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The Fed Is Too Powerful To Be Unaccountable

January 12th, 2010

Now is the time to examine the proper functions of the Federal Reserve System–especially those of the Board–
and make systemic changes.

The popularity of US Rep. Ron Paul’s bill to audit the Fed taps into a great pent-up frustration about the
unaccountability of the very powerful institution. Independent socialist Bernie Sanders of Vermont is the senate
sponsor. While Dr. Paul, my former boss, wants to go as far as getting rid of the Fed, he wisely offered an
opportunity for us to learn more and make a more informed decision.

We have just learned that the Fed will return $46 billion dollars from 2009 earnings to the US Treasury. Explains
the Washington Post, “The Fed, unlike most government agencies, funds itself from its own operations and
returns its profits to the Treasury.” The article continues, “By the end of 2009, the Fed owned $1.8 trillion in U.S.
government debt and mortgage-related securities, up from $497 billion a year earlier. The interest income on
those investments was a major source of Fed profits — though that income comes with risks, as the central bank
could lose money if it later sells those securities to reduce the money supply.”

So the Fed makes most of its profit from taxpayers paying interest on the national debt. All thanks to
irresponsible Congressional spending (terrible under Pres. Bush and continuing under Pres. Obama). Under this
Congressional shell game, politicians claim “income” from the Fed on the interest on the national debt. As they
say on TV, don’t try this at home! According to the Federal Reserve Board press release, the Fed’s net income
in 2009 was $52.1 billion and they returned $46.1 billion to the US Treasury for operating expenses of $8 billion
(these numbers are “unaudited” and subject to change). In 2008, the Fed returned $31.7 billion on $35.5 billion
of net income–with operating expenses of only $3.8 billion. The Fed was twice as bloated, wasteful and
inefficient last year as the previous year.

Even worse, only with a more complete audit of the Fed (such as under Dr. Paul’s proposal) could we find out
the devil in the details. We already know that the Fed is returning approximately $46.1 billion dollars to the
Treasury of the $46.1 billion it got from interest on the debt last year. How nice of them.

Given the gross profits by some money center banks from bond dealing, there are rampant rumors that
Bernanke was active buying and selling bonds at a net loss in order to boost the bottom line of financial special
interests. If true–and only Dr. Paul’s audit could give us the answer, there is more back door special interest
corruption for Wall Street fat cats at taxpayer expense than know of from TARP, Fed Section 13.3 and other
bailouts. Taxpayers have a right to know.

J. Bradley Jansen is the director of the Center for Financial Privacy and Human Rights, part of the Liberty and
Privacy Network. He is an adjunct scholar at the Competitive Enterprise Institute. Jansen holds a BA in
International Studies from Miami University (Ohio), with advanced studies in economic history at Universidad
Católica de Valparaíso (Chile) and law and economics at George Mason University School of Law. Follow him
on twitter at