Saturday, July 3, 2010

How to Make the Defense Deapartment Budget Disappear

I explained to Bill Thompson at the Gainsville Sun (Before the entire Audit the Fed Bill was completely shot down):
Robert Wenzel, editor of the website and supporter of the audit idea, also questioned the final product.

“I know the economists who wanted the Fed audited are not happy because the audit needs to be much more detailed and go back much more than what this audit does,” Wenzel said.

He was critical of a separate provision in the bill that puts a consumer credit agency under the Fed, thus removing its budget from public scrutiny.

“The Fed will just pay the bills [for the new agency], and the Fed never has a budget problem. You could put the Defense Department’s budget under the Fed and it would disappear from the federal budget,” Wenzel added. “This is why the Fed needs to be audited, but this [bill] is nowhere near auditing it the way it should be.”
My criticism of the consumer financial agency that is being put under the Fed was to point out that the only role the Fed has in the agency is paying its bills. The head of the agency will be named by the president. It is just a very tricky way to build a huge agency without any budget oversight by Congress or anyone else.

If this formula catches on it is very scary. Any agency placed inside the Fed won't show up on any budget (except the internal Fed budget), the Fed will just pay the bills (and they can just print the money to pay the bills).

As I pointed out to the Gainesville reporter, you could put the Defense Department under the Fed and the Defense budget would disappear.

Watch for more agencies in the future that become "part of the Fed."

Obviously, the long term repercussions are highly inflationary.

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