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version of this article, read by Floy Lilley, is available
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If Ron Paul
succeeds in getting the Fed audited, the consequences could be far-reaching.
Assuming the audit isn’t rigged to protect the guilty, as a
similar bill was in 1978, the Fed will need every obfuscating
Keynesian to testify and write editorials on its behalf, to reassure
the public that monetary matters really are best left to the gods
who rule us, such as Ben Bernanke and Timothy Geithner. Monetarists,
too, would likely join the "Save the Fed" crusade, perhaps
arguing that even a great free market economist like Milton Friedman
considered the Fed useful for preventing and curing recessions.
But the really
appetizing part of auditing the Fed is knowing what stands behind
it. The Fed is a racket at heart, a con game writ large – what
else can you call an organization with the exclusive privilege of
printing money in the trillions and handing it over to friends?
But if this is true, what does that say about the state, the organization
that created and sanctions it? Is the Fed an honest mistake in the
state’s otherwise undying efforts to preserve our liberty, or might
it be a key component of a bigger racket?
power of the state, there would be no proposal to audit the Fed
because there would be no Fed to audit. Like any cartel, it exists
to protect its members from market retribution, and only the police
power of the state can make us shoulder that burden. A bill to audit
the Fed could by force of logic become a state audit, much like
the investigations of the 1972 Watergate burglary exposed the grinning
skull behind the government’s public persona. During a Fed audit,
for example, would it not be reasonable to ask why the people’s
elected representatives continue to support a banking system that
secretly steals wealth from their countrymen and other dollar holders?
Or are we to take the naïve position that most elected officials
really are clueless about the Fed’s policy of currency debasement
and the effects such policies
have had in history?
There are any
number of ways a Fed audit could bring the state itself under close
scrutiny, but let us sketch just one line of argument:
is well known that banks engage in fractional-reserve lending,
meaning that bankers use their deposits in lending operations,
with only a part of their loans covered by money reserves. Fractional
reserves expand the money supply, which, until the age of Keynes
and Fisher, was called inflation. It is also common knowledge
that when banks extend too much credit, depositors quite naturally
get nervous and start withdrawing their money.
fractional reserves would seemingly qualify as a form of embezzlement
– the act of taking for personal use other people’s property
without their knowledge or consent – government court rulings
have never viewed it as such. As Murray Rothbard observed,
a bank that fails to meet its deposit obligations is just another
insolvent, not an embezzler. Following the British ruling in
Foley v. Hill and Others in 1848, US courts consider
that money left with a banker is, "to all intents and purposes,
the money of the banker, to do with as he pleases."