Audit the Fed!

Posted on November 17, 2015 by Fred Stiening

http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt2014.pdf

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7 Responses to Audit the Fed!

  1. briand75 says:
    November 18, 2015 at 6:56 am

    Fascinating. Notice the non-compliance with GAAP (Generally Accepted Accounting Principles) – this is all designed by the Board of Governors and leads to allowing the Fed to do some interesting things with money.

    As for Audit, [Deloitte] is the Auditor and basically follows PCAOB guidelines and practices. The catch is that the Board of Governors don’t provide a mechanism for Audit especially were there to be a disagreement between Management and the Auditor. There are no SEC filings for the Fed, so there is no benchmark to apply. A fascinating situation.

    • Fred Stiening says:
      November 18, 2015 at 8:27 am

      I figured you would like it.

      Ron/Rand Paul’s claim that the Fed has not been audited is wrong.

      As you point out, the problem is the Fed is a “one of a kind” organization hence there is never going to be a generally accepted method to audit it. The Fed is not in the business of earning money and much of the rationale of accounting doesn’t apply.

      As a very old “poll” question pointed out – I assume it is still true – the Federal Reserve creates dollars out of nothing. It then buys interest bearing bonds from the US treasury and places dollars into the US Government’s bank account. That means the Fed earns interest from the US Treasury, so the more dollars the Fed lends to the Treasury, the more risk free income it earns. Alexander Hamilton was not stupid.

      The solution is the Fed remits the interest it earns this way back to the Treasury for the privilege of being allowed to create the dollars.

      More to come…

    • Fred Stiening says:
      November 18, 2015 at 8:44 am

      How are the books for government agencies done?

      Accounting for governments works very different than for for profit businesses. I learned this when I became Treasurer of my College’s student government and realized my accounting courses were no help. The accounting for my Condo association in Michigan worked the same way. Businesses use what is called double entry bookkeeping in which every transaction has an equal and offsetting debit and credit. If a company buys a car for $30,000 cash, the accountant credits (reduces) the balance of cash on hand, and creates an offset asset called “cars” and puts the $30,000 car on the books with a debit.

      If in a week, the car is sold for $35,000 (let’s say this is a car dealer), the $35000 is debited to the cash account, the “cars on hand” is reduced by $30,000 and a $5000 profit is recorded. Total assets has gone up by $5000

      Governments don’t do “assets”. They do revenues and expenditures, and the focus is on conformance to budgets. The US government does not have an asset called “the Grand Canyon” with a dollar value assigned to it. The trees in US Forests don’t earn a profit as they grow. Accounting only comes into play if the government sells lumber. The revenue from selling the lumber only is relevant in the budget the year the lumber is harvested. Conversely, if the forest burns down , there is no “loss” to the government, only expenditures for the cost of putting out the fire and planting new trees

    • Fred Stiening says:
      November 18, 2015 at 9:19 am

      Ron/Rand Paul are not accountants – neither is Neil Boortz. They don’t understand what an audit is and what it isn’t. You can feel free to clean up my description as I got a C in auditing 😉 Auditing focuses on ensuring that the assets and liabilities of the corporation are fairly represented to the shareholders. They also insure that the determination of profit and loss accurately reflect the operations of the business in order to compute income tax and make available to investors interested in buying stock.

      The “owners” of the Federal Reserve are its member banks (and of course the secret societies that rule the world who are all Jewish, work for the Pope or are space aliens). So let’s say the Fed buys up $500 billion in worthless mortgage backed securities, stuffing dollars into member banks accounts at the Fed. If the Fed was a business, the auditors would insist that the value of the assets be written down, and a loss be declared. The board of governors and the member banks know the assets are worthless but nobody cares. The Fed can just create more dollars. It served a public policy purpose as authorized by congress to stabilize the economy. If the bonds it holds are written off, the member banks don’t have to repay money and show it as a loss on their income statement.

      A secondary thing the auditor states (usually) is they have looked at the accounting and internal controls to make sure the assets of the company are not being stolen and/or the inaccurate accounting is misreprenting the value of the assets or understating the liabilities (debts) owed by the company.

      If I owned stock in Apple, that’s what an audit tells me. What does Apple own, how much do they owe and how much profit did it make. As a stockholder, I don’t have a right to know the names of the suppliers, the names and account balances of the companies Apple owes money to – and the auditors offer no opinions on whether the iPhone 6s will be profitable and what will be in the iPhone 7. Auditors are not charged with keeping management from making stupid decisions (nor is the SEC).

      I’m pretty sure the Pauls think a “real” audit would explain -why- the Fed does what it does, and uncover the names and balances the secret pools of money being handed over to Swiss bankers and the CIA. Giving the power to the Fed to make dollars is an enormous power. The reforms being proposed are attempting to write into an algorithm how the Fed sets interest rates. That’s the red cape, not the bull. The Fed has almost no say in interest rates any more. The LIBOR rate set daily in London is the consensus of the major banks of the world, which also now have the ability to create dollars on their own, beyond the control of the US government,

  2. CC1s121LrBGT says:
    November 19, 2015 at 2:02 pm

    ” If the Fed was a business, the auditors would insist that the value of the assets be written down, and a loss be declared. The board of governors and the member banks know the assets are worthless but nobody cares”

    That is precisely the point and the Pauls and others care that the crony capitalism is hidden from the voters. Suspending the “Mark to Market” rule to pretend these assets have not lost value and allowing the Fed to purchase them at phony “pre-clapse” prices is another subsidy. http://www.ronpaulforums.com/showthread.php?187000-Mark-to-market-accounting

    Many people felt that bailing out the “banksters” rather than the home owners resulted in a massive amount of home forecloses and “banksters” quickly reinstating their massive bonus programs, whereas bailing out the homeowners might have been smarter. Perhaps the trillions would have been better spend suspending everyone’s income tax obligations for a few years.

    It is real money. The arguement isn’t that it was printed (all the US money is printed by the Fed), the point is who got it and who didn’t.

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