Tags: Kotok | audit | Fed | senator

Cumberland's Kotok: Call to Audit the Fed Is a 'Farce'

By    |   Tuesday, 17 February 2015 01:47 PM

David Kotok, chief investment officer of Cumberland Advisors, doesn't believe the Federal Reserve needs to be audited, as some Republicans in Congress are calling for.

"The clamor to audit the Fed is an example of senators talking out of both sides of their mouths," he writes in an article for Barron's.

"They want to audit the Fed? Perhaps they should start by auditing the United States Senate, where the ratio of misleading political blustering to rational and constructive action confirms that we are suffering a national political intelligence deficit of alarming proportions."

The idea that we need to audit the Fed implies that the Fed's presentation of its balance sheet is inaccurate, Kotok notes. It announced last week that the balance sheet totals $4.5 trillion.

"That notion is absurd," he states. "When it comes to accounting issues, the Fed is already audited just like any arm of the federal government. In fact, the Fed is an arm of the government with 100 years of history and is a creature created by act of Congress."

Bottom line: "Audit the Fed is a farce. Its proponents know it," Kotok argues.

"An audit of the Fed would reveal only financial data. That data is already transparent and is already available to the general public. So if the US Congress wants to verify that the Fed is accurate in its statements, it can have an audit of the Fed — and learn nothing new."

Nobel laureate economist Paul Krugman feels the same way.

"The emerging GOP consensus on money is crazy — full-on conspiracy-theory crazy," Krugman writes in The New York Times.

As for Sen. Rand Paul, R-Ky., who has proposed a Fed audit, "Mr. Paul likes to warn that the Fed's efforts to bolster the economy may lead to hyperinflation," Krugman says.

"He loves talking about the wheelbarrows of cash that people carted around in Weimar Germany. But he's been saying that since 2009, and it keeps not happening." So now Paul focuses on the Fed being an overleveraged bank that could collapse, Krugman notes.

"This story is wrong on so many levels that reporters are having a hard time keeping up. But let's simply note that the Fed's 'liabilities' consist of cash, and those who hold that cash have the option of converting it into, well, cash. No, the Fed can't fall victim to a bank run."

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David Kotok, chief investment officer of Cumberland Advisors, doesn't believe the Federal Reserve needs to be audited, as some Republicans in Congress are calling for.
Kotok, audit, Fed, senator
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2015-47-17
Tuesday, 17 February 2015 01:47 PM
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