30 September 2011

In tough economic times, some call for federal audit

By John Sembrat, Juris Blogger
Did you know that since its inception in 1913, the Federal Reserve has never been subject to a complete and public audit? The Government Accountability Office ("GAO"), via 31 USC 714, is permitted to audit the Fed but only if they play by the Fed’s rules.

According to www.auditthefed.com, the GAO is prohibited from auditing: 1. Transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization; 2. Deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
 3. Transactions made under the direction of the Federal Open Market Committee; or
 4. A part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)-(3) of this subsection of US Code.

The GAO is also prevented from conducting on-site examinations of banks or bank holding companies without the written consent of the appropriate regulatory agency.

If a regular citizen opens a business, the government can audit the business at will.  Why can the public not audit a federal “company?”  Ben Bernake has said, “[a]uditing the Fed would violate a bedrock principle of central banking,” seemingly suggesting that secrecy is a bedrock principle of central banking.

I am not the only one perplexed by the actions of Bernake.  Others have noted that United States treasuries, have returned:
"9.8% this year, according to Bank of America Merrill Lynch Indexes as reported by Bloomberg.  Ten-year notes have returned 18%, while 30-year bonds have returned 36%.  This anomaly in the bond market also temporarily blunted the urgency of an in-house debt cleaning.  Government is no different from an ordinary household in that when in serious debt trouble, you cut spending while trying to expand revenue stream.  But the Federal Reserve said on Sept. 21 that it would buy longer-term debt to lower borrowing costs and downgraded the economic outlook.”

By this action, Bernake has increased spending. At this rate, our total public debt is on pace to reach $364.26 trillion by the year 2062.  Enter your information here and find out for yourself.

John Sembrat is a third year student at Duquesne University School of Law. He is a student manager for the law clinic office and a legal assistant with Geraghty & Associates, P.C. John earned his undergraduate degree at the University of Tennessee with majors in English and Psychology. He will graduate from Duquesne University School of Law in 2013, and can be reached at sembratj@duq.edu.