Federal Reserve Officials Impair GAO Audits By Destroying Their Source Records

03/12/2015 02:14 pm ET | Updated May 12, 2015

Both Republicans and Democrats have submitted bills to audit the Federal Reserve. Senator Rand Paul submitted an audit bill on January 27, 2015 for a General Accountability Office, GAO, audit of the nation's central bank: the "Federal Reserve Transparency Act of 2015". The 32 cosponsors were all Republicans except for Senator Mazie Keiko, (Democrat, Hawaii).

The Democrats tried to pass similar audit bills in the 1970s. The House Banking Committee (now called the Financial Services Committee) Chairman Henry Reuss, (1975 -1981, Democrat, Wisconsin) could not pass a GAO audit bill through his committee. That bill was then passed by the Government Reform Committee and became law in 1978 with substantial limitations:

"The exclusions under the Federal Banking Agency Audit Act for the GAO audit include 1.) foreign transactions with governments, central banks or non-private financing organizations; 2.) deliberations and decisions on monetary policy and open market operations; 3.) transactions made under the direction of the FOMC; and 4.) part of the discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to any of the previous three categories." (Auerbach, Deception and Abuse at the Fed, University of Texas Press, 2008, p. 238.)

In the 1970s, the Fed organized a massive lobbying campaign in the Congress against a GAO Fed audit, using officials from private banks they regulated Evidence of the Fed's orchestration of the lobbying campaign came into public view after Reuss negotiated with Fed Chairman Arthur Burns for six months. Reuss obtained three years of transcripts from secret meetings of all twelve district Federal Reserve Banks in December 1976. I assisted Reuss who spoke about these transcripts on the floor of the House of Representatives, May 24, 1977, "What the Secret Minutes of the Federal Reserve Banks Disclose."

One example was: "On February 19, 1974, President Frank E. Morris of the Boston Federal Reserve Bank called on his board of directors to contact the members of Congress to promote the Federal Reserve's position on an earlier version of the GAO audit bill. " (Auerbach, Chapter 10, "The Myth of Political Virginity, page 157)

Twelve Federal Reserve officials (when the committee is at the full level) on the Federal Open Market Committee (FOMC) control the United States money supply, the Fed issuance of loans to foreign countries and other important information. Source FOMC transcripts should not be destroyed. The Fed lied when they notified Congress that there were no transcripts. The "17-Year Lie" is a chapter in my book republished on The Huffington Post.)

"The seventeen-year lie began. Fed chairman Arthur Burns notified House Banking chairman Wright Patman in 1974 that he could not give Congress the FOMC transcripts because 'they are routinely disposed of after the Committee has formally accepted the memorandum of discussion for the meeting in question,' ..." (Auerbach, page 89)

House Banking Chairman Henry B. Gonzalez called a hearing in 1993 to question the Fed District Bank presidents and the Board of Governors They did not explain the existence of 17 years of FOMC transcripts even though they had been informed about them at a secret Fed meeting four days before. Later, one district Fed bank broke ranks and notified Gonzalez about the transcripts. Gonzalez sent me to the Board of Governors with a committee lawyer and several staff members. They showed us the transcripts in a room right around the corner from Chairman Alan Greenspan's office.

In 1995 a majority or more of the FOMC members voted to destroy the transcripts:

"A subcommittee of the FOMC reported its deliberations. The subcommittee chair, Governor Alan Blinder, characterized the discussion at the FOMC meeting: "I did not hear any consensus--maybe someone else heard a consensus. Maybe we should just have a vote on whether there should be an 'off the tape' portion. Do you agree?" Greenspan replied: "I agree." He later added: "I am not going to record these votes because we do not have to. There is no legal requirement." The vote was taken without recording members' names. Greenspan announced: "The 'Ayes' have it." (Auerbach, page 104, reprinted from the FOMC transcript January 31-Februaqry 1,1995)

Donald Kohn [whom I worked with at the Kansas City Federal Reserve Bank and who became Vice Chairman of the Fed) sent a 2001 letter to me (at the LBJ School, University of Texas, Austin). He wrote that the Fed had notified Congress in 1995 that it would destroy the unedited FOMC transcripts, noting that the Fed "is not obligated to retain draft transcripts." The letter is on Huffington Post, here.

Have Fed officials, including Chairs Ben Bernanke and Janet Yellen, continued to destroy the source FOMC transcripts following the Greenspan Fed officials who voted to destroy them in 1995?

The FOMC source transcripts should be edited by experts at the National Archives. Continued destruction of the source FOMC transcripts will remove vital information from a GAO audit. That destruction obliterates almost all of the part played by individual unelected Fed officials who control the nation's money supply and who make loans to foreign countries without Congressional authorization.