• Auditing the Fed Will Audit the State

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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?

    Without the
    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
    ?

     

     

    $19
        $15

     
     

    Partners
    in Crime

    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:

    1. It
      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.

      Although
      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."

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    George
    F. Smith [send him mail]
    is the author of The
    Flight of the Barbarous Relic
    , a novel about a renegade Fed
    chairman. Visit his website.
    Visit his blog.

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