Audit the Fed 100 years in the making

Republican Sen. Nelson Aldrich secretly met with his son-in-law John D. Rockefeller Jr., J.P. Morgan and other Wall Street bankers, in a group that was dubbed “The Millionaires Club,” on Jekyll Island, Georgia in 1910. There, they spent 10 days and wrote the first draft of what would be the Federal Reserve Act. Originally the “Aldrich Plan,” modifications were made and it was introduced by progressive Democrat Sen. Robert Owen and signed into law by President Woodrow Wilson Dec. 23, 1913. The critical secret meeting was not revealed until 1916 when famous journalist B.C. Forbes wrote an article about its importance.

Kentucky Sen. Rand Paul is likely not thinking too much about this when touting his Audit the Fed bill, which is starting to gain a little a steam, but it is significant.

Paul, in fact, might be a little distracted at times, despite a massive social media campaign for his signature bill. On the surface, he had a bad last week. In a contentious interview with CNBC, Paul made news when he suggested most vaccines should be “voluntary,” an apparently controversial pro-freedom message, and his opponents pounced on him. Everyone took a swipe at the junior senator, questioning both his medical and presidential qualifications along the way, with the motivation likely being more political than anything else.

It seemed like he had a bad week, but vaccines or not, his message is in good health. His growing push to audit the Federal Reserve, a cause originally championed by his father Texas Rep. Ron Paul, is gaining momentum and will matter a lot more than some vaccine comments in a bad interview on a channel no one watches.

Janet L. Yellen is the head of the Federal Reserve.
Janet L. Yellen is the head of the Federal Reserve.

“(The Fed would) be bankrupt, they’d be insolvent,” Paul told a crowd in Des Moines, Iowa Friday. “Liabilities are $4.5 trillion; their assets are $57 billion. Do the math. They are leveraged 80-1. They are leveraged three times greater than Lehman Brothers was when Lehman Brothers went bankrupt. Why do we give ’em a pass? Because they’ve got a printing press, and they can print up some more money.”

A 2013 Rasmussen poll found that 74 percent of Americans want to see the Fed audited, and rightfully so considering a partial audit just a few years ago found $16 trillion in under-reported bailouts. Paul now has 30 co-sponors in the Senate, but his opponents, again, are quick to take shots at him.

Noah Smith, a Stony Brook economics professor, called Paul’s approach “know nothing,” despite Smith acknowledging he mistakenly quoted Paul’s math in a Bloomberg article. Democratic Party spokeswoman MSNBC host Rachel Maddow had a post on her blog saying Paul doesn’t “understand the issue especially well.” There was also, of course, opposition from the Fed itself, including that of Chairwoman Janet Yellen, Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser. Even Jason Furman, chairman of President Barack Obama’s Council of Economic Advisers, is calling the bill “dangerous,” signaling a likely veto from the president.

Paul responded recently by saying Fed officials “will say and do anything to keep their business hidden from the American people.”

Federal Reserve Building

Sentiments like Paul’s are nothing new. Former U.S. Senator and Republican presidential candidate Barry Goldwater once said “most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States.” 

That was 1979. Americans still don’t know.

Paul’s push in the Senate could carry 2016 implications (and may help him recover from what the mainstream media perceived as a rough week), but moreover, it carries historical implications that date back to decades of secrecy and debate that Are often overlooked. It addresses comments like Goldwater’s, and goes back even further in addressing concerns about the powers of a central bank, specifically this one – which was conceived in large part by a “Millionaire’s Club” meeting in secret, and hasn’t looked any more transparent since.

Central bank skepticism grew thanks to several presidents including Thomas Jefferson, James Madison, Andrew Jackson and more, and that skepticism only amplified with the Federal Reserve Act. The bank’s biggest opponent in its first few decades was Rep. Louis McFadden, who called the Fed a “corrupt” and “evil institution” that “has impoverished the people of the United States and has practically bankrupted our government.” McFadden, though, was also an anti-Semite and overly conspiratorial, and therefore lost his leadership on the House Committee and Banking and Currency.

However, other less-crazy Fed opponents echoed McFadden. Sen. Charles Lindbergh said in 1923 that the Fed’s sole purpose was “obtaining the greatest possible profits from the use of other people’s money” and that “from now on, depressions will be scientifically created.”

Lindbergh’s latter comments saw reinforcement.  In “A Monetary History of the United States,” Milton Friedman and Anna Schwartz argued that the Federal Reserve caused the Great Depression by continuing to contract the money supply after the stock market crashed in 1929. Friedman called the restricted money supply a period of “great contraction” due to falling incomes, prices and employment.

Likewise in the 2008 recession, some economists contended that the Fed was again partially to blame because it kept interests too low for too long following the 2001 recession and did not foresee the bursting of the housing bubble. Thanks to the Tea Party movement’s rise in 2009 and into the 2010 elections, the Federal Reserve – after decades of seemingly being a non-starter in political debates – started to become an issue, though perhaps still not prominent in the mainstream. A lot of it could and should be credited to Ron Paul’s 2008 presidential campaign, but it also could be attributed to the fact that far too many people felt the effects of the Great Recession and wanted answers.

The elder Paul’s Federal Reserve Transparency Act passed a GOP-controlled house by a wide 327-98 margin in July of 2012, but was never taken for a vote in Harry Reid’s Senate, despite the large percentage of Americans that wanted to see it happen. A 2014 version passed 333-92, with more than 100 Democrat votes, but again died upon arrival to the Senate. But now, with a Republican Senate, the younger Paul has a stronger chance to get an audit of the Fed through both houses, with around 55 votes waiting for him in the upper house.

Pundits might want to bring up vaccines and bombard Paul with the same “are you running for president” question that won’t get an answer just yet. It’s a distraction, sure, but Paul is continuing to stay focused on his fight against the Fed, and both his supporters and opponents are noticing. Even with a presidential veto, passing a full audit of the Federal Reserve, in proper historical context, is significant.

It’s not what CNBC or some other outlet will necessarily say, but given 100 years of secrecy, overlooked debate, and sluggish change, it matters. Since the bank’s debated, suspect inception, many have tried for transparency and failed, but with the current political climate and attitudes, now might be the time, and Rand Paul might be the person.