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Auditing the Fed

Posted by Gonzalo Schwarz
January 21, 2012

by Gary North

I have posted a video of something I thought I would never see: all five of the Republican candidates for the U.S. Senate verbally demanding an audit of the Federal Reserve System.You can see it here.

Bernanke is facing what no Federal Reserve chairman has ever faced: public awareness of the Federal Reserve System. From late December 1913, when an almost deserted Senate voted for the Federal Reserve Act, until 2008, when the recession confirmed Ron Paul’s warning in late 2007, there was almost no public awareness or even a vague understanding of the Federal Reserve System. The genie is now out of the bottle, where it had been corked since 1913. Ron Paul has uncorked it.

From the November 1910 secret meeting at Georgia’s Jekyll Island until Ron Paul’s 2007 candidacy for the Republican nomination for President, The Federal Reserve had received a free ride from Congress. There had never been much oversight. That’s because FED regulation was an oversight. (The same word is used to convey opposite meanings.)

The Texas Leftist-populist Democrat Wright Patman had been a critic. He had been the chairman of the House Banking Committee until 1975, a year before Paul arrived in Congress. He was a Greenbacker: a believer in a zero-interest economy that achieves this Utopian goal through the use of fiat paper money. Patman was not able to generate much interest in the FED.

Patman did inflict one major wound on the FED. He and California Congressman Jerry Voorhis, another Greenbacker, in the early 1940s persuaded Congress to pass a bill, which Roosevelt signed, that forbids the Federal Reserve from keeping the interest payments from the government bonds it has counterfeited fiat money to purchase. Today, the FED must return to the Treasury all of this money beyond its operating expenses. For 2011, the FED will pay back $77 billion.

A full-scale audit of the FED, if it ever comes, must include an audit of the gold every year. The auditors must see if the gold is in the two vaults. The first vault, at Ft. Knox, is more famous. The more important vault is located at 33 Liberty Street, New York City: the privately owned Federal Reserve Bank of New York. This is the “Die Hard III” vault.

The auditors must do two things. First, they must determine whether there is the same amount of gold as is listed on the FED’s books at the fake price of $42.22 per ounce. Second, the auditors must follow the paper trail of ownership. They must make sure that the gold in the vaults is still legally in the possession of the FED.

 There is a possibility that the FED has transferred ownership of this gold, through swaps, to European central banks, which have in turn leased – sold – their gold to private buyers. It is not enough to determine that the physical gold is in the two vaults. It is also mandatory to determine whether the FED has indirectly sold the government’s gold, which it has held in trust for the government since 1933.

[Note to auditors: pursue this phrase in the FED’s statements: “deep storage gold.” As to why, read this.]


Every FED chairman has resisted any attempt by the Congress to mandate an independent audit of the FED by the General Accountability Office of the U.S. government. Bernanke was adamantly opposed in 2009. He of course did not mention what I regard as the main reason for his opposition to an audit: the missing gold. For all FED chairman, gold is a four-letter word. He mentioned only monetary policy, as if Congress has no authority over monetary policy, despite that ancient “barbarous relic,” the U.S. Constitution.

The Congress has recently discussed proposals to expand the audit authority of the Government Accountability Office (GAO) over the Federal Reserve. As you know, the Federal Reserve is already subject to frequent reviews by the GAO. The GAO has broad authority to audit our operations and functions.

This of course was deceptive. First, the FED is audited by a rotating group of private auditing firms, which are appointed by the Office of Inspector General. This rotation system makes long-term accounting continuity far more difficult to achieve. The FED forbids the auditing firm to inspect all of the FED’s operations. According to the Federal Reserve Bank of New York,

Operations at each Federal Reserve Bank also are subject to review by the Government Accountability Office (GAO), the audit arm of the U.S. Congress. However, GAO auditors are restricted by law from reviewing monetary policy operations and transactions carried out by the Federal Reserve on behalf of foreign central banks. This restriction was imposed by Congress to assure the independence of the Federal Reserve from political influence.

“Political influence.” There is another term for “political influence.” That term is “the United States government.”

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image: Balaraman