Washington, D.C. (CNN) -- A growing number
of Americans are becoming aware of the Federal Reserve System, what it is,
how it has precipitated our financial crisis, and how it continues to pursue
policies that delay economic recovery and weaken the dollar.
Fed's actions, combined with the federal government's bailout bills and
stimulus packages, have struck a nerve in the American people.
polls have shown that more than 75 percent of Americans support efforts to
audit the Fed, something which my bill, HR 1207, the Federal Reserve
Transparency Act, aims to do. HR 1207 has the support of 304 members of
Congress, and the Senate version of the bill, S. 604, is supported by 31 U.S.
Chairman Ben Bernanke has embarked on an ambitious program of monetary
expansion, more than doubling the monetary base to almost $1.9 trillion and
doubling the size of its balance sheet to over $2 trillion, placing the American economy
in a precarious position.
all this excess money begins to be loaned out, the Fed risks creating a
hyperinflationary crisis similar to 1920s Germany. If the Fed contracts this
money, it risks harming the banks it desperately wants to see bailed out.
imperative that the American people know what the Fed is up to, how much
money it loans to banks and what types of agreements it enters into with
foreign banks and governments. Just about all of this information is exempt
from audit or oversight. The Fed's actions directly affect the value of the
dollar, which is coming under increasing pressure from our foreign creditors.
If we do not wish to see a complete collapse of the dollar, the Fed needs to
be subject to a strict audit of its actions, if not an outright abolition of
I would like nothing more than to see the Federal Reserve abolished, it is
not absolutely necessary to do so with direct legislation.
Fed's influence comes about because of its monopolization of the creation of
money. If we could abolish the government monopoly on the creation of money,
the Federal Reserve would be forced to clean up its act or go out of
business. Economists know that monopolies lead to reduced output and higher
prices, a suboptimal allocation of resources. This applies as well to the
market for circulating currency as it does to markets for any other good.
the previous Congress I introduced legislation that would eliminate the three
major barriers to competition in currency and break the Fed's stranglehold on
first barrier: Legal tender laws, which Congress does not have the
Constitutional authority to enact. Historically, legal tender laws have been
used by governments to force their citizens to accept debased and devalued
Law describes this phenomenon, which can be summed up in one phrase: Bad
money drives out good money. In the absence of legal tender laws, Gresham's
Law no longer holds. If people are free to reject debased currency, and
instead demand sound money, sound money will gradually return to use in
second barrier: laws that prohibit the operation of private mints. Certain
sections of U.S. code classified as anti-counterfeiting statutes were in fact
intended to shut down private mints that had been operating in California.
There is no reason to ban private companies from minting gold and silver
coins to compete with the dollar.
currencies are based on trust, trust that the issuing authority will not
debase the currency. If it becomes known that the issuer of a particular
currency is minting underweight coins, people will stop accepting that
currency and that company will go out of business. If someone else attempts
to counterfeit that currency and pass those coins, there are sufficient
counterfeiting laws on the books to prosecute those counterfeiters.
and individuals are free to choose which currencies they accept, and in the
absence of legal tender laws I believe that alternative currencies will gain
today can accept whatever currency they like. In Washington, DC a few years
ago, some stores began accepting euros from international tourists. Harrod's
in London accepts pounds, euros, and dollars. There is no legal requirement
in the United States for a store to accept dollars for non-debt transactions.
you walk into a 7-11 to buy a soda, the clerk doesn't have to accept your
dollars, he could demand euros, silver, or copper. But because legal tender
laws backing the dollar have caused the dollar to drive other currencies out
of circulation, it is easier for stores to accept dollars.
most stores also accept credit cards, personal checks, and debit cards, none
of which are legal tender. Some stores are moving to credit card-only
transactions to minimize costs, which they are allowed to do.
a system of competing currencies, it would be to the advantage of stores to
accept as many currencies as they could, in order to attract a wide range of
customers. Stores that only accepted one currency would see their customer
base shrink. The use of credit cards could simplify things just as it does
today when Americans travel to Europe. They pay in euros with their credit
card, and their card company bills in dollars. The market will find a
solution to any problems that might arise.
final barrier to competing currencies: Laws that assess capital gains and
sales taxes on gold and silver coins. Under federal law, coins are considered
collectibles, and are liable for capital gains taxes. These taxes actually
tax monetary debasement. The purchasing power of gold may remain relatively
constant, but as the nominal dollar value increases because of a weak dollar,
the federal government considers this an increase in wealth and assesses
the more the dollar is debased, the more capital gains taxes must be paid on holdings
of gold and other precious metals. For individuals who may wish to use gold
and silver in everyday transactions, this can quickly become a complicated
and costly burden.
long-term strength of the dollar will only be weakened by maintaining the
Fed's monopoly on our monetary system. Our foreign creditors are already
moving to dethrone the dollar as the world's currency.
prospect of American citizens also turning away from the dollar toward
alternate currencies should provide an impetus to the U.S. government to
regain control of the dollar and halt its downward spiral. Restoring
soundness to the dollar will remove the government's ability and incentive to
inflate the currency, and provide stability to the financial system. With a
sound currency, everyone is better off, not just those who control the
other articles by Ron Paul
Ron Paul of Texas enjoys a national reputation as the premier advocate for
liberty in politics today. Dr. Paul is the leading spokesman in Washington
for limited constitutional government, low taxes, free markets, and a return
to sound monetary policies based on commodity-backed currency. For more
information click on the Project Freedom website.
with the authorization of Dr. Paul.
Dr. Ron Paul