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President
Obama's financial regulatory plan has created controversy over the role of the Federal Reserve in our economy like rarely
before. The person in Congress with perhaps the most unconventional point of
view on these issues in American politics is Congressman and former
presidential candidate Ron Paul (R-TX), a longtime critic of the very
institution of the Fed and fractional reserve banking. He has recently
sponsored a bill that would audit the Fed, which has attracted
cosponsors such as Dennis Kucinich (D-OH).
I
talked to Congressman Paul about his unique perspective and why the Fed is
controversial again.
Me:
Do you think the Fed is the main culprit behind the current economic crisis?
Paul:
I don't believe you can have financial bubbles without artificially expanding
the supply of money and credit, and only the Fed can do that in collusion
with the banks, who can operate under fractional reserve banking. So that's
where the financial bubbles come from, whether it's housing or the stock market or the bond market. That's the source of the bubble, and that's
what has to be addressed, and yet the Fed has been able to operate in secrecy
on exactly how they allocate credit and what they do with international
markets. So yes, the Fed is the number one culprit.
I
guess the response from defenders of Greenspan would be that to jack up
interest rates enough to defuse the housing bubble would have been really bad
for growth and unemployment, and that was unacceptable at the time.
Yes,
and that's why he inflated it instead. It's like a drug addiction. Nobody
wants the pain that comes with getting off the drug. But it's more than the
pain of avoiding addiction that drives Bernanke. It's a deep-seated
philosophy that inflation is the cure, and that it can prevent the
correction. But the correction has been locked in place. In the year 2000 it
was locked in place. The market was trying to tell us we needed a correction.
But it was prolonged so the bubble was made even bigger. This bubble has been
going on since 1971 when the dollar became fiat and we had international
reserve currency without backing. Ultimately, no matter what the Fed does, you
can't prop up a bad system, and that's why this one is different than any
recession we've had since 1971.
So
that's where your bill to audit the Fed comes in?
In a
way it's a mini-step, but it's also the reason I have a lot of co-sponsors
because I haven't gotten into the controversy of fractional reserve banking
and the issue of monetary policy per se. My main goal is to find out exactly
what the Fed has been doing, especially in this crisis. Since the crisis has
hit, there's been this whole idea of transparency about what the Treasury
does with the TARP funds. So now the American people want to know what the
Fed does. I believe that reform is inevitable, and that's the second step.
What
do you mean by "what the Fed is doing"?
What
they're doing with foreign governments, international financial
organizations, what they buy and sell, and what markets they interfere
with... how decisions are made. We don't have absolute figures, but it's
estimated that they might have a guarantee of 3 or 4 or 5 trillion dollars.
It doesn't have to be on the books because it might just be guarantees. This
is big stuff and the Congress should know about it.
What
do you mean by reform of the Fed?
This
system has failed in a financial sense. I believe the dollar will fail too.
We are going to have very high interest rates and price inflation rates.
Finally, they will have to stop. That's why I want to see what the Fed is
talking about and what they're saying to the central banks in other
countries. They know that reform is coming--they're looking to the IMF, and
Obama's on that side of the argument. That's exactly the opposite type of
reform that free-market and strict-constitutionalist people don't want. We
want reform toward honest money and sound money, rather than looking to
internationalism propping up the flawed system just by changing it from a
dollar-run system to an international system. Debate has to come on what
types of reform are necessary.
Why
audit the Fed if the goal is to end it?
To
expose them, and then people will be convinced of what the problems are. A
lot of people don't know too much about the Fed. If we audited the Fed, I
would learn a whole lot. I think we'd learn that there's a lot of
special-interest financing going on. We saw with the TARP funds--which were
more open--these go to certain corporations but not others, some had to go
bankrupt, some people got huge bonuses. I think we would see a lot of that in
the way the Fed runs their finances.
Tim
Geithner has said in statements defending the Obama administration's plan
that the Fed is the only player big enough to defend against systemic risk.
I
wouldn't be surprised to hear him say that, coming from someone who's been
the ultimate insider. When he was at the New York Fed, he was a permanent
member of the FOMC [Federal Open Market Committee], so therefore he's going
to protect that whole institution. In an interview not long ago, he was quite
frank that the Fed kept interest rates down too long and too low. I think he
was caught off-guard. But he was telling the truth.
People
who don't always see eye-to-eye with you on the role of government in the
economy have signed on to the bill, like Dennis Kucinich, what do you think
is going on there?
The
person who introduced my bill in the Senate is Bernie Sanders, a so-called
socialist. They're opposed to special-interest corporatism. They don't like
corporatism anymore than I do. I don't like welfare for anybody, let alone
corporations.
The
Republicans in the Financial Services Committee have floated a plan that
would also promote the Fed as a guard against systemic risk.
I
understand what they're doing, and it's not knock-down, drag-out battle.
Actually, if I had my druthers, I wouldn't advocate closing the Fed tomorrow.
It'd be much better to work out a transition. What I want is competition in
money--to have two circulating currencies in the United States, just like you have dozens of currencies
circulating around the world, instantaneously adjusting value, and you can do
that domestically. In some ways it helps my bill because I can say, look: the
American people want transparency, and if you're going to give [the Fed] more
power, it's important that we act in our capacity for oversight. People who
might be supporting more power for the Fed still are receptive to the idea
that we should know what they are doing.
Ron Paul
www.house.gov/paul
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Congressman
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.
Published
with the authorization of Dr. Paul.
Copyright
Dr. Ron Paul
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