View Full Version : We already have an "Audit the Fed" law that politicizes monetary policy.

09-30-2009, 09:01 PM
Did you know that? When you talk to people, or when you hear other people talking about the HR 1207 Audit the Fed Bill (purposed law) (Federal Reserve Transparency Act of 2009) do you often hear the argument or sentiment that auditing the fed is a bad idea because it will politicize monetary policy?

Well wouldn't that sentiment and argument be kind of silly if there was already an existing law that accepts GAO audits of the FED AND politicizes monetary policy? And wouldn't it be nice to argue that HR 1207 actually removes politics from the audit and calls for a pure numbers audit based on math? Math that cannot be twisted or politicized?

Do you know what that existing law is and do you know why it is a problem?

Here are a couple of frames of reference.

1.) The definition of a financial audit. http://www.thefreedictionary.com/audit

n.1. An examination of records or financial accounts to check their accuracy.
2. An adjustment or correction of accounts.
3. An examined and verified account.
v. au·dit·ed, au·dit·ing, au·dits
v.tr.1. To examine, verify, or correct the financial accounts of:
v.intr. To examine financial accounts.
2.) The existing law and the text that defines the language of a Fed audit as being something different than the definition above.
TITLE 31 (http://www.law.cornell.edu/uscode/html/uscode31/usc_sup_01_31.html) > SUBTITLE I (http://www.law.cornell.edu/uscode/html/uscode31/usc_sup_01_31_08_I.html) > CHAPTER 7 (http://www.law.cornell.edu/uscode/html/uscode31/usc_sup_01_31_08_I_10_7.html) > SUBCHAPTER II (http://www.law.cornell.edu/uscode/html/uscode31/usc_sup_01_31_08_I_10_7_20_II.html) > § 714
Audit of Financial Institutions Examination Council, Federal Reserve Board, Federal reserve banks, Federal Deposit Insurance Corporation, and Office of Comptroller of the Currency (http://www.law.cornell.edu/uscode/html/uscode31/usc_sec_31_00000714----000-.html)

(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.) HR 1207 and the text that strikes the offending language and redefinition of a financial audit. http://www.govtrack.us/congress/billtext.xpd?bill=h111-1207

(a) In General- Subsection (b) of section 714 of title 31, United States Code (http://www.law.cornell.edu/usc-cgi/newurl?type=titlesect&title=31&section=714), is amended by striking all after ‘shall audit an agency’ and inserting a period.So put simply the existing US code allows for the politicization of the existing GAO audit of the Fed by convoluting deliberations, decisions, or actions on monetary policy matters with an actual audit (an examined and verified for accuracy account of finances) of monetary policy including the following:

transactions for or with a foreign central bank,
transactions for or with a government of a foreign country,
transactions for or with a non-private international financing organization,
discount window operations,
reserves of member banks,
securities credit,
interest on deposits,
open market operations,
transactions made under the direction of the Federal Open Market Committee.

So the current law is what mixes politics (sub-section 2 and 4 of section B) with numbers (audit items listed in sections 1-3 minus the text the redefines a financial audit).

The current law redefines a financial audit to mean the discussion of the numbers and gives no distinction between the discussion of the numbers and the numbers themselves.

HR 1207 would set the law straight in that it would remove the politicizing language of deliberations, decisions, or actions as well as discussion or communication from the legal definition of a GAO audit of the Fed Res.

Should HR 1207 pass, the Fed Res would still have independence and authority and independence to deliberate, decide, discuss, and communicate based on the numbers. AND ONLY then would they have the Independence to do so WITHOUT political interference. The only questioning and interference that would go on is if the numbers did not add up. You cannot politicize math!

This would not be a politicized questioning as it is now. It would be questioning based on straight math. Now the Fed Res decisions are clearly politicized because we can only speculate on whether or not the numbers are correct. The speculation leads to questioning of motive which leads to politics. If the Fed Res is indeed acting in the best interest of itself and everyone else, then there is absolutely no reason to hide the numbers. Because it would be clear that when we are all dealing with the same math, we can all conclude that the Fed Res is making decisions based on math and not on politics.

I'd love to expand and refine this argument more in favor of HR 1207. Please comment and add to it. Thanks.

More info...

Some more info for this thread.

HR 28 of the 103rd Congress proposed to have the same effect of the audit restrictions of the GAO as HR 1207 does today.
here is the bill http://thomas.loc.gov/cgi-bin/query/z?c103:H.R.28:


`The financial statement of the Board and each Federal reserve bank shall be audited annually in accordance with generally accepted auditing standards by an independent certified public accountant.'.

(b) REPEAL OF EXCEPTIONS TO GAO AUDIT AUTHORITY- Section 714(b) of title 31, United States Code, is amended by striking `Audits of the Federal Reserve Board and Federal reserve banks may not include--' and all that follows through the period at the end.

Here is a GAO Audit from 1993 on the impact of HR 28 of the 103rd congress.

Federal Reserve System Audits
Restrictions on GAO's Access (http://archive.gao.gov/t2pbat5/150187.pdf)

In considering the implications of removing restrictions, it is
useful to look more closely at the types of work we do. Our
audit work can be viewed as falling into two broad categories--
financial audits and performance audits.

A financial audit
basically sets out to verify the financial reports of an entity,
including its balance sheet, income statement, and cash flows.
Our financial audits also assess the systems of internal controls
established by the audited institution and the institution's
compliance with specific financial requirements.

audits are designed to assess whether an entity is achieving its
stated goals, and include questions of efficiency, effectiveness,
and compliance with related laws and regulations. Appendix 3
describes these types of audits in more detail.
Turning first to financial audits, the nature and

Turning first to financial audits, the nature and volume of
transactions associated with the day-to-day operations of the
Federal Reserve System make financial auditing extremely

For example, in providing services to the banking
system in 1992, the Federal Reserve processed
-- 20 billion checks with a value of $14 trillion;
-- 20 billion pieces of currency with a value of $278 billion;
-- 68 million electronic fund transfers for $199 trillion; and
-- 76 million issuances, redemptions, and exchanges of U.S. government securities with a value of $143 trillion.

In 1992, the FOMC also purchased, sold, or exchanged
approximately $350 billion of securities, engaged in over $750
billion in repurchase agreements, and conducted almost $3
trillion in matched transactions.' All told, about 90 percent
of the $368 billion in assets on the combined balance sheet of
the Federal Reserve banks consist of assets acquired as a result
of FOMC or foreign exchange operations.* Passage of H.R. 28
would allow us access to the full range of Federal Reserve System

Concerning performance audits, I would like to discuss access
issues by referring to the three areas we were asked to address
in our testimony. These issues are
-- the daily government securities auctions at the New York
Federal Reserve Bank, which the Federal Reserve uses to manage
the money supply;
-- the Federal Reserve's interventions in foreign currency
markets; and
-- safeguards in the auctions, and presumably foreign currency
transactions as well, against the Federal Reserve's releasing
inside information.

Our access restrictions.would be a major limitation to studying
any of these issues in a way that required us to analyze data on
actual transactions, Although it would be necessary for us to
consider the actual scope of a request before reaching a
judgement in any particular case, we must recognize that the
restrictions in the law are quite explicit. Therefore, with
performance audits, as with financial audits, the major question
is really what Congress wants us to do.

hearing transcript on the bill in front of the same committee in 1993. This one has Alan Greenspan responding.

Bradley in DC
09-30-2009, 10:37 PM
Wow. I admire your creativity, but this is wrong on so many levels.

For starters, language matters: there is no 1207 "law" it's a bill, <cue music> just a lonely old bill, making it's way along on Capitol Hill...

09-30-2009, 11:31 PM
Wow. I admire your creativity, but this is wrong on so many levels.

For starters, language matters: there is no 1207 "law" it's a bill, <cue music> just a lonely old bill, making it's way along on Capitol Hill...

what is wrong?

HR 1207 is a reform of existing law. Of course it is not law yet because it has to be signed by the president.

A bill is a purposed law. So when discussing the HR 1207 we have to discuss it as if it were a law, otherwise it would be pointless to discuss it.

What other level are you saying that I am wrong? Was there something in my post that you didn't understand? Are you telling me that there is in fact NOT an audit the fed law already on the books?

Anyway, thanks I went ahead and fixed the OP by changing law to bill and added the definition of bill (purposed law).

10-01-2009, 12:30 AM
bump to move to the audit the fed forum.