Thursday, June 11, 2009

Ron Pauls' Propsed Audit of the Fed Will Not Close It Down

The Federal Reserve's balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit, Jim Grant, editor of Grant's Interest Rate Observer, told CNBC.

With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in an interview.

"If the Fed examiners were set upon the Fed's own documents—unlabeled documents—to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down," he said. "The Fed is undercapitalized in a way that Citicorp is undercapitalized."

Grant said he would support legislation currently making its way through Congress calling for an audit of the Fed.

Lew Rockwell is featuring this story in his top slot at LRC, today, with the headline:

Bring on Ron Paul's Audit of the Fed
The central bank might have to close its doors

As well intentioned as Ron Paul and Rockwell are, an audit of the Fed would open up a can of worms that every special interest group in America would try get in the middle of. As I have pointed out before, some not very free market people are circling around Paul's proposal.

This is really playing with fire.

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