I was very pleased that the Financial Services Committee held a hearing on the Federal Reserve Transparency Act, HR 1207. The bill has 295 cosponsors and there is also strong support for the companion bill in the Senate. This hearing was a major step forward in getting the bill passed.
I was pleased that the hearing was well-attended, especially considering that it was held on a Friday at nine o’clock in the morning! I have been talking about the immense, unchecked power of the Federal Reserve for many years, while the attention of Congress was always on other things. It was gratifying to see my colleagues asking probing questions and demonstrating genuine concern about this important issue as well.
The witness testifying in favor of HR 1207 made some very strong points, which was no surprise considering the bill is simply common sense. It was also no surprise that the witness testifying against the bill had no good arguments as to why a full audit should not be conducted promptly. He attempted to make the case that the fed is already sufficiently accountable to Congress and that the current auditing policy is adequate. The fact is that the Fed comes to Congress and talks about only what it wants to talk about, and the GAO audits only what the current laws allow to be audited. The really important things however, are off limits. There are no convincing arguments that it is in the best interests of the American people for anything the Fed does to be off limits.
It has been argued that full disclosure of details of funding facilities like TALF and PDCF that enabled massive bailouts of Wall Street would damage the financial position of those firms and destabilize the economy. In other words, if the American people knew how rotten the books were at those banks and how terribly they messed up, they would never willingly invest in them, and they would fail. Failure is not an option for friends of the Fed. Therefore, the funds must be stolen from the people in the dark of night. This is not how a free country works. This is not how free markets work. That is crony corporatism and instead of being a force for economic stabilization, it totally undermines it.
If the Fed gave its actual arguments against a full audit, they would not have mentioned anything about political independence or economic stability. Instead they would admit they don’t want to be audited because they enjoy their current situation too much. Under the guise of currency control, they are able to help out powerful allies on Wall Street, in exchange for lucrative jobs or who-knows-what favors later on. An audit would expose the Fed as a massive fraud perpetrated on this country, enriching a privileged few bankers at the top of our economic food chain, and leaving the rest of us with massively devalued dollars which we are forced to use by law. An audit would make people realize that, while Bernie Madoff defrauded a lot of investors for a lot of money, the Fed has defrauded every one of us by destroying the value of our money. An honest and full accounting of how the money system really works in this country would mean there is not much of a chance the American people would stand for it anymore.
Monday
HELP ME END THE FED
What unprecedented anti-Fed days these have been! We had our Audit the Fed Congressional hearing, in which the central bank – for the first time in 96 years – was put on the defensive. End the Fed was chosen as a Main Selection of the Conservative Book Club; this book, the first anti-central banking bestseller in American history, debuted at #2 on Amazon.com and #6 on the New York Times and Wall Street Journal bestseller lists.
End The Fed – which the Mises Institute's Lew Rockwell calls “readable and persuasive beyond belief” – can climb up the NYT and WSJ lists week by week, eventually reaching #1, if you help me. Please, buy a copy. Buy one for a friend or family member. Spread the word. One businessman bought copies for all his 23 employees. Others have given them to students, a favorite use of mine.
By the way, the royalties go to my educational FREE Foundation, to carry on the fight among young people and all Americans.
Since 1913, the Fed has had it all its own way: booms and busts, dollar depreciation, redistribution to the government and the big banks from the middle and working classes. But just as Andrew Jackson abolished the predecessor of the Fed, we too can knock over this dangerous institution. End The Fed teaches all the fascinating history, and tells us what we can do for the future. It gives the constitutional, economic, moral, and libertarian arguments against what Jackson called "the Monster."
Ever seen the Fed’s marble palace in Washington, DC, on Constitution Avenue (of all streets!)? That bunch sure knows how to live. I’ve long had a dream of being the auctioneer when the Fed is sold off for private offices, or maybe a Museum of Sound Money! Help me dull its scissors and then break them, so the Fed can’t cut down our dollar’s value. Indeed, I believe that people ought to be ashamed to work at such a place; an institution that has done so much damage to American prosperity and freedom, as well as to the freedom and prosperity of the whole world. For example, I want no more bowing and scraping to the Fed chairman when he goes to Capitol Hill to peddle his nonsense. He is just a bureaucrat, albeit a disastrous one.
Together, you and I can change things. Indeed, we must. Buy End The Fed. Get copies for those you love. Certainly get copies for those who disagree with us. For all our futures, nothing is as important as cutting the Fed down to size. Join me: let’s End the Fed.
End The Fed – which the Mises Institute's Lew Rockwell calls “readable and persuasive beyond belief” – can climb up the NYT and WSJ lists week by week, eventually reaching #1, if you help me. Please, buy a copy. Buy one for a friend or family member. Spread the word. One businessman bought copies for all his 23 employees. Others have given them to students, a favorite use of mine.
By the way, the royalties go to my educational FREE Foundation, to carry on the fight among young people and all Americans.
Since 1913, the Fed has had it all its own way: booms and busts, dollar depreciation, redistribution to the government and the big banks from the middle and working classes. But just as Andrew Jackson abolished the predecessor of the Fed, we too can knock over this dangerous institution. End The Fed teaches all the fascinating history, and tells us what we can do for the future. It gives the constitutional, economic, moral, and libertarian arguments against what Jackson called "the Monster."
Ever seen the Fed’s marble palace in Washington, DC, on Constitution Avenue (of all streets!)? That bunch sure knows how to live. I’ve long had a dream of being the auctioneer when the Fed is sold off for private offices, or maybe a Museum of Sound Money! Help me dull its scissors and then break them, so the Fed can’t cut down our dollar’s value. Indeed, I believe that people ought to be ashamed to work at such a place; an institution that has done so much damage to American prosperity and freedom, as well as to the freedom and prosperity of the whole world. For example, I want no more bowing and scraping to the Fed chairman when he goes to Capitol Hill to peddle his nonsense. He is just a bureaucrat, albeit a disastrous one.
Together, you and I can change things. Indeed, we must. Buy End The Fed. Get copies for those you love. Certainly get copies for those who disagree with us. For all our futures, nothing is as important as cutting the Fed down to size. Join me: let’s End the Fed.
Sunday
WHAT I THINK......JONATHON ALLEN
Long before he danced with the stars, then-House Majority Leader Tom DeLay two-stepped all over fellow Texas Rep. Ron Paul's hopes of overseeing the Federal Reserve, according to an account provided by House Financial Services Committee Chairman Barney Frank .
In a broader interview with my colleagues Phil Mattingly and Benton Ives, Frank offered this assessment of how DeLay and other GOP leaders tiptoed around giving Paul -- who wants to abolish the Fed -- the gavel of the subcommittee with jurisdiction over it:
"In 2003, Ron Paul was in line to be chairman of the Domestic Monetary Policy Subcommittee of this committee. Specifically and solely to frustrate Ron from being the chairman, they merged the Subcommittee on Domestic Monetary Policy with the Subcommittee on International Monetary Policy. Ron Paul then complained to Tom DeLay, and Tom DeLay told [then-Chairman Mike] Oxley [R-Ohio] 'Don't change it' ... [T]wo years later, even though they merged the two subcommittees in the progression, Ron was then again ready to be chairman, this time of the combined one. [Then-Rep. Deborah] Pryce [R-Ohio] was dragooned to come back and assert a subcommittee chairmanship ... Ron at that point said to me, 'I guess I have to wait for you to be chairman for me to have any authority around here.' The Republican Party was a staunch defender of the Fed against Ron Paul."
Paul and Frank share an interest in auditing the Fed, though neither Frank nor any other member of the House has signed onto Paul's bill to repeal the Federal Reserve Act.
The general outlines of Frank's account -- though not DeLay's hand -- were confirmed by Republican sources. Paul said he didn't recall DeLay's involvement, but he acknowledged Republican leaders didn't want him to have the subcommittee chairmanship.
"They just got rid of one" subcommittee, Paul said of the first time he was passed over. "They wouldn't have enjoyed me being chairman."
But Paul has a defender in the current top Republican on the Financial Services Committee, Rep. Spencer Bachus of Alabama, who appointed him to the leading spot on the subcommittee with Republicans in the minority.
"There are people who said 'Is this the best thing to do?' I felt like it was," Bachus said. "I'm glad I appointed him. I have no regret."
In a broader interview with my colleagues Phil Mattingly and Benton Ives, Frank offered this assessment of how DeLay and other GOP leaders tiptoed around giving Paul -- who wants to abolish the Fed -- the gavel of the subcommittee with jurisdiction over it:
"In 2003, Ron Paul was in line to be chairman of the Domestic Monetary Policy Subcommittee of this committee. Specifically and solely to frustrate Ron from being the chairman, they merged the Subcommittee on Domestic Monetary Policy with the Subcommittee on International Monetary Policy. Ron Paul then complained to Tom DeLay, and Tom DeLay told [then-Chairman Mike] Oxley [R-Ohio] 'Don't change it' ... [T]wo years later, even though they merged the two subcommittees in the progression, Ron was then again ready to be chairman, this time of the combined one. [Then-Rep. Deborah] Pryce [R-Ohio] was dragooned to come back and assert a subcommittee chairmanship ... Ron at that point said to me, 'I guess I have to wait for you to be chairman for me to have any authority around here.' The Republican Party was a staunch defender of the Fed against Ron Paul."
Paul and Frank share an interest in auditing the Fed, though neither Frank nor any other member of the House has signed onto Paul's bill to repeal the Federal Reserve Act.
The general outlines of Frank's account -- though not DeLay's hand -- were confirmed by Republican sources. Paul said he didn't recall DeLay's involvement, but he acknowledged Republican leaders didn't want him to have the subcommittee chairmanship.
"They just got rid of one" subcommittee, Paul said of the first time he was passed over. "They wouldn't have enjoyed me being chairman."
But Paul has a defender in the current top Republican on the Financial Services Committee, Rep. Spencer Bachus of Alabama, who appointed him to the leading spot on the subcommittee with Republicans in the minority.
"There are people who said 'Is this the best thing to do?' I felt like it was," Bachus said. "I'm glad I appointed him. I have no regret."
Wednesday
WHAT I THINK......DAN HANNAN
Ron Paul is an unusual phenomenon: a politician who always answers questions fully and honestly. This tendency often gets him into trouble: although people say they want straight-talking representatives, they often react with horror when they get one.
Dr Paul’s ruthless application of his convictions - minimal government, localism, personal freedom and adherence to the letter of the US Constitution - alienates many of the conservatives who might have been expected to back him.
For example, although he doesn’t agree with abortion - as a GP, he says, he delivered thousands of babies, and never came across a case where a termination was necessary for the mother’s physical or psychological well-being - he insists that abortion law ought not to be a federal prerogative and, during his 2008 presidential bid, resolutely refused to give the Pro-Lifers the assurances they wanted.
Similarly, when almost every conservative legislator, including a great many Democrats, supported a law to prevent gun-shops being sued for crimes committed with weapons they had sold legally, he voted against the measure on grounds that it represented a usurpation of jurisdiction from the 50 states
Many Republicans regarded his opposition to the Iraq war as almost treasonable. Although the issue is no longer the shibboleth it was - plenty of conservatives, knowing what they now know, wish that they had kept the trillion dollars to spend on something else - Ron Paul is still treated with suspicion.
Now I don’t always agree with the Texas Congressman. Indeed, I don’t agree with his absolutist non-interventionism. Although, like him, I opposed the invasion of Iraq, I’m glad the US intervened militarily against Nazism and Soviet expansionism, and I regard the alliance of free English-speaking nations as one of the happiest geo-political facts of our era.
None the less, no conservative should dismiss Ron Paul’s anti-war arguments without giving them proper consideration. Essentially, he believes that the US is wasting her strength through imperial overstretch. This observation would once have been a commonplace in the GOP. From the earliest days of their party through to Robert Taft in the 1950s, Republicans tended to view foreign policy adventurism as the enemy of personal freedom, dispersed power, small government and, indeed, the constitution itself. They understood that the founding fathers had counselled against imperialism precisely because they had feared the concentration of power. They grasped that there was an incompatibility, in Russell Kirk’s phrase, between an American Republic and an American Empire.
There is, of course, an alternative tradition in the GOP: the tradition of John McCain and his all-time hero, Teddy Roosevelt. Decent and honourable people disagree with Paul; but there is neither decency nor honour in implying that he is an al-Quaeda apologist, or a witless tool of the terrorists.
As you’d expect, Ron Paul has fanatical supporters, who make up in fervour and in high principle what they lack in numbers. They are called the Campaign for Liberty, and they comprise an extraordinary coalition, ranging from prim Republican matrons to dreadlocked peaceniks. The one thing they have in common is a dislike of state coercion.
I am in Philadelphia, addressing one of their regional conferences. While there are some odd types among them - including, alas, a couple of 9/11 conspiracy theorists - most of them are, like their hero, extraordinarily high-minded. They are less interested in winning office than in winning the battle of ideas. They see themselves, with some justice, as the true heirs of the Republic, keeping faith with the vision of the Founding Fathers and the promise of the Constitution.
In Ron Paul, they have found something the founders dreamed of: a citizen legislator, who takes his oath of office seriously, votes as his conscience directs, and cannot be bought. Sometimes, Dr Paul is eccentric. Occasionally he’s wrong. But, by Heaven, I’m glad he’s there.
Dr Paul’s ruthless application of his convictions - minimal government, localism, personal freedom and adherence to the letter of the US Constitution - alienates many of the conservatives who might have been expected to back him.
For example, although he doesn’t agree with abortion - as a GP, he says, he delivered thousands of babies, and never came across a case where a termination was necessary for the mother’s physical or psychological well-being - he insists that abortion law ought not to be a federal prerogative and, during his 2008 presidential bid, resolutely refused to give the Pro-Lifers the assurances they wanted.
Similarly, when almost every conservative legislator, including a great many Democrats, supported a law to prevent gun-shops being sued for crimes committed with weapons they had sold legally, he voted against the measure on grounds that it represented a usurpation of jurisdiction from the 50 states
Many Republicans regarded his opposition to the Iraq war as almost treasonable. Although the issue is no longer the shibboleth it was - plenty of conservatives, knowing what they now know, wish that they had kept the trillion dollars to spend on something else - Ron Paul is still treated with suspicion.
Now I don’t always agree with the Texas Congressman. Indeed, I don’t agree with his absolutist non-interventionism. Although, like him, I opposed the invasion of Iraq, I’m glad the US intervened militarily against Nazism and Soviet expansionism, and I regard the alliance of free English-speaking nations as one of the happiest geo-political facts of our era.
None the less, no conservative should dismiss Ron Paul’s anti-war arguments without giving them proper consideration. Essentially, he believes that the US is wasting her strength through imperial overstretch. This observation would once have been a commonplace in the GOP. From the earliest days of their party through to Robert Taft in the 1950s, Republicans tended to view foreign policy adventurism as the enemy of personal freedom, dispersed power, small government and, indeed, the constitution itself. They understood that the founding fathers had counselled against imperialism precisely because they had feared the concentration of power. They grasped that there was an incompatibility, in Russell Kirk’s phrase, between an American Republic and an American Empire.
There is, of course, an alternative tradition in the GOP: the tradition of John McCain and his all-time hero, Teddy Roosevelt. Decent and honourable people disagree with Paul; but there is neither decency nor honour in implying that he is an al-Quaeda apologist, or a witless tool of the terrorists.
As you’d expect, Ron Paul has fanatical supporters, who make up in fervour and in high principle what they lack in numbers. They are called the Campaign for Liberty, and they comprise an extraordinary coalition, ranging from prim Republican matrons to dreadlocked peaceniks. The one thing they have in common is a dislike of state coercion.
I am in Philadelphia, addressing one of their regional conferences. While there are some odd types among them - including, alas, a couple of 9/11 conspiracy theorists - most of them are, like their hero, extraordinarily high-minded. They are less interested in winning office than in winning the battle of ideas. They see themselves, with some justice, as the true heirs of the Republic, keeping faith with the vision of the Founding Fathers and the promise of the Constitution.
In Ron Paul, they have found something the founders dreamed of: a citizen legislator, who takes his oath of office seriously, votes as his conscience directs, and cannot be bought. Sometimes, Dr Paul is eccentric. Occasionally he’s wrong. But, by Heaven, I’m glad he’s there.
Tuesday
TRADE WARS AND PROTECTIONISM ARE NOT FREE TRADE
Two weeks ago, both the administration and the Fed announced with straight faces that the recession was over and the signs of economic recovery were clear. Then last week, the president made a stunning decision that signals the administration’s determination to repeat the mistakes of the Great Depression. Much like the Smoot-Hawley Tariffs that set off a global trade war and effectively doomed us to ten more years of economic misery, Obama’s decision to enact steep tariffs on Chinese imported tires could spark a trade war with the single most important trading partner we have. Not only does China manufacture a whole host of products that end up on American store shelves, they are also still buying our Treasury debt.
One has to wonder why this course of action is being undertaken if the administration really believes its own statements about economic recovery. Why are they still trying to fix something they have supposedly already fixed? The most troubling thing is the rhetoric about free trade given to justify this. The administration claims it is merely enforcing trade policies and that this is necessary for free trade. This sort of double speak demonstrates a gross misunderstanding of free trade, economics and world history. Yet these are the same people the country trusts to solve our problems. This sort of thing should remove all doubt about the credibility of the decision makers in Washington.
The truth is this will hurt American consumers by driving up prices of tires and cars. This will also complicate matters for our already crippled manufacturing and agricultural industries, if and when China retaliates against US made products. Whatever jobs might be saved in the tire and steel industries here as a result of this protectionist measure will likely be lost in other American industries. It is even doubtful that those jobs will be saved, as cheap tires can be obtained from other places like Mexico instead. It is difficult to see any real winners among all the losers where trade wars are concerned. If Unions think this is beneficial to them, they are being penny-wise and pound foolish.
Free trade with all and entangling alliances with none has always been the best policy in dealing with other countries on the world stage. This is the policy of friendship, freedom and non-interventionism and yet people wrongly attack this philosophy as isolationist. Nothing could be further from the truth. Isolationism is putting up protectionist trade barriers, starting trade wars imposing provocative sanctions and one day finding out we have no one left to buy our products. Isolationism is arming both sides of a conflict, only to discover that you’ve made two enemies instead of keeping two friends. Isolationism is trying to police the world but creating more resentment than gratitude. Isolationism is not understanding economics, or other cultures, but clumsily intervening anyway and creating major disasters out of minor problems.
The government should not be in the business of giving out favors to special interests or picking winners and losers in the market, yet this has been most of what has consumed politicians’ attention in Washington. It has reached a fevered pitch lately and it needs to end if we are ever to regain a functional and prosperous economy.
One has to wonder why this course of action is being undertaken if the administration really believes its own statements about economic recovery. Why are they still trying to fix something they have supposedly already fixed? The most troubling thing is the rhetoric about free trade given to justify this. The administration claims it is merely enforcing trade policies and that this is necessary for free trade. This sort of double speak demonstrates a gross misunderstanding of free trade, economics and world history. Yet these are the same people the country trusts to solve our problems. This sort of thing should remove all doubt about the credibility of the decision makers in Washington.
The truth is this will hurt American consumers by driving up prices of tires and cars. This will also complicate matters for our already crippled manufacturing and agricultural industries, if and when China retaliates against US made products. Whatever jobs might be saved in the tire and steel industries here as a result of this protectionist measure will likely be lost in other American industries. It is even doubtful that those jobs will be saved, as cheap tires can be obtained from other places like Mexico instead. It is difficult to see any real winners among all the losers where trade wars are concerned. If Unions think this is beneficial to them, they are being penny-wise and pound foolish.
Free trade with all and entangling alliances with none has always been the best policy in dealing with other countries on the world stage. This is the policy of friendship, freedom and non-interventionism and yet people wrongly attack this philosophy as isolationist. Nothing could be further from the truth. Isolationism is putting up protectionist trade barriers, starting trade wars imposing provocative sanctions and one day finding out we have no one left to buy our products. Isolationism is arming both sides of a conflict, only to discover that you’ve made two enemies instead of keeping two friends. Isolationism is trying to police the world but creating more resentment than gratitude. Isolationism is not understanding economics, or other cultures, but clumsily intervening anyway and creating major disasters out of minor problems.
The government should not be in the business of giving out favors to special interests or picking winners and losers in the market, yet this has been most of what has consumed politicians’ attention in Washington. It has reached a fevered pitch lately and it needs to end if we are ever to regain a functional and prosperous economy.
Thursday
INTERVIEW WITH THE WALL STREET JOURNAL
For three decades, Rep. Ron Paul has waged a lonely battle in Congress to abolish the Federal Reserve. But he has more foot soldiers across the nation today, particularly after the financial crisis, who are leading the drive for wider congressional audits of the central bank. (See today’s Journal story for more on their movement.
In his new book — “End the Fed” — released today, Rep. Paul walks through his critique of the central bank and lays out a strategy (briefly) for eliminating it. We sat down with the congressman to hear his views on a money system backed by gold, the Fed’s challenge of withdrawing its stimulus and his legislation to audit the central bank. Excerpts of the interview:
What would a world without the Fed look like?
You’d go back to the day that if you wanted to borrow money to build a house, somebody would’ve had to save some money. You wouldn’t have zero savings and all the credit in the world. That’s just a total distortion of capitalism. Capital comes from savings. The part you don’t use for everyday living which you have left over, you reinvest and you save or you loan it out. We were living with something absolutely bizarre that had nothing to do with capitalism. We had no savings whatsoever yet there was all the credit in the world.
So without the Fed, there wouldn’t be as much credit.
Yeah, it would be different. If you were selling me a car and the car was worth $10,000 and I didn’t want to pay cash, you could take credit from me. You’ve got to have something to measure it by. What is a dollar? We don’t even know what a dollar is. There’s no definition for a dollar. There’s never been a time in law that said a Federal Reserve note is a dollar. That’s the basic flaw. There’s no definition for money. We’ve built a worldwide economy on a measuring rod that varies every single day. That’s why it was fragile, and that’s why it collapsed. There was no soundness to it. So that’s why you have to have a stable unit of account.
If you live in a primitive society, you’d trade goods. And if you wanted to advance, then you would trade a universal good, which would be a coin. But we’ve become sophisticated and smart and say, ‘Oh, you don’t have to go through that. We’ll just print the money. And we’ll trust the government not to print too much, and distribute it fairly.’ That’s often just a total farce. People are realizing that it is.
Don’t you think the Fed has moderated the business cycle over the past century?
Yes, I think they did smooth things out. The market’s always demanding the correction of the malinvestment and the excessive debt. … Since Bretton Woods broke down, I think every recession has been moderated by the Fed. That’s why the trust kept being built. That’s all a negative. You have to get rid of the mistakes. Moderating it means that we have slowed up the correction. The fact that they have been successful is probably the worst part about it. They’re moderating the rapidity of the crash and the correction by holding the mistakes in place.
What if, years from now, we see that the Fed has returned its balance sheet to its old size and pulled that money back from the system? Would that not be a validation of its approach?
There has only been one time that I know of where they have done that significantly, to withdraw anything of significance. That was after the Civil War. They withdrew greenbacks to a degree, they quit printing greenbacks, and they balanced the budget. I don’t think you can find any other time in our history and probably the history of the world. Because it’s an addiction, and the withdrawal is always much more serious than the continuation. The immediate problem of continuing the inflation is always more acceptable than withdrawal symptoms. Politically there will be continued inflation until it self-destructs.
So you don’t think it’s possible to pull it off?
They might try a little bit. With a weak economy, they’ll say it’s better for the economy to have low interest rates. If we didn’t have a Federal Reserve today, interest rates might be market driven. A lot of people would go bankrupt, but it would benefit the people who save. Capitalism is supposed to benefit the people who save. Even though they’re cheating the people who save, they’re cheating those on fixed income and the elderly, they will not quit inflating. The pain will be too great. They’re smart enough to know? They weren’t smart enough to know when they printed. They created the bubble. All of a sudden they’re going to get smart enough to know when to withdraw this? There’s not one chance in a million that’s going to happen.
But if the Fed were to pull this off and return its balance sheet to a normal size, where would that leave you?
If they were able to shrink their assets by 50%, to a trillion dollars or so … I would say it would challenge a lot of people. But I think the economic laws are in place. It’s only going to be temporary. It’s not going to happen. The only way you could do that is what I’ve been advocating for these last several years. You’ve got to cut spending, you’ve got to balance the budget, you’ve got to stop fighting these wars, you’ve got to bring our troops home, you’ve got to quit expanding the welfare state here at home … But I just don’t think the conditions exist. In theory you could, but if you do that without shrinking the size of the government and shrinking the deficit, it will be disastrous. It won’t work.
How would an audit lead to ending the Fed?
It’s a stepping stone. I think what’s going to lead to the next step is the destruction of the dollar, just like economic events moved further ahead than my legislative process. I wasn’t getting anywhere. But the economic events demanded that we look into it. So even if this bill passes and we have more information and we’re talking about monetary policy reform, I don’t think that’s the way this system is going to be ended. I think it’ll be ended when it’s a total failure and then it’ll have to be replaced by something. It could be replaced with a more authoritarian government, a more socialistic government.
Do you think the Fed will be abolished during your career?
I always thought the day would come… This economy is going to get worse and this dollar is going to get a lot worse. It’ll take care of itself. My real goal is educating people to the nature of money so that when this system fails, that they’ll know what to do and not just say ‘Well, we need a better manager.’
In his new book — “End the Fed” — released today, Rep. Paul walks through his critique of the central bank and lays out a strategy (briefly) for eliminating it. We sat down with the congressman to hear his views on a money system backed by gold, the Fed’s challenge of withdrawing its stimulus and his legislation to audit the central bank. Excerpts of the interview:
What would a world without the Fed look like?
You’d go back to the day that if you wanted to borrow money to build a house, somebody would’ve had to save some money. You wouldn’t have zero savings and all the credit in the world. That’s just a total distortion of capitalism. Capital comes from savings. The part you don’t use for everyday living which you have left over, you reinvest and you save or you loan it out. We were living with something absolutely bizarre that had nothing to do with capitalism. We had no savings whatsoever yet there was all the credit in the world.
So without the Fed, there wouldn’t be as much credit.
Yeah, it would be different. If you were selling me a car and the car was worth $10,000 and I didn’t want to pay cash, you could take credit from me. You’ve got to have something to measure it by. What is a dollar? We don’t even know what a dollar is. There’s no definition for a dollar. There’s never been a time in law that said a Federal Reserve note is a dollar. That’s the basic flaw. There’s no definition for money. We’ve built a worldwide economy on a measuring rod that varies every single day. That’s why it was fragile, and that’s why it collapsed. There was no soundness to it. So that’s why you have to have a stable unit of account.
If you live in a primitive society, you’d trade goods. And if you wanted to advance, then you would trade a universal good, which would be a coin. But we’ve become sophisticated and smart and say, ‘Oh, you don’t have to go through that. We’ll just print the money. And we’ll trust the government not to print too much, and distribute it fairly.’ That’s often just a total farce. People are realizing that it is.
Don’t you think the Fed has moderated the business cycle over the past century?
Yes, I think they did smooth things out. The market’s always demanding the correction of the malinvestment and the excessive debt. … Since Bretton Woods broke down, I think every recession has been moderated by the Fed. That’s why the trust kept being built. That’s all a negative. You have to get rid of the mistakes. Moderating it means that we have slowed up the correction. The fact that they have been successful is probably the worst part about it. They’re moderating the rapidity of the crash and the correction by holding the mistakes in place.
What if, years from now, we see that the Fed has returned its balance sheet to its old size and pulled that money back from the system? Would that not be a validation of its approach?
There has only been one time that I know of where they have done that significantly, to withdraw anything of significance. That was after the Civil War. They withdrew greenbacks to a degree, they quit printing greenbacks, and they balanced the budget. I don’t think you can find any other time in our history and probably the history of the world. Because it’s an addiction, and the withdrawal is always much more serious than the continuation. The immediate problem of continuing the inflation is always more acceptable than withdrawal symptoms. Politically there will be continued inflation until it self-destructs.
So you don’t think it’s possible to pull it off?
They might try a little bit. With a weak economy, they’ll say it’s better for the economy to have low interest rates. If we didn’t have a Federal Reserve today, interest rates might be market driven. A lot of people would go bankrupt, but it would benefit the people who save. Capitalism is supposed to benefit the people who save. Even though they’re cheating the people who save, they’re cheating those on fixed income and the elderly, they will not quit inflating. The pain will be too great. They’re smart enough to know? They weren’t smart enough to know when they printed. They created the bubble. All of a sudden they’re going to get smart enough to know when to withdraw this? There’s not one chance in a million that’s going to happen.
But if the Fed were to pull this off and return its balance sheet to a normal size, where would that leave you?
If they were able to shrink their assets by 50%, to a trillion dollars or so … I would say it would challenge a lot of people. But I think the economic laws are in place. It’s only going to be temporary. It’s not going to happen. The only way you could do that is what I’ve been advocating for these last several years. You’ve got to cut spending, you’ve got to balance the budget, you’ve got to stop fighting these wars, you’ve got to bring our troops home, you’ve got to quit expanding the welfare state here at home … But I just don’t think the conditions exist. In theory you could, but if you do that without shrinking the size of the government and shrinking the deficit, it will be disastrous. It won’t work.
How would an audit lead to ending the Fed?
It’s a stepping stone. I think what’s going to lead to the next step is the destruction of the dollar, just like economic events moved further ahead than my legislative process. I wasn’t getting anywhere. But the economic events demanded that we look into it. So even if this bill passes and we have more information and we’re talking about monetary policy reform, I don’t think that’s the way this system is going to be ended. I think it’ll be ended when it’s a total failure and then it’ll have to be replaced by something. It could be replaced with a more authoritarian government, a more socialistic government.
Do you think the Fed will be abolished during your career?
I always thought the day would come… This economy is going to get worse and this dollar is going to get a lot worse. It’ll take care of itself. My real goal is educating people to the nature of money so that when this system fails, that they’ll know what to do and not just say ‘Well, we need a better manager.’
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