Fed Would Be Shut Down If It Were Audited, Expert Says

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SamLinder
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Fed Would Be Shut Down If It Were Audited, Expert Says

Fed Would Be Shut Down If It Were Audited, Expert Says

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 a live 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.

Moreover, he criticized the way the Fed has managed the financial crisis, saying the central bank's target rate should not be around zero.

"I think zero is the wrong rate for almost any economy," Grant said, adding the Fed has "embarked on a vast experiment in moral hazard. Interest rates are the traffic signals in a market economy, and everything's green. ... You have to wonder whether these interest rates are the right clearing rate or rather they are the imposition of a central bank."

Amid a disparity between analysts predicting there will be no rate hikes soon and the fed funds futures indicating tightening by the end of the year, Grant said he thinks the Fed indeed will begin raising rates as inflation creeps into the picture.

Fed funds futures have fully priced in as much as a half-point rise in the target rate from its current range of zero to 0.25 percent.

"If the hairs on the back of your neck stand up when there's too much unanimity of opinion, then one begins to worry about this," he said. "The Fed proverbially has been late."

Set's picture
Set
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Re: Fed Would Be Shut Down If It Were Audited, Expert Says

Thanks for posting this article Sam.  It was very informative.  I wasn't aware that the almighty Fed even bothered keeping such mundane tracking information as a balance sheet. Ron Paul’s HR1207 bill would certainly help to bring some light to the things going on behind closed doors by the still Untouchables.

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Ed Archer
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Re: Fed Would Be Shut Down If It Were Audited, Expert Says

I wonder how many government agencies, indeed if any, would pass similar tests of accountability?

Not that the public sector does much better, esp in health care. :)

/me ducks from the incoming firestorm

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ccpetersmd
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Re: Fed Would Be Shut Down If It Were Audited, Expert Says
Zombie210 wrote:

I wonder how many government agencies, indeed if any, would pass similar tests of accountability?

Not that the public sector does much better, esp in health care. :)

/me ducks from the incoming firestorm

If only healthcare was in the public sector! Directly or indirectly, most of the healthcare industry is under the influence of the federal government. And, yes, it is truly a mess!

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