curtain would spook the heck out of public
WASHINGTON, D.C. — Many people in this country who oppose the Fed have claimed that this institution is an instrument of debt. In recent years, the Fed has been “buying” bonds in order to provide additional leverage to Banks and the Federal Government in order to maintain liquidity in the monetary system of the United States.
In so doing, the administration of President Obama has been able to go deeper and deeper in debt driving the national deficit to nearly $20 trillion. With nearly unlimited cash, spending money on war in the Middle East as well as funding social spending programs is easy!
Many people know of the Federal Reserve as being the monitor of inflation and possible instigator of growth in the economy. What most people do not know is that the Federal Reserve actually is a profit making operation. In 2015, for example, the Federal Reserve made a profit of $100.2 billion and transferred $97.7 billion to the United States Treasury.
The Federal Reserve System has numerous functions that it addresses in its dealings with member banks every day. Among them are: dealing with possible panics in the banking system; striking a balance between private interest of banks and the centralized responsibility of government, which includes supervising and regulating banking institutions and protecting the credit rights of consumers; to manage the nation’s money supply; to maintain the stability of the financial system and contains systemic risks and financial markets; to provide financial services to depository institutions including facilitating the exchange of payments among banking regions and to respond to local liquidity needs and, finally, to strengthen U.S. standing in the world economy.
In the role of central banker, the Fed serves as a ‘banker’s bank’ as well as that of the Government’s Bank. In the former instance, it helps to assure the safety and efficiency of the payment systems. In the latter instance, the Fed processes a variety of financial transactions. The United States Treasury keeps a checking account with the Federal Reserve through which incoming federal tax deposits and outgoing government payments are handled as part of this relationship.
The Fed sells and redeems U.S. government securities such as savings bonds and treasury bills. Through its division of engraving and printing, the Treasury produces the nation’s cash supply and, in effect, sells the paper currency to the Federal Reserve Banks at cost and coins at face value. The Fed then distributes cash money to financial institutions in various ways, but most of these cash transfers are merely entries in a computer system upon which the banks operate at the local and regional level.
Federal funds are the reserve balances also known as Federal Reserve Deposits that private banks keep at their Federal Reserve Bank. In so doing this provides a mechanism for private banks to lend the funds to one another.
As we all will recall, Congressman Ron Paul has advocated that there should be an audit of the Fed, something that has been opposed by both Republican and Democratic presidential administrations over several years. The Federal Banking Agency Audit Act was enacted in 1978 and established that the Board of Governors of the Federal Reserve System and the Federal Reserve Banks may be audited by the Government Accountability Office.
The GAO has authority to audit check-processing, currency storage and shipments, and to examine various regulatory and bank functions. But the Congress and Presidential Administrations have blocked every attempt to conduct a thorough “Forensic Audit.” There are many possible reasons for the position that has been taken so far, but the most prevalent of those is that no one wants the public to see what is behind the curtain.
The Fed considers itself an independent central bank because its monetary policy decisions do not have to be approved by the president. However, it does receive funding appropriated by Congress.
The Fed serves as a lender of last resort when institutions cannot obtain credit elsewhere. In creating the Federal Reserve System, it was the intention of Congress to limit financial crises that had periodically swept the nation. Through its Open Market Committee, the Fed has attempted to control interest rates that banks charge each other, known as the Prime Interest Rate. In recent years, in an attempt to provide liquidity to the banking system, the Fed has been buying these bonds through a mechanism known as Quantitative Easing.
This is a fancy way of saying that they are pumping money into the banks in order to help them through the recessionary period, including the devaluing of the U.S. Dollar. Under this premise many of these banks were determined to be “too big to fail.” Whether or not the intention was to boost the stock market, the fact is that many Banks and Investors have been investing in the Stock Market.
Each time the Fed hints at raising interest rates, the stock market tanks — causing the Fed to re-evaluate plans. This has caused investors such as Jim Rodgers and David Stockman, among others, to claim that the Fed and its Chairman Janet Yellen have no clue on how to manage the economy.
The current prime rate is so low that the Fed has no ability to lower rates any further. There had been some talk of negative interest rates in recent months but fortunately, it appears that those discussions have ended, at least for now. The Fed is poised to raise rates after the election, which certainly will be met with opposition, as it has before.
The core policy of the Fed is 2 percent inflation and 0% interest rates are kicking the economic stuffing’s out of Flyover America. They hammer middle and lower income people while showering the top tier of financial asset owners with tremendous windfalls of un-earned gain. So the nation’s central bank is essentially a reverse Robin Hood on steroids. They are killing wages, sending jobs offshore, trashing savers, subsidizing the banks, gifting Wall Street speculators with considerable financial bubbles and rigging the markets to ensure that the Democrats win.
Hillary Clinton will continue to talk about the “independence” of the Fed claiming that by slashing interest rates, they saved the American economy. Unfortunately, most people don’t understand enough on this subject to know who is right and who was wrong. Many people at the upper end of the economic scale know that the system is rigged and that financial markets have done nothing to preserve their shrinking living standards and diminishing job prospects.
In principle, lower income taxes are better than higher taxes and deliberate re-distribution by the state is always doubly bad. But the villain of 2016 is not the IRS tables — it’s the central bank’s printing press.
Whatever you think about the various economic proposals put forth by Donald Trump and Hillary Clinton, one thing that should stand out (which is not getting much press) is the prospect of trillions of dollars that have been parked overseas by multinational corporations that under the Trump plan could be brought back to this country to stimulate growth and jumpstart our lagging economy.
Most people in the financial world have looked at both economic plans and have judged the Trump plan to be more pro-growth. This issue will not be one that will receive very much press, but one that could have the most impact on stimulating growth and jobs in the near term.
This has been a thumbnail sketch of the Federal Reserve and what it all means. Though complex, the basics mentioned here may help you delve further for yourself.