The Porcupine Tribune

In the age of the Marvel Cinematic Universe an all too common archetype is the unknown or overlooked hero emerging at the most fortuitous time to take on the villain and restore order and justice to the land. Steve Rogers went from an altruistic and patriotic sideshow attraction to Captain America, Bruce Banner went from mild mannered introvert to the Incredible Hulk, and (one of my personal favorites) Peter Parker went from lonely outsider to the Amazing Spider Man.

What would this trope look like in the real world? More specifically, what would it look like deep within the bowels of the Rayburn House Office Building?

That hero would have an unwavering conviction to the constitution. The hero would fight tirelessly against the self-serving status quo to promote individual liberties and ensure government transparency. That hero is a congressman from Kentucky and his name is Thomas Massie.

On January 3rd, Representative Massie introduced H.R.24 – Federal Reserve Transparency Act of 2019 which, if passed, would require the Comptroller General of the United States to conduct a full audit of the Board of Governors of the Federal Reserve System and the Federal Reserve banks.

For the long-time fed skeptics and the ardent Massie followers, this bill should seem very familiar. Massie introduced similar bills in 2017 and 2015, Paul Broun introduced a similar bill in 2014, and the perennial liberty crusader Ron Paul introduced a similar bill in 2009.

The Federal Reserve System has long been a thorn in the side of free market evangelists. Its fingerprints can be found on the Great Depression, the Great Inflation of 1966-1981, and the financial crisis of 2008 and 2009. These disasters are not unique to our central bank, but to central banking in general. In 2011, the European Central Bank played a role in the Eurozone’s double-dip recession through a series of quarter point adjustments to the target interest rate.

As you read this, you may be asking yourself “Why isn’t this covered in the news and the center of a public debate?” or “Why haven’t our elected officials done anything about this?”

The answer is that as a country, we are not well educated about the role the Fed plays in developing our monetary policy, the powers it holds, or the impact it has on our day to day lives. Our elected officials also have little recourse to reel in the Fed’s powers because Fed operations are not transparent. In its over 100-year history it has never been fully audited by an outside source and continually resists any kind of congressional oversight. Congress may have birthed the beast, but it has little role in monitoring or regulating it under the pretense of it being independent of politics.

In short, the Fed has entirely too much power to be left unaccountable. The central bank independently controls and determines the money supply and it has the ability to create money without restriction. This translates to the fate of our monetary policy being left up to seven unelected and unaccountable bureaucrats serving on the Board of Governors.

By developing our monetary policy, the Fed controls the aggregate demand, i.e. the total amount of spending in the economy. It’s able to manipulate the aggregate demand by making adjustments to the money supply and the short-term interest rates. In effect, the Fed plays a massive role in affecting the inflation in our economy.

These practices have led to what Dan Sanchez from the Foundation for Economic Freedom has described as the Federal Reserve’s shell game. It is able to take on a monetary expansion policy which it uses its ability to produce FIAT money to inflate the money supply. Alternatively, if the US government seeks to borrow from a private bank, the US Treasury creates a treasury bond note (an Uncle Sam IOU) which gives the bond holder the ability to recoup the principal plus interest. The Fed, looking for government debt, purchases the treasury bond from the private lender (in which the private lender makes a profit). The federal government now owes itself money and is paying itself interest. As Boston University economist Laurence Kotlikoff puts it:

“The Treasury pays interest and principal to the Fed on the bonds, but the Fed hands that interest and principal back to the Treasury as profits earned by a government corporation, namely the Fed.”

While this arrangement may seem ideal (the government gets the funds required to purchase what it needs, a private lender makes a profit, and the government just ends up paying the interest back to itself), in actuality its causing inflation and growing the size of government. The Austrian Business Cycle Theory explains that as these false booms are occurring, caused by the increased money supply, misleading signals are being sent to producers. Because interest rates are low and available money is plenty, they increase production, not necessarily tied to demand. This increased production is a malinvestment, i.e. a poor allocation of resources.

These examples and their negative affects on our economy, and ultimately us as citizens, are precisely why a bill like H.R.24 is so necessary. It provides the crucial first step in making the Federal Reserve System more transparent and accountable to the citizens of the United States. I applaud Representative Massie and the twenty-five men and women co-sponsoring this bill.

In a future article I will discuss policy prescriptions, both radical and pragmatic, to adjust and reform the Federal Reserve System.

- William F. Buckley Jr. Jr.