Legislation to audit the Federal Reserve was approved by a House committee recently.  Congressman Thomas Massie of Kentucky is a sponsor of the bill that would require the Government Accountability Office (GAO) to perform an audit of the Fed.

Of course, it was Ron Paul who originated this push to audit the Fed. While we can’t be sure of what would come out of an audit of the Fed, any exposure of the central bank would seem to be a positive step.  My one fear with such an audit is that it exposes enough corruption that discussions begin about Congress taking over the role of running the country’s monetary policy.

If there is one thing worse than the Fed running the monetary policy, it would be Congress doing it.  While I am not one to speak of a likelihood of hyperinflation, a monetary policy run by Congress might actually threaten a third-world policy of hyperinflation.  We already know how Congress runs up the national debt by spending recklessly.

Instead of “Audit the Fed”, I think there is better legislation that could move us towards liberty.  The best thing would be a repeal of legal tender laws and an exemption from capital gains taxes for gold and silver.  We need competition.  If Fed officials knew that they had competition, they might be more conservative in their monetary policy.  And if they weren’t careful, other forms of money could threaten to replace the U.S. dollar, which would also threaten all of the power of the central bankers.  It would also threaten the deficit spending ways of Congress.

With that said, what we have before us is a possible passing of this legislation to audit the Fed.  With Republican majorities in the House and Senate, and with Trump as president, it is all of a sudden a real possibility.  While statists like John McCain and Lindsey Graham are opposed to such legislation, politically they might have to go along with it.

Meanwhile, most of the Democrats are against an audit of the Fed.  These are supposed to be representatives of the people, particularly the little people.  Yet they are defending the actions of a secretive central bank that provides massive bailouts for the big banks.  I hope the Democratic constituents really feel taken care of.

While I am not predicting passage of this legislation, it is more likely now than ever.  So if it does pass, what would that mean for us?  More specifically, what would that mean for the price of gold?

We don’t know what would be found in an audit.  It isn’t a bunch of Austrian school economists who would be doing the auditing.  It would be a government watchdog.  We can be sure that the auditors would not be completely independent from politics.

Still, any exposure could do damage to the Fed and its ability to set policy.  The Fed is already on the ropes, at least to a greater degree than in its history of slightly more than 100 years.  The Ron Paul presidential campaigns and the Internet have served us greater criticism of the Fed than we could have imagined 10 years ago.

Anything that calls the Fed into question is likely to be bullish for gold.  It is possible that it could work the other way though.  The Fed might feel more timid and be tighter with its monetary policy, thus being bearish for gold.  But the more likely scenario is that the Fed will continue doing what it does while more people become skeptical of the central bank.  This could draw more people into buying gold.

The one big thing I want to see is an audit of the gold holdings of the Federal Reserve.  I doubt it will happen any time soon, but this would be the big bombshell.  Does the Fed actually have the gold that it says it has?  Has the Fed sold or leased out gold to other parties?

If there were an audit of the gold held by the Fed and the holdings came up short, then I would expect the price of gold (in terms of U.S. dollars) to skyrocket.  This would also be quite bearish for the dollar, as people would lose confidence in the world’s reserve currency.

Although the dollar is not backed by gold (and hasn’t been for some time), there is still something of an implicit backing.  That is why central banks own gold.  It maintains a sense of confidence in the fiat currency issued by the central bank.

In conclusion, I don’t expect any immediate spikes in the gold price even if such legislation were to pass.  If there is an audit of the gold holdings, then things become more interesting.  Still, if anything, I think this legislation is slightly bullish for gold as it calls the central bank into question.