Ron Paul - The Federal Reserve

Summary

Congressman Paul has led a decades long effort to audit and end the federal reserve as the central component of his effort to return the nation to a sound monetary policy. Congressman Paul has stated that the Constitution grants only Congress the right to coin money and that this money must be backed by gold or silver. He asserts that Congress cannot legally cede that power to a private entity and the Federal Reserve is therefore an illegal entity.

The movement of the monetary system to a fiat based currency and the allowance of a central bank to control and issue that money was something that the founding fathers warned against. Congressman Paul blames this change to a fiat system for a number of the US economic problems and blames the Federal Reserve's manipulation of the interest rates and currency for creating the series of booms and busts the the US frequency undergoes. He asserts that the Reserve's willingness and ability to print money and manipulate interest rates allows government to grow well beyond it's means and then pass the funding for the expansion of government to the people through inflation. He notes that this inflation allows those at the top of the system to benefit while middle class Americans have the value of their savings lowered.

Congressman Paul is especially critical of the secretive nature of the Federal Reserve which manifest in the ever decreasing amount of economic data that the entity releases and their refusal to allow the federal government to audit them. Although Congressman Paul's ulitimate goal is to end the Federal Reserve, each Congress, he makes an attempt to audit the Federal Reserve through the introduction of legislation.

Interest Rates and the Federal Reserve

In March of 2001, Congressman Paul spoke about the responsibility of Congress to maintain the value of the US currency, and it's abandoning of that responsibility to the Federal Reserve. 

The Federal Reserve Erodes Dollars

In May of 2005, Congressman Paul used his "Texas Talk" to address the Federal reserve and it's monetary policy that affects the value of the dollar.

Congress and the Federal Reserve Erode Your Dollars
May 23, 2005

Last week the US Treasury department issued a warning to the Chinese government with regard to its policy of pegging the value of the Chinese yuan to the US dollar. In essence, the Treasury department accuses China of artificially suppressing the value of its currency by tying it to the dollar, thus making Chinese imports very cheap and worsening our trade imbalance. This kind of bluster may serve political interests, but in reality we have nobody to blame but ourselves for the sharp decline in the US dollar. Congress and the Federal Reserve, not China, are the real culprits in the erosion of your personal savings and buying power. Congress relentlessly spends more than the Treasury collects in taxes each year, which means the US government must either borrow or print money to operate- both of which cause the value of the dollar to drop. When we borrow a billion dollars every day simply to run the government, and when the Federal Reserve increases the money supply by trillions of dollars in just 15 years, we hardly can expect our dollars to increase in value. If anything, the US government should be embarrassed that another nation has depressed its currency by tying it to the US dollar. An economically sound nation would take pride in its currency, one that maintains a stable value and provides incentive for savers. Yet here we are, mad at China for our own sin of flooding the world with cheap dollars. The root of the problem is the Federal Reserve and our fiat monetary system itself. Since US dollars and other major currencies are not backed by gold, they have no inherent value. Their relative values are subject to political events, and fluctuate constantly in highly volatile currency markets. A fiat system means every dollar you have can be eroded into nothing by the actions of politicians and central bankers. In essence, paper currencies like the US dollar operate as articles of faith-- faith in the policies of the governments and central banks that issue them. When it comes to a government as deeply indebted as our own, that faith is sorely lacking among investors worldwide. Politicians often manage to fool voters and the media, but they rarely fool financial markets over time. The precipitous drop in the US dollar over the past few years is proof that investors around the globe are very concerned about American deficits and debt. When investors lack faith in the U.S. dollar, they really lack faith in the economic policies of the U.S. government. Unlike wealthy currency traders, most Americans are stuck with their U.S. dollars. Average people, particularly those who depend on savings or fixed incomes to fund their retirement years, cannot abide the continued devaluation of our currency. A true strong-dollar policy would not depend on the actions of China or any other nation. It would, however, require a constriction of the money supply and higher interest rates, both of which would cause some short-term pain for the American economy. In the long run, however, such a correction is the only alternative to the continued erosion of our dollars.

Federal Reserve and Borrowing

In August of 2005, Congressman Paul used his "Texas Talk" to address Federal Reserve policy on money.

Borrowing, Spending, Counterfeiting

August 22, 2005 Few Americans truly understand how our Federal Reserve system enables Congress to spend far beyond its means, but the cycle of spending and printing money affects all of us. Simply put, the more money our Treasury prints, the less every dollar is worth. Our pure fiat money system, in place since the last vestiges of a gold standard were eliminated in the early 1970s, has reduced the value of your savings by 80%. Disregard the government’s Consumer Price Index, which substantially underreports price inflation. Monetary inflation is true inflation, and we only need to look at the cost of homes, cars, energy, and medical care to recognize that a dollar buys far less today than ever. Economist Mark Thornton of the Ludwig von Mises Institute lays out a sobering case against the long-term health of the U.S. dollar. He identifies several facts and trends that bode ill for millions of Americans counting on dollar-denominated assets to fund their retirements. First, federal debt continues to grow exponentially and shows no sign of abating. Americans were shocked at the notion of a $1 trillion federal debt in 1980; just 25 years later the total approaches $8 trillion. The Bush administration and the current Congress have increased spending at rates unseen since the New Deal and Great Society eras, and single-year deficits now exceed $500 billion. There is zero political will in Washington to curb spending, as evidenced by the shameful transportation bill recently passed by Congress. Second, federal entitlement programs like Social Security and Medicare will not be “fixed” by politicians who are unwilling to make hard choices and admit mistakes. Demographic trends will force tax increases and greater deficit spending to maintain benefits for millions of older Americans who are dependent on the federal government. Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available-- and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. Third, future administrations are unlikely to challenge a foreign policy orthodoxy that views America as the world’s savior. We are hemorrhaging billions of dollars every month in Iraq, and we waste billions more every year through foreign aid and overseas meddling. A foreign policy based on nation-building and the imposition of “democracy” abroad, in direct contravention of our founders’ admonitions, is not economically sustainable. In Korea alone, U.S. taxpayers have spent nearly one trillion in today’s dollars over 55 years. A permanent military presence in Iraq and the wider Middle East will cost enormous amounts of money. Finally, we face a reordering of the entire world economy. China, Japan, and Asia in general have been happy to hold U.S. debt instruments in recent decades, but they will not prop up our spending habits forever. Foreign central banks are increasingly reluctant to hold more U.S. dollars, understanding that American leaders do not have the discipline to maintain a stable currency. When the rest of the world finally abandons the dollar as the global reserve currency, both Congress and American consumers will find borrowing money a more expensive proposition. All of these factors make it likely that the U.S. dollar will continue to decline in value, perhaps precipitously, in the coming decade. Will it take an economic depression before the American public finally holds the political class accountable for its reckless borrowing, spending, and counterfeiting? The greatest threat facing America today is not terrorism, or foreign economic competition, or illegal immigration. The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch-- Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference-- that threatens to impoverish us by further destroying the value of our dollars.

Confirmation of Ben Bernanke

In November of 2005, Congressman Paul used his "Texas Talk" to address the confirmation of Ben Bernanke as Chairman of the Federal Reserve.

More of the Same at the Federal Reserve

November 28, 2005 Benjamin Bernanke, a former member of the Board of Governors at the Federal Reserve, is all but certain to be confirmed by the Senate as the next Chairman of that institution. He may find that the adulation given to Mr. Greenspan does not carry over into his tenure so easily, especially if he continues to help Congress run up huge deficits. Mr. Bernanke is a consummate Fed insider, widely seen by the financial press as the logical heir to Alan Greenspan. In fact, judging by his public statements he may be more like Greenspan than Greenspan himself. What I mean is that Mr. Bernanke appears to have embraced the idea that the Federal Reserve can create prosperity more than Mr. Greenspan ever did. Like his predecessor, Mr. Bernanke views our system of fiat currency as a tool for creating wealth out of thin air by producing more dollars, whether paper or electronic. But he seems to take things further than Greenspan by refusing even to consider the destructive consequences of monetary expansion. In fact, he earned dubious notoriety for this quote in a 2002 speech discussing the supposed threat of deflation in the American economy: "The U.S. government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost." But there is a cost, and it's a heavy one. It's called monetary inflation, which destroys the value of the dollar and punishes those who save and invest. The money supply, as measured by the Fed's own M3 figure, has increased about 5 times since 1980. Yet for years officials at the Fed have insisted that inflation is firmly in check. Inflation is not in check, as anyone who examines the cost of housing, energy, medical care, school tuition, and other basics can attest. In one sense the remarkable rise in housing prices over the last decade really just represents a drop in the value of the dollar. The artificial boom in the 1990s equity markets, engineered by Mr. Greenspan's relentless monetary expansion and interest rate cutting, ended badly for millions of Americans holding overinflated stocks. What will happen when the same thing happens with housing? The fundamental question is whether a central bank can manage the supply of money and credit better than the free market otherwise would. We shouldn't kid ourselves about the true nature of the Fed, which is inherently incompatible with real free market capitalism. Centralized planning of the money supply is a form of economic control that significantly affects prices, wages, and production levels. Remember how market economists once criticized central planning of prices, wages, and production levels in the former Soviet Union? I encourage all Americans to learn more about the Federal Reserve system and what it means for our economic future. An excellent resource is economist Murray Rothbard's book "What Has Government Done to our Money," which provides a brief yet devastating critique of centralized banking and the reckless government spending it enables. We need to demystify the Federal Reserve to understand the enormous political and economic impact of a system that essentially allows government to print money at will to pay its bills.

M3 Questions

In February of 2006, Congressman Paul released a press statement noting his questioning of Federal Reserve Chairman Ben Bernanke.

Paul Questions Bernanke on M3, Inflation

February 15, 2006 Washington, DC: Congressman Ron Paul of Texas today questioned new Federal Reserve Chairman Ben Bernanke before the House Financial Services committee. Paul continued his longtime criticism of Fed policies, focusing on whether the relentless increase in the money supply that took place during Alan Greenspan’s tenure will continue.

Mr. Bernanke has pledged to bring increased transparency to Federal Reserve policymaking, but the recent Fed decision to discontinue compiling and releasing the M3 monetary aggregate figure casts doubt on this promise. M3 is widely used by economists, policy makers, and investors as the most accurate and reliable true measure of the money supply.

Paul, known as a congressional expert on monetary policy, reminded Mr. Bernanke that inflation is always a monetary phenomenon, resulting from an increase in the money supply as ordered by the Fed itself. M3 has risen more than twice as fast as M2 and GDP in recent years, illustrating that real inflation is much higher than the government admits through its CPI statistics. The troubling possibility is that the Fed discontinued M3 for the simple reason that it wants to conceal the extent to which the money supply- and hence price inflation- really grows.

Paul is preparing legislation that will compel the Fed to continue publishing M3, and plans to introduce the bill in the Financial Services committee later this month.

Federal Reserve Erodes Savings

In June of 2006, Congressman Paul used his "Texas Talk" address to state that the policies of the federal reserve are eroding the savings of Americans.

Federal Reserve Policy Destroys the Value of Your Savings

July 10, 2006 For years officials at the Federal Reserve Bank, including Chairman Bernanke himself, have assured us that inflation is under control and not a problem-- even as the price of housing, energy, medical care, school tuition, gold, and other commodities skyrockets. The Treasury department parrots the Fed line that consumer prices, as measured by the consumer price index (CPI), are under control. But even many mainstream economists now admit that CPI grossly understates true inflation. The most glaring problem is that CPI excludes housing prices, instead tracking rents. Everyone knows the cost of purchasing a home has increased dramatically in the last ten years; in many regions housing prices have more than doubled in just five years. So price inflation certainly is alive and well when to comes to the largest purchase most Americans make. When the Federal Reserve increases the supply of dollars in circulation, both paper and electronic, prices must rise eventually. What other result it possible? The supply of dollars has risen much faster than the supply of goods and services being chased by those dollars. Fed policy makers have more than doubled the money supply in less than ten years. While Treasury printing presses can print unlimited dollars, there are natural limits to economic growth. This flood of newly minted US currency can only increase consumer prices in the long term. Mr. Bernanke has stated quite candidly that he will use government printing presses to stimulate the economy as necessary. He is famous for joking that he would endorse dropping money from helicopters if needed to prevent an economic slowdown. This is nothing short of an express policy to destroy our money by inflation. Every new dollar erodes the value of existing dollars based on simple supply and demand. Does anyone really believe the Treasury can make us rich simply by printing more money? The coming dollar crisis is not likely to be “fixed” by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government. Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available-- and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad. The irony is that many of the Fed’s biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed’s easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It’s the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability-- and certainly no legal or moral right-- to decide how much money should exist and what the cost of borrowing money should be.

The World's Reserve Currency

In January of 2007, Congressman Paul used his "Texas Talk" to discuss the dollars status as the reserve currency.

The World's Reserve Currency

January 1, 2007 The financial press reported last week that the euro, the new currency created only five years ago and used by most European nations, has supplanted the U.S. dollar as the most widely used form of cash internationally. There are now more Euros in circulation worldwide than dollars. This alone is not necessarily troubling, as the dollar remains the world’s most important reserve currency. About 65% of foreign central bank exchange reserves are still held in dollars, versus only about 25% in euros. And the European Central Bank faces the same inflationary pressures that our own Federal Reserve Bank Governors face, including a growing entitlement burden that threatens economic ruin as both societies age. European politicians want to spend money just as badly as American politicians, and undoubtedly will clamor to inflate-- and thus devalue-- the euro to fund their creaky social welfare systems. Still, the rise of the Euro internationally is another sign that the U.S. dollar is not what it used to be. There is increasing pressure on nations to buy and sell oil in euros, and anecdotal evidence suggests that drug dealers and money launderers now prefer euros to dollars. Historically, the underground cash economy has always sought the most stable and valuable paper currency to conduct business. More importantly, our greatest benefactors for the last twenty years-- Asian central banks-- have lost their appetite for holding U.S. dollars. China, Japan, and Asia in general have been happy to hold U.S. debt instruments in recent decades, but they will not prop up our spending habits forever. Foreign central banks understand that American leaders do not have the discipline to maintain a stable currency. When the rest of the world finally abandons the dollar as the global reserve currency, both Congress and American consumers will find borrowing money a more expensive proposition. Remember, America can maintain a large trade deficit only if foreign banks continue to hold large numbers of dollars as their reserve currency. Our entire consumption economy is based on the willingness of foreigners to hold U.S. debt. We face a reordering of the entire world economy if the federal government cannot print, borrow, and spend money at a rate that satisfies its endless appetite for deficit spending. At some point Americans must realize that Congress, and the Federal Reserve system that permits the creation of new money by fiat, are the real culprits in the erosion of your personal savings and buying power. Congress relentlessly spends more than the Treasury collects in taxes each year, which means the U.S. government must either borrow or print money to operate-- both of which cause the value of the dollar to drop. When we borrow a billion dollars every day simply to run the government, and when the Federal Reserve increases the money supply by trillions of dollars in just 15 years, we hardly can expect our dollars to increase in value.

Testimony at Financial Services Committee

On February 17, 2007 Congressman Paul spoke at the House Financial Services Committee. He spoke about the unconstitutionality of Congress handing over the monetary policy to the federal reserve.

Federal Reserve Monopoly

In April of 2007, Congressman Paul used his "Texas Talk" to discuss the Federal Reserve's monopoly in the creation of money.

The Federal Reserve Monopoly over Money

April 9, 2007 Recently I had the opportunity to question Federal Reserve Chairman Ben Bernanke when he appeared before the congressional Joint Economic committee. The topic that morning was the state of the American economy, and many of my colleagues raised questions about how the Fed might better "regulate" things to ease fears of an economic downturn. The tenor of my colleagues' questions suggested that Mr. Bernanke's job is nothing less than to run the U.S. economy, like some kind of Soviet central planner. Certainly it’s true that Mr. Bernanke can drastically affect the economy at the drop of a hat, simply by making decisions about the money supply and interest rates. But why do members of Congress assume this is good? Why do we accept without objection that a small group of people on the Federal Reserve Board wields so much power over our economic well-being? Is centralized, monopoly control over our money even compatible with a supposedly free-market economy? Few Americans give much thought to the Federal Reserve System or monetary policy in general. But even as they strive to earn a living, and hopefully save or invest for the future, Congress and the Federal Reserve Bank are working insidiously against them. Day by day, every dollar you have is being devalued. The greatest threat facing America today is not terrorism, or foreign economic competition, or illegal immigration. The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch-- Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference-- that threatens to impoverish us by further destroying the value of our dollars. The Fed’s inflationary policies hurt older people the most. Older people generally rely on fixed incomes from pensions and Social Security, along with their savings. Inflation destroys the buying power of their fixed incomes, while low interest rates reduce any income from savings. So while Fed policies encourage younger people to overborrow because interest rates are so low, they also punish thrifty older people who saved for retirement. The financial press sometimes criticizes Federal Reserve policy, but the validity of the fiat system itself is never challenged. Both political parties want the Fed to print more money, either to support social spending or military adventurism. Politicians want the printing presses to run faster and create more credit, so that the economy will be healed like magic- or so they believe. Fiat dollars allow us to live beyond our means, but only for so long. History shows that when the destruction of monetary value becomes rampant, nearly everyone suffers and the economic and political structure becomes unstable. Spendthrift politicians may love a system that generates more and more money for their special interest projects, but the rest of us have good reason to be concerned about our monetary system and the future value of our dollars.

Reaction to Federal Reserve Rate Cut

In October of 2007, Congressman Paul issued a press statement noting his reaction to a move by the Federal Reserve to cut rates.

Statement on Federal Reserve Rate Cut

October 31, 2007

For immediate release

Washington, DC - Congressman Ron Paul, ranking member of the Subcommittee on Domestic and International Monetary Policy (DIMP), and a nationally recognized expert on monetary policy, issued the following statement regarding the Federal Reserve’s decision to again lower interest rates:

“ America ’s economic difficulties, especially the problems in the housing market, are the direct result of the Federal Reserve’s inflationary policies. In the past year, we have seen MZM grow by 12%, yet the Fed continues to inflate the money supply. While prices for gold, oil, and staple commodities continue to rise, the purchasing power of the dollar for all Americans continues to fall. Inflationary monetary policies created the problems in the economy we are seeing, and these problems will be made worse, not better, by more inflation. Today’s action by the Fed is very bad news for American workers and retirees who are about to get hit with yet another jump in prices.

Make no mistake, the problems faced by the American people are not caused by unscrupulous mortgage brokers or the rising price of oil. These are symptoms of an economic disease caused by a spendthrift Congress enabled by loose monetary policy. Too many pundits praise the weak dollar as benefiting exporters, but they fail to see the harm done to thrifty, hard-working Americans. Rather than continuing to pursue a policy of easy credit and increasing debt, we need to return to a sound monetary system.”

Questioning of Paul Volcker

In May of 2008, Congressman Paul released a press statement noting his questioning of Federal Reserve Chairman Paul Volcker relating to fiscal policy.

Congressman Paul Questions Volcker
Congressman Paul Questions Former Fed Chairman Volcker

For Immediate Release

May 14, 2008

Washington , DC - This morning at a Joint Economics Committee Hearing Congressman Ron Paul had the opportunity to question former Federal Reserve Chairman Paul Volcker on the economy and the credit crisis.

The hearing was entitled “Wall Street to Main Street: Is the Credit Crisis Over and What Can the Federal Government Do to Prevent Unnecessary Systemic Risk in the Future?”

Volcker mentioned in his opening remarks that the United States suffers from overconsumption, and that we cannot sustain the current build up of debt. He postulated that consumers could be realizing that fact and shifting spending habits accordingly.

Congressman Paul decried the ability of the Federal Reserve to now buy virtually anything as an asset to hold as collateral. In addition to mortgage-backed securities, they can also buy credit card securities, student loan securities, and car loan securities.

Congressman Paul pointed out that the roots of the current crisis are a misunderstanding of capital and debt, over-regulation rather than under-regulation, and the Federal Reserve’s distortion of the marketplace with artificially low interest rates and promises of bailouts which encourage malinvestment and irresponsible behavior among banks.

Transparency at the Fed

In February of 2008, Congressman Paul used his "Texas Talk" to address the need for transparency at the Federal Reserve.

On Transparency of the Fed

This week the Federal Reserve responded to the American people’s increased concerns over our monetary policy by presenting new initiatives aimed at enhancing the Fed’s transparency and accountability. As someone who has called for more openness from the Fed for over 30 years, I was pleased to see the Fed acknowledge the legitimacy of this need.

The Federal Reserve controls the flow of money and credit in our economy because Congress has abdicated its responsibility over the nation’s currency. This process therefore occurs centrally, and almost completely outside the system of checks and balances. Because of legal tender laws, people are left with no real choice, except to build their lives and futures around this monopoly currency, vulnerable to powerful central bankers. The Founding Fathers intended only gold and silver to be used as currency, however, inch by inch over the decades, this country has backed away from this important restraint. Our money today has no link whatsoever to gold or silver. For many reasons, this is extremely dangerous, and has a lot to do with the boom and bust cycles that have resulted in the crisis in which we find ourselves today.

The Fed is now pledging to reveal to the public more about its economic predictions, and calls this greater transparency. This is little more than window-dressing, at best, utterly useless at worst. Many analysts, especially those familiar with the Austrian school of economics, saw the current economic crisis coming years ago when the Federal Reserve was still telling the American people their policies were as good as gold. So while it might be nice to know what fantasy-infused outlook the Fed has on the economy, I am much more interested in what they are doing as a result of their faulty, haphazard interpretation of data. For instance, what arrangements do they have with other foreign central banks? What the Fed does on that front could very well affect or undermine foreign policy, or even contribute to starting a war.

We also need to know the source and destination of funds provided through the Fed’s emergency funding facilities. Information such as this will provide a more accurate and complete picture of the true cost of these endless bailouts and spending packages, and could very likely affect the decisions being made in Congress. But with so much of the Fed’s business cloaked in secrecy, these latest initiatives will not even scratch the surface of the Fed’s opaque operations. People are demanding answers and explanations for our economic malaise, and we should settle for nothing less than the whole truth on monetary policy.

The first step is to pass legislation I will soon introduce requiring an audit of the Federal Reserve so we can at least get an accurate picture of what is happening with our money. If this audit reveals what I suspect, and Congress has finally had enough, they can also pass my legislation to abolish the Federal Reserve and put control of the economy’s lifeblood, the currency, back where it Constitutionally belongs. If Congress refuses to do these two things, the very least they could do is repeal legal tender laws and allow people to choose a different currency in which to operate. If the Fed refuses to open its books to an audit, and Congress refuses to demand this, the people should not be subject to the whims of this secretive and incompetent organization.

Speculators

In June of 2008, Congressman Paul made a video discussing the federal reserve and the manipulation of interest rates.

End the Fed

In 2009, Congressman Paul released a book titled "End the Fed." The book was well received and further fueled what was a growing movement to audit and end the federal reserve.

Audit and End the Fed

In May of 2009, Congressman Paul used his "Texas Talk" address to discuss his desire to see the federal reserve audited and ended. He also discusses the progress of his legislation to audit the Fed.

Audit the Fed, Then End It!

I have been very pleased with the progress of my legislation, HR 1207, which calls for a complete audit of the Federal Reserve and removes many significant barriers towards transparency of our monetary system. This bill now has nearly 170 cosponsors, with support from both Republicans and Democrats. Senator Bernie Sanders has introduced a companion bill in the Senate S 604, which will hopefully begin to gain momentum as well. I am very encouraged to see so many of my colleagues in Congress stand with me for greater transparency in government.

Some have begun to push back against this bill, and I am very happy to address their concerns.

The main argument seems to be that Congressional oversight over the Fed is government interference in the free market. This argument shows a misunderstanding of what a free market really is. Fundamentally, you cannot defend the Federal Reserve and the free market at the same time. The Fed negates the very foundation of a free market by artificially manipulating the price and supply of money – the lifeblood of the economy. In a free market, interest rates, like the price of any other consumer good, are decentralized and set by the market. The only legitimate, Constitutional role of government in monetary policy is to protect the integrity of the monetary unit and defend against counterfeiters.

Instead, Congress has abdicated this responsibility to a cabal of elite, quasi-governmental banks who, instead of stabilizing the economy, have destabilized it. It took less than two decades for the Federal Reserve to bring on the Great Depression of the 1930’s. It has also inflated away the value of our currency by over 96 percent since its inception. It has invisibly stolen from the poor and given to the rich through this controlled inflation, and now openly stolen through recent bank bailouts. It has predictably exacerbated the very problems it was meant to solve.

Detractors have also argued that the Fed must remain immune from the political process, and that that more congressional oversight would distort their very important decisions. On the contrary, the Federal Reserve is already heavily entrenched in the political process, as the Fed chairman is a political appointee. High level officials routinely make the rounds between positions at the Fed, member banks, Treasury and back again, taking care of friends and each other along the way.

As far as the foolishness of placing complex monetary policy decisions in the hands of politicians – I couldn’t agree more. No politician or central banker, no matter how brilliant, is smart enough to know more than the market itself. The failure of central economic planning has been witnessed over and over. It is frankly beyond me why we ever agreed to try it again.

To understand how unwise it is to have the Federal Reserve, one must first understand the magnitude of the privileges they have. They have been given the power to create money, by the trillions, and to give it to their friends, under any terms they wish, with little or no meaningful oversight or accountability. Thus the loudest arguments against greater transparency are likely to come from those friends, and understandably so.

However, it is the responsibility of every member of Congress to represent the interests of the people that sent them to Washington and find out what has been happening with our money. As the branch of government with the power of the purse, we really have no other reasonable choice when the economy is in the shape it is in.

Federal Reserve Transparency Act

In June of 2009, Congressman Paul released a statement noting that his legislation to audit the federal reserve was now cosponsored by more than half of the Congress.

Audit the Fed Bill Reaches Crucial Benchmark

Washington, D.C. - Congressman Ron Paul's Federal Reserve Transparency Act, HR 1207, has reached and surpassed the level of 218 cosponsors in the House of Representatives, which means it is now cosponsored by a majority of the members.

The 218th cosponsor was Dennis Kucinich (OH-10), and the bill has since received its 222nd cosponsor.

“The tremendous grass-roots and bipartisan support in Congress for HR 1207 is an indicator of how mainstream America is fed up with Fed secrecy,” said Congressman Paul. “I look forward to this issue receiving greater public exposure.”

Hearings on Federal Reserve transparency are expected within the next month, as part of the Financial Services Committee's series of hearings on regulatory reform.

In November of 2009, Congressman Paul released a statement noting an amendment that he and Congressman Grayson introduced to audit the federal reserve.

Paul-Grayson Amendment Passes Committee

Washington, D.C. - Congressman Ron Paul (TX-14) is pleased to announce that his and Congressman Grayson’s amendment based on HR 1207 has passed in the Financial Services Committee by a vote of 43-26 and will be included in major banking reform legislation.

 

The Paul/Grayson amendment:
· Removes the blanket restrictions on GAO audits of the Fed
· Allows audit of every item on the Fed's balance sheet, all credit facilities, all securities purchase programs, etc.
· Retains limited audit exemption on unreleased transcripts and minutes
· Sets 180-day time lag before details of Fed's market actions may be released
· States that nothing in the amendment shall be construed as interference in or dictation of monetary policy by Congress or the GAO

“While HR 3996, if passed, will grant sweeping new powers to the Federal Reserve, at least with this amendment attached, it won’t be acting in secret anymore. This is a major victory for Federal Reserve transparency and government accountability. I am very grateful to Congressman Bachus and all the other Members who were so supportive and helpful in this effort," stated Congressman Paul.

Testimony on Legislation to Audit the Fed

In September of 2009, Congressman Paul used his "Texas Talk" to address the recent testimony on his legislation to audit the federal reserve.

The Real Reasons Behind Fed Secrecy

Last week 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.

Highlight Reel

An independent person created a highlight reel of Congressman Paul's testimony and statements concerning the Federal Reserve.

Full Disclosure is a Must

In December of 2010, Congressman Paul used his "Texas "Talk" to address the need for full disclosure in a Fed audit and the need to refuse a compromise in the Senate.

Anything Less Than Full Disclosure is Unacceptable

Last week a new bill was introduced in the Senate to audit the Federal Reserve. Some backers of my bill HR1207 and the existing Senate companion bill S.604 were a little miffed at this, but depending on how you think about it, this new legislation poses no great threat to our efforts.

With the economy in shambles, people are looking for answers - not just because of lost savings on Wall Street, but because of lost houses on Main Street. Because of the many problems we face, the Federal Reserve and its powers over the economy have come under scrutiny. This translates into a lot of political pressure on Congress. With all the House Republicans signed on as co-sponsors and over half of the Democrats, HR 1207 has enormous bipartisan support. It would be disingenuous for Washington not to embrace the principles behind this bill after all the promises for transparency. How can one credibly argue for more transparency in government in one breath and defend the secrecy of the Federal Reserve in the next?

However, there is still very powerful resistance to the disclosures that HR 1207 would require and efforts to weaken it will continue to pop up before this issue is settled.

The good news is that Washington is responding and the Federal Reserve has become the issue. Concerned Americans need to keep the pressure on by continuing to define what we want, and what we do not want.

One major concern is that HR 1207 constitutes some kind of power grab for Congress. Congress would not do a better job dictating interest rates or managing money supply growth than the Federal Reserve does for exactly the same reasons: Congress is not the free market. Any select group of people, no matter how wise and educated, simply cannot replace the wisdom of the market. HR 1207 does not seek to replace the wisdom of the Fed with the wisdom of Congress. That would be a giant step backwards. HR 1207 simply asks for full disclosure, and I am agreeable to allowing for a reasonable lag time to calm the fears that Congress intends to dictate monetary policy.

What we do want, what we insist upon, is that no longer will decisions that carry so much economic weight be made in absolute secrecy. We want to know what arrangements the Fed makes with other governments and central banks. We want to know who is benefitting from the actions of the Fed and what deals are being made. The Fed is already reacting to pressure by scaling back its liquidity facilities and returning to more traditional monetary policy through direct asset purchases. With nearly $800 billion in mortgage-backed securities on its books already, $800 billion in Treasury securities, and no real limit to what the Fed can acquire, there is a tremendous opportunity for malfeasance. We need to know who the Fed deals with, what they buy, how much they spend, and who benefits. As good as any step towards Federal Reserve transparency is, anything less than full disclosure at this point is unacceptable.

The Federal Reserve and Secrecy

In January of 2010, Congressman Paul used his "Texas Talk" to address previous actions taken by Treasury Secretary Timothy Geithner with AIG.

Why the Fed Likes Independence

Last week it was revealed that when Treasury Secretary Tim Geithner was Chairman of the New York Federal Reserve, he urged AIG officials not to disclose to the Securities Exchange Commission relevant details of agreements with banks to bail out Goldman Sachs. Apparently he felt at the time that regulators and the public would be angry that taxpayer money was used to fully compensate bankers who made some horrifically bad investment decisions. These banks should have suffered the consequences of the huge risks they were taking. After all, they kept plenty of rewards when times were good. Instead, the Fed found a way to socialize these major losses so these banks could survive and continue making more bad decisions, at the expense of the American people and the value of the dollar.

Geithner claims that they had to take politically unpopular actions to save the economy from collapse. Half of that is right – it was politically unpopular, but it is extremely premature at best, to claim the economy has been saved. It was just reported that the economy shed 85,000 more jobs in December. Unemployment stands at 10 percent officially, and 22 percent according to more traditional calculations. It is hard to argue that this sort of government waste has done anything but harm to our economy. Raiding Main Street to bail out Wall Street is a foolish idea. Main Street productivity and the strength of the dollar is the bedrock of the economy. You cannot gut this foundation without eventually toppling everything else. This is what too many policy makers either don’t understand or refuse to face. Or even worse, perhaps they do understand, but don’t care!

In any case, this revelation makes precisely my point about the need for Fed transparency. This claim that the Fed should have “independence” is a canard. They very much enjoy their comfortable pattern of bailing out friends and devaluing the currency with no oversight and no accountability. Geithner specifically asked officials at AIG not to disclose to the SEC or to the public particulars about this special deal for his friends. We only know these details now because AIG was eventually forthcoming when Congress demanded some answers.

We should be getting this information, and information on all such dealings, straight from the Fed. The Fed should be accountable to Congress because it is a creature of Congress. The Constitution gives Congress the authority to oversee the integrity of the monetary unit. We have unwisely and unconstitutionally delegated this authority to the Federal Reserve, which has in turn devalued our dollar by 95 percent and counting. When the Federal Reserve engages in harmful policies, Congress is still ultimately responsible. If the Fed is not made accountable through a GAO audit at least, it will continue to be accountable to no one, and that is unacceptable.

Geithner expects to be praised and thanked for his actions instead of rebuked and fired. He expects to be given more power to engage in “experimental” monetary policy in the future. But he has just given us a very good idea of what the Fed and Treasury would do with more power, what they consider good monetary policy, and why they like their so-called independence.

Fed Audit Under Fire

In May of 2010, Congressman Paul used his "Texas Talk" to note that the Senate was attempting to halt legislation to stop the audit of the federal reserve.

Fed Audit Under Fire

It doesn’t come as too much of a surprise that the measure to audit the Federal Reserve is coming under continuous fire from the central bank and its cronies. For the first time since the Federal Reserve was created nearly a century ago, they have hired an actual lobbyist to pound the pavement on Capitol Hill. This is a desperate effort to hang on to the privilege of secrecy and lack of accountability they have enjoyed for so long. Last week showed they are getting their money’s worth in the Senate.

At the very last minute on the floor of the Senate, supposed compromise language was agreed to and substituted in the Sanders Amendment to the Financial Reform Bill. This language was acceptable to the administration, committee leadership, and to the Fed. The trouble is, while it is better than no audit at all, it guts the spirit of a truly meaningful audit of the most crucial transactions of the Fed. In fact, rather than still calling the Sanders Amendment an audit, maybe it should instead be called more of a disclosure at this point.

The new language of the Sanders Amendment requires a one-time disclosure from the Fed of 13(3) facilities, foreign currency swaps and mortgage-backed securities. Basically, their sins of the past would be revealed and Americans would know more about who got bailed out by the Fed and under what terms. This would be good, but it's not nearly enough.

Taxpayers are sick and tired of bailing out privileged, dysfunctional institutions that should be allowed to fail in order to stop their ability to wreak havoc on our economy. Perpetuating these corporations at taxpayer expense is not just wasteful, it is actively harmful. It would be good to know what went on in the past, but what about accountability in the future? A one-time disclosure now will not do us a lot of good down the road when the cycle repeats itself and friends of the Fed find themselves in trouble again.

More importantly, agreements with foreign central banks are not touched by the new Sanders Amendment language. At a time when Greece, Portugal, Spain and other countries are experiencing dire financial crises and have their hands out to the international community, we need to know if our Federal Reserve is at all involved in bailing them out. As weary as we are of bailing out companies, the American people would not stand for bailing out entire countries. Our government is wasteful enough in its own affairs without contributing to the waste of other countries. Yet the Fed currently has the tools it needs to do just this, and to do it in secret.

If we cannot take away the Fed’s ability to waste trillions of taxpayer dollars on failing companies and failing countries, at the very least, we can take away their ability to do this with no transparency or accountability to the American people. While the Sanders Amendment no longer contains a full audit, Senator David Vitter has introduced an amendment which contains the Audit the Fed language that passed the House last fall. The Senate must pass the Vitter amendment for full disclosure and full accountability going forward.

Failure of Fed Audit in the Senate

In May of 2010, Congressman Paul released a press statement noting the failure of the bill to audit the federal reserve in the Senate. 

Paul Disappointed by Senate's Failure to Support a Full Audit of Fed
For Immediate Release
May 11, 2010
Paul Disappointed by Senate's Failure to Support a Full Audit of Fed

Washington, D.C. - Congressman Ron Paul (TX-14) today expressed disappointment that the Senate failed to pass an amendment offered by Senator Vitter (amending the Senate financial reform bill), which included the express language of Congressman Paul's landmark "Audit the Fed" legislation. Paul's legislation passed by a large margin in the House of Representatives last fall as part of the House financial reform bill, and Senator Vitter's amendment would have paved the way for a full and ongoing audit of all of the Federal Reserve's lending and monetary policy activity.

However, the Vitter amendment was supported by over 1/3 of the Senate, and the Sanders amendment (calling for disclosure of how approximately $2 trillion of Federal Reserve credit facilities were dispersed) passed unanimously today in the Senate. Therefore Paul remains hopeful that momentum is shifting and the days of Federal Reserve secrecy are coming to an end.

"The 37 votes our measure received in the Senate represent a strong step in our continuing work for full Federal Reserve transparency. In addition, the passage of the Sanders Amendment is a victory for taxpayers, who will finally know who received $2 trillion of their money," stated Congressman Paul. "The Fed is no longer an untouchable monolith. It can no longer take for granted its absolute power to create and give away public money at will, with no true accountability. With strong support in the Senate, the House, and especially among the public, more victories for full transparency lie ahead."

In the next month, Congressman Paul released two press statements to urge the Senate to pass the legislation to audit the federal reserve.

Paul Urges a Full and Complete Audit of the Federal Reserve
For Immediate Release
June 10, 2010

Conferees to the Financial Reform Bill have an Opportunity to Demand Full Transparency
Washington, D.C. - House Conference Committee members, which will reconcile the House and Senate versions of the financial reform bill, have been announced. Congressman Paul is pleased to note that 15 out of 31 total conferees are cosponsors of HR 1207, his bill to audit the Federal Reserve Bank.

The House-passed version of the financial reform bill contains the basic language of HR 1207 (in the Paul-Grayson amendment). However, a similar amendment offered by Senator Vitter to the Senate version was rejected by the Senate. Thus, it is essential that conferees consider adding the undiluted language of the Paul-Grayson amendment when reconciling the Senate and House versions of the Financial Reform Bill. Only the full language of the Paul-Grayson amendment will insure a thorough, complete, and ongoing audit of the Fed.

“This Financial Reform bill is set to grant sweeping new powers to the Federal Reserve, which has made a mess of our economy. If my colleagues insist on expanding the power of the Fed, the very least they can do is require the Fed to be transparent rather than secretive in its actions,” stated Congressman Paul. “Luckily, many of the conferees already have demonstrated their concern about transparency by cosponsoring HR 1207, and hopefully those conferees will insist on full transparency in the conference report.”

The House Conferees are: (Democrat/Republican) Representatives Frank, Kanjorski, Waters, Maloney, Gutierrez, Watt, Meeks (NY), Moore (KS), Kilroy, Peters, Peterson, Boswell, Waxman, Rush, Conyers, Berman, Towns, Cummings, Velazquez, Shuler, Bachus, Royce, Biggert, Capito, Hensarling, Garrett, Lucas, Barton, Smith (TX), Issa, and Graves.

Senate Conferees are:

Chris Dodd (D-Conn.) Tim Johnson (D-S.D.), Jack Reed (D-R.I.), Charles Schumer (D-N.Y.), Richard Shelby (R-Ala.), Bob Corker (R-Tenn.), Mike Crapo (R-Idaho) and Judd Gregg (R-N.H.) Blanche Lincoln (D-Ark.) Patrick Leahy (D-Vt.), Tom Harkin (D-Iowa) and Saxby Chambliss (R-Ga.).

House GOP Champions Paul's "Audit the Fed"
For Immediate Release
June 30, 2010

Washington, D.C. - Congressman Paul was pleased today when House Republicans submitted a Motion to Recommit the financial regulatory reform bill as a last effort to include his provision to fully audit the Federal Reserve in the final version.

The conference committee failed to include this provision, supported by 320 Members of the House, in the final version of the massive reform bill, which grants sweeping new regulatory powers to the Federal Reserve, while doing nothing to address the root causes of current economic problems.

“It is foolish to grant more powers to the institutions that caused all the moral hazard and malinvestments that got us into this mess. It is doubly foolish to do so without any meaningful accountability or transparency,” stated Congressman Paul.

Unfortunately, the Motion to Recommit was defeated 198 to 229 and the final bill passed the House shortly afterwards.

Failure of the Audit Motion

In July of 2010, Congressman Paul used his "Texas Talk" address to note the failure to pass his legislation to audit the Federal Reserve.

More Power for the Fed

Last week I was pleased to see my Republican colleagues take up the cause to fully and completely audit the Federal Reserve by including my language from the Federal Reserve Transparency Act in a Motion to Recommit the financial regulation reform bill. Although this effort was defeated by the Democrat majority, there were many good reasons to support it.

The Federal Reserve Transparency Act would eliminate restrictions on GAO audits of the Federal Reserve and open Fed operations to Congressional oversight. Additionally, audits could include discount window operations, open market operations, and agreements with foreign central banks, such as the ongoing dollar swap operations with European central banks.

Since its inception, the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight, while Congress has kept its hands off and its eyes closed. The Federal Reserve has presided over the near-complete destruction of the United States dollar. Since 1913 the dollar has lost over 95 of its purchasing power, aided and abetted by the Federal Reserve's loose monetary policy. The Federal Reserve Transparency Act would achieve much-needed transparency of the Federal Reserve System.

However, House and Senate negotiators failed to include the full language of my legislation in the conference report for the financial reform bill, and the full Congress missed yet another opportunity to demand accountability from the Federal Reserve by defeating the Republicans' motion to recommit. Over 320 members of Congress from both parties cosponsored my original bill, which was incorporated into that motion to recommit. Almost 200 members of Congress who care about Federal Reserve transparency voted for this motion to recommit. Unfortunately, they found themselves in the minority.

Any legitimate objections to the audit proposal were addressed in the language of the motion to recommit. Thus, it is clear that the real reasons for opposing it are unstated and indefensible. The real reasons are that politicians like to spend money far exceeding income and it is convenient to have an enabler of this in the Federal Reserve. The easier it is for the Fed to create money, hidden from public view and accountability, the easier it is for politicians to spend that money and make sure their friends and interests are taken care of through shady political processes.

The broader reasons for supporting this entire financial regulatory reform bill are just as sinister. This is not about cracking down on big banks as some claim. Rather, this is about not wasting a crisis. This is about using a traumatic event to increase government power and control over the economy. If it was really about addressing the causes of this recession, Fannie Mae and Freddie Mac would have been dealt with, or abolished. Failed companies would just fail, rather than being bailed out. Instead, a permanent bailout mechanism is being established. The Fed, and its ability to control interest rates and create cheap money, would be reformed or better yet, abolished. But instead its power is being increased and this Congress refuses to even fully audit it!

So yet again in the midst of a crisis, government insists on acting, and in ways far outside the scope of the Constitution, hoping that the crisis gives them cover. The truth is that in crises is when we need Constitutional limitations the most.

SEC Transparency Act

In July of 2010, Congressman Paul released a press statement noting his introduction of the SEC Transparency Act.

Paul Introduces SEC Transparency Act
For Immediate Release
July 29, 2010
Washington, D.C. - Congressman Ron Paul today introduced the SEC Transparency Act of 2010. Recent news reports have publicized a little-noticed provision in the recently-passed financial reform package that the Securities and Exchange Commission (SEC) has used to deny requests for information under the Freedom of Information Act (FOIA).

Congressman Paul's SEC Transparency Act of 2010 repeals the provision in the newly-passed legislation that the SEC has used to deny FOIA requests and ensures that the SEC will remain transparent and accountable to the American people.

“It is unfortunate, yet not unexpected, that legislation touted as fixing problems with the banking system, actually makes them worse and provides more cover and power for organizations that failed us like the SEC and the Fed. I expect in the coming weeks and months that many more harmful provisions like this will come to light and it will take quite a bit of work to undo the damage from this massive and misguided legislation,” stated Congressman Paul.

The Fed and Job Creation

In January of 2011, Congressman Paul used his "Texas Talk" to note that the employment numbers by the fed are not valid.

The Fed and Job Creation

Unemployment continues to plague our economy. In spite of constant claims that we have just turned the corner into recovery, the jobs reports remain grim with no real signs of improvement. While Keynesian economists and big government apologists scratch their heads about persistent unemployment in spite of unprecedented government “investment” in the economy, free market economists understand the problem perfectly well. In short, they understand that we are looking to the Federal Reserve to solve an unemployment crisis that the Fed itself largely created.

For example, the Fed is supposed to maintain full employment as half of its “dual mandate”. But the Fed simply has the wrong tools to do this. In fact, its credit expansion and manipulation of interest rates cause harm when they are applied to “help” the economy. As we saw with the housing boom and bust, Fed-created inflation cannot be sustained without harmful consequences. The Fed’s artificial boom led to the unemployment we’re suffering today. The Fed is not a small business or a manufacturer that creates value or increases productivity to sustain real job growth. It literally destroys value by printing more money, and distributing it through sweetheart deals to well connected banks and corporations (including foreign banks!). The only success the Fed has had in maintaining full employment has been on Wall Street where it props up crony banks and investment houses to prevent them from going bankrupt as they should. Instead, they survive to malinvest another day while their executives enjoy jackpot bonuses.

The Fed also pumped up employment in the housing industry with artificially low interest rates that created an unsustainable demand for housing. Millions jumped into this sector when the money was loose and the bubble inflating. Besides the many who bought houses they could not afford and now face foreclosure, there were also those who became employed in housing related fields. These people invested time and money in training and spent years establishing careers in real estate, mortgage lending, construction and contracting, careers that all vanished into thin air with the burst of the bubble. Now they face considerable disruption in their lives as they struggle with unemployment, underemployment and decisions about retraining for different careers. This amounts to a tremendous amount of unnecessary waste that would not have occurred had the housing industry been allowed to develop naturally according to market demands.

Jobs are properly created by entrepreneurs who are willing to work hard and take calculated risks. Jobs are also created through real increases in productivity, resulting from re-invested profits or conservative borrowing at market interest rates. But the Fed has made those risks impossible to calculate, and made borrowing money artificially cheap. As a result, economic growth has been chilled while unemployment skyrockets.

Until those in power understand the harm they do with central economic planning, we will continue to slide backwards and lose jobs. The Fed needs to stay out of the job creating business altogether and the federal government needs to focus on its constitutional duties. Just when we need government to back off, we hear about more government intervention in the economy in the form of more spending, only they call it “investment”. It is more properly called “malinvestment”, and the resources that are funneled into industries by government policies will only hurt employment more in the long run.

Deception at the Fed

In February of 2011, Congressman Paul used his "Texas Talk" to address what he called deception in the method that the fed uses to address inflation.

Deception at the Fed

For the past three decades, the Federal Reserve has been given a dual mandate: keeping prices stable and maximizing employment. This policy relies not only on the fatal conceit of believing in the wisdom of supposed experts, but also on numerical chicanery.

Rather than understanding inflation in the classical sense as a monetary phenomenon-- an increase in the money supply- it has been redefined as an increase in the Consumer Price Index (CPI). The CPI is calculated based on a weighted basket of goods which is constantly fluctuating, allowing for manipulation of the index to keep inflation expectations low. Employment figures are much the same, relying on survey data, seasonal adjustments, and birth/death models, while the major focus remains on the unemployment rate. Of course, the unemployment rate can fall as discouraged workers drop out of the labor market altogether, leading to the phenomenon of a falling unemployment rate with no job growth.

In terms of keeping stable prices, the Fed has failed miserably. According to the government's own CPI calculators, it takes $2.65 today to purchase what cost one dollar in 1980. And since its creation in 1913, the Federal Reserve has presided over a 98% decline in the dollar's purchasing power. The average American family sees the price of milk, eggs, and meat increasing, while packaged household goods decrease in size rather than price.

Loose fiscal policy has failed to create jobs also. Consider that we had a $700 billion TARP program, nearly $1 trillion in stimulus spending, a government takeover of General Motors, and hundreds of billions of dollars of guarantees to Fannie Mae, Freddie Mac, HUD, FDIC, etc. On top of those programs the Federal Reserve has provided over $4 trillion worth of assistance over the past few years through its credit facilities, purchases of mortgage-backed securities, and now its second round of quantitative easing. Yet even after all these trillions of dollars of spending and bailouts, total nonfarm payroll employment is still seven million jobs lower than it was before this crisis began.

In this same period of time, the total U.S. population has increased by nine million people. We would expect that roughly four million of these people should have been employed, so we are really dealing with eleven million fewer employed people than would otherwise be expected.

It should not be surprising that monetary policy is ineffective at creating actual jobs. It is the effects of monetary policy itself that cause the boom and bust of the business cycle that leads to swings in the unemployment rate. By lowering interest rates through its loose monetary policy, the Fed spurs investment in long-term projects that would not be profitable at market-determined interest rates. Everything seems to go well for awhile until businesses realize that they cannot sell their newly-built houses, their inventories of iron ore, or their new cars. Until these resources are redirected, often with great economic pain for all involved, true economic recovery cannot begin.

Over $4 trillion in bailout facilities and outright debt monetization, combined with interest rates near zero for over two years, have not and will not contribute to increased employment. What is needed is liquidation of debt and malinvested resources. Pumping money into the same sectors that have just crashed merely prolongs the crisis. Until we learn the lesson that jobs are produced through real savings and investment and not through the creation of new money, we are doomed to repeat this boom and bust cycle.

Solved All Our Problem

In February of 2011, Congressman Paul spoke on the House floor about the Federal Reserve and it's claims that the have saved the economy through their manipulations of the interest rates and dollars.

The Fed and Inflation

In March of 2011, Congressman Paul used his "Texas Talk" to address the inflationary causes that he says are induced by the federal reserve.

Fed and Inflation

Last week, the subcommittee which I chair held a hearing on monetary policy and rising prices. Whether we consider food, gasoline, or clothing, the cost of living is increasing significantly. True inflation is defined as an increase in the money supply. All other things being equal, an increase in the money supply leads to a rise in prices. Inflation’s destructive effects have ruined societies from the Roman Empire to Weimar Germany to modern-day Zimbabwe.

Blame for the most recent round of price increases has been laid at the feet of the Federal Reserve's program of credit expansion for the past three years. The current program, known as QE2, sought to purchase a total of $900 billion in US Treasury debt over a period of 8 months. Roughly $110 billion of newly created money is flooding into commodity markets each month.

The price of cotton is up more than 170% over the past year, oil is up over 40%, and many categories of food staples are seeing double-digit price growth. This means that food, clothing, and gasoline will become increasingly expensive over the coming year. American families, many of whom already live paycheck to paycheck, increasingly will be forced by these rising prices into unwilling tradeoffs: purchasing ground beef rather than steak, drinking water rather than milk, and choosing canned vegetables over fresh in order to keep food on the table and pay the heating bill. Frugality can be a good thing, but only when it is by choice and not forced upon the citizenry by the Fed's ruinous monetary policy.

While the Fed takes credit for the increase in the stock markets, it claims no responsibility for the increases in food and commodity prices. Most economists fail to understand that inflation is at its root a monetary phenomenon. There may be other factors that contribute to price increases, such as famine, flooding, or global unrest, but those effects are transient. Consistently citing only these factors, while never acknowledging the effects of monetary policy, is a cop-out.

The unelected policymakers at the Fed are also the last to feel the effects of inflation. In fact, they benefit from it, as does the government as a whole. Those who receive this new money first, such as government employees, contractors, and bankers are able to use it before price increases occur, while those further down the totem pole suffer price increases before they see any wage increases. By continually reducing the purchasing power of the dollar, the Fed's monetary policy also punishes savings and thrift. After all, why save rapidly depreciating dollars?

Unfortunately, those policymakers who exercise the most power over the economy are also the least likely to understand the effects of their policies. Chairman Bernanke and other members of the Federal Open Market Committee were convinced in mid-2008 that the economy would rebound and continue to grow through 2009, even though it was clear to many observers that we were in the midst of a severe economic crisis. Even Greenspan was known for downplaying the importance of the growing housing bubble just as it was reaching its zenith. It remains impossible for even the brilliant minds at the Fed to achieve both the depth and breadth of knowledge necessary to enact central economic planning without eventually bringing the country to economic ruin. Our witnesses delved deeply into these issues and explained this phenomenon in very logical, simple terms. The American people increasingly understand what is going on with our money. I only hope the Fed is listening.

Audit the Fed in 2011

In December of 2010, Congressman Paul used his "Texas Talk" to call for an audit of the federal reserve in 2011.

Audit the Fed in 2011

Since the announcement last week that I will chair the congressional subcommittee that oversees the Federal Reserve, the media response has been overwhelming. The groundswell of opposition to Fed actions among ordinary citizens is reflected not only in the rhetoric coming out of Capitol Hill, but also in the tremendous interest shown by the financial press. The demand for transparency is growing, whether the political and financial establishment likes it or not. The Fed is losing its vaunted status as an institution that somehow is above politics and public scrutiny. Fed transparency will be the cornerstone of my efforts as subcommittee chairman.

Thanks to public pressure earlier this year, Congress did pass legislation that requires the Fed to disclose some information about its bailout of select industries and companies following the 2008 financial crisis. So two weeks ago the Fed released data concerning more than $3 trillion of assistance it offered to banks through its bailout facilities. After reviewing this data, however, we are left with many more questions about the Fed's “lending”.

In the “Term Securities Lending Facility”, the Fed was supposed to have loaned against AAA-rated securities-- yet over half of the collateral put up by banks to obtain loans had no listed credit rating. Should we assume that the Fed accepted absolute junk rated securities as collateral for loans? Presumably these securities were so bad that they wouldn’t even publicize their credit rating. So why should our central bank, backed up by your taxes, accept such collateral?

On another note, of the $1.25 trillion purchased under the Fed’s “Mortgage-Backed Securities Purchase Program,” only $877 billion in purchases have been publicized. What happened to the remaining $400 billion?

These kinds of limited disclosures by the Fed only underscore the need for a full and complete audit of the Fed’s financial books. This audit should be done by an independent third party, in the same manner that public companies are audited. The Fed should make public its balance sheet, income statement, and perhaps most importantly its cash flow statement. It also should publicize the notes explaining those financial statements.

We seem to forget sometimes that Congress created the Fed-- it is a government-created banking monopoly, and its top decision-makers are appointed by the President and confirmed by the Senate. If the Fed does not perform satisfactorily in the eyes of these politicians and their constituents, the Chairman and Governors may not be re-nominated.

In theory, Congress could even repeal the Federal Reserve Act altogether since it has the authority to do so. Obviously Congress is within its authority to audit an organization it created by statute, and it is time to assume that responsibility.

With 320 Members of Congress cosponsoring my legislation to fully audit the Fed in the 111th Congress, my hope is that we can build on our broad bipartisan coalition in 2011 and continue the push for greater Fed transparency going forward.

Iowa Debate

In August of 2011, Congressman Paul participated in the Republican Presidential debate in Ames, Iowa. He was asked about shutting down the federal reserve and stated that it could be done slowly and not all at once.

QUESTION: Congressman Paul, if I could follow up with you, is Speaker Gingrich wrong to want to save the Fed?

PAUL: Not exactly. Because my position isn't that I'd closed the door down immediately, you can phase it out. But there are some other things that we could do in a transition phase.

For instance, and I'm delighted that mainstream is catching up with this, these days, for auditing the Fed. This is great.(APPLAUSE)

PAUL: But I made a suggestion, which is a series of suggestions. And there's been quite a few who have supported me on this. We owe the Fed $1.6 trillion in treasury bills. Where'd they get the money to buy it? They created it out of thin air. So we pay them interest.

Now that's on our books. So we literally, with legislation, could wipe $1.6 trillion off that is not a solution to the monetary problem or our spending problems, but it would give you a year to work this out. And wouldn't have had that -- any of that debate going on. Those were all scare tactics to try to scare people into doing things. But that is one thing that we could do.

But eventually we have to deal with the fed, because the Fed creates the business cycle. If you don't understand the business cycle, you don't know why we have recessions, the sooner we learn that the better. (APPLAUSE)

Dartmouth Economic Debate

On October 11, 2011 Congressman Paul participated in a debate at Dartmouth college. He was asked about the federal reserve system and described its affects on housing the creation of bubbles resulting from financial policy. He later asks Herman Cain a question about the Federal Reserve and comments on Alan Greenspan and other Federal Reserve Chairmen.

TUMULTY: So, Congressman Paul, where you come down on this?

RON PAUL: One thing I might - might say is, we have made some inroads on the Federal Reserve. We passed a bill last year. We got a partial, you know, audit of the Fed. We’ve learned a whole lot. They were dealing in $15 trillion; $5 trillion went overseas to bail out foreign banks.

But you know what? Congress did a lot. I’ve worked on it for a good many years. But Bloomberg helped and Fox helped. They had court cases, Freedom of Information Act. And there are some even at this table who didn’t think auditing the Fed was such a good idea, that we could call up the Fed and ask them and they would tell us what they’re doing. I’ve been calling them up for 30 years and they never tell me.

But we’re getting to the bottom of it. But if you want to understand why we have a problem, you have to understand the Fed, because the cause comes from the business cycle. We shouldn’t be asking what to do exactly with the recession - obviously, we have to deal with that - but you can’t solve - you can’t cure the disease if you don’t know the cause of it.

And the cause is the booms. When there are booms and they’re artificial, whether it’s the CRA or whether it’s the Fed, easy credit, when you have bubbles, whether it’s the Nasdaq or whether it’s the housing bubbles, they burst. And when they do, you have to have corrections. And that’s what we’re dealing with. And we can do this by building coalitions and not sacrificing any principles.

...

Congressman Paul?

PAUL: Since the Federal Reserve is the engine of inflation, creates the business cycle, produces are recessions and our depressions, the Federal Reserve obviously is a very important issue. And fortunately, tonight we have a former director of the Federal Reserve at Kansas City. So I have a question for Mr. Cain.

Mr. Cain, in the past you have been rather critical of any of us who would want to audit the Fed. You have said - you’ve used pretty strong terms, that we were ignorant and that we didn’t know what we are doing, and therefore, there was no need for an audit anyway, because if you had one, you’re not going to find out anything, because everybody knows everything about the Fed.

But now that we have found and we have gotten an audit, we have found out an awful lot on how special businesses get bailed out - Wall Street, the banks, and special companies, foreign governments. And you said that you advise those of us who were concerned, and you belittled - you say call up the Federal Reserve and just ask them.

ROSE: Question?

(CROSSTALK)

PAUL: Do you still stick by this, that that this is frivolous, or do you think it’s very important? Sixty-four percent of the American people want a full audit of the Fed on a regular basis.

...

GOLDMAN: Thank you, Charlie.

Mr. Cain, you disapprove of Fed Chairman Ben Bernanke, and we all know that your priority is 999. But one of the most important appointments that you’re going to have to make your first year, should you be president, would be Fed chairman.

So which Federal Reserve chairman over the last 40 years do you think has been most successful and might serve as a model for that appointment?

CAIN: Alan Greenspan.

GOLDMAN: Why?

CAIN: Because that’s when I served on the board of the Federal Reserve in the early 1990s. And the way Alan Greenspan oversaw the Fed and the way he coordinated with all of the Federal Reserve banks, I think that it worked fine back in the early 1990s.

Now, on that same point, I have already identified two candidates - which I cannot give their names - to replace Mr. Bernanke, in anticipation of having that responsibility.

We must narrow the mission of the Fed first. I don’t believe in ending the Fed. I believe we can fix the Fed by getting their mission refocused on monetary price stability. And I have candidates in mind that will help us do that.

GOLDMAN: So you have two appointments waiting in the wings for - for 2013, for - when his term is up, 2014?

CAIN: Yes, I have two candidates waiting in the wings...

GOLDMAN: How about a hint?

CAIN: ... to take that job. I’ve got to keep them confidential.

GOLDMAN: OK.

Congressman Paul?

PAUL: Spoken like a true insider.

No, Alan Greenspan was a disaster.

Everybody in Washington - liberals and conservatives - said he kept interest rates too low, too long. Of course, the solution was, lower them even more, and they think that’s going to solve our problem.

But if I had to name one person that did a little bit of good, that was Paul Volcker. He at least knew how to end - or help, you know, end the inflation.

But, of course, with my position that I don’t think highly of the Federal Reserve, I think we should have sound money and we shouldn’t have somebody deciding what the interest rate should be and how much money supply we should have, I mean, nobody satisfies me.

But certainly, Alan Greenspan has ushered in the biggest bubble. And what did we do? We’ve continued the same thing, doing the same thing. We think the inflation under Alan Greenspan was bad so we’re trying to solve the problem by inflating even further. So Bernanke compounds the problem. He’s inflating twice as fast as - as Greenspan was.

But Greenspan caused so much trouble. And he used to believe in the gold standard. I think he’s coming around to that. Before he retires, he’ll write his - his biography and explain why he’s coming back to the gold standard.

2012 Presidential Campaign Website Statements

THE FED: DISHONEST, IMMORAL, UNCONSTITUTIONAL

There is no greater threat to the security and prosperity of the United States today than the out-of-control, secretive Federal Reserve.

Imagine that parents, overwhelmed by debt and months behind on their bills, sent their spendthrift teenagers out each weekend for a night on the town with credit cards and blank checks. Would anyone be surprised if this family never got their finances under control?

Yet that is how a government which is almost 15 trillion dollars in the red behaves by entrusting taxpayers’ financial futures to the Federal Reserve, which pumps money into the economy whenever it chooses and makes secret deals with Wall Street executives, foreign central banks, and other politically-connected insiders without any significant oversight from Congress.

Snuck through Congress on Christmas Eve in 1913, the Federal Reserve Act established the Fed as America’s central bank. The Fed essentially creates money out of thin air, manipulates interest rates, and interferes with the free market. By doing so, the Fed fuels our economy’s boom-bust cycle and has helped devalue our dollar by over 95%.

According to the Minneapolis Federal Reserve branch’s own website, what you could buy with $1.00 in 1913 would now cost you $22.55.

Although Congress and the Treasury helped bring about the housing bubble and financial collapse with legislation, regulations, and keeping the funds flowing to reckless institutions like Fannie Mae and Freddie Mac, the Fed was the main cause of the crisis. Its interference in setting interest rates distorted the market, and its status as the “lender of last resort” ensured banks could hook individuals and businesses for loans on projects that weren’t in as high demand as forecasters believed.

When the crash occurred, common sense dictated a change in policy. But the Federal Reserve only increased its lending and intervention to historic highs.

While selling Americans a bill of goods that the economy would never recover without unprecedented bailouts, we now know that at the peak of its “emergency lending,” the Fed was providing nearly 90% of its discount window loans to foreign banks! This included making over 70 loans to a bank partially owned by the Bank of Libya.

The Fed was able to get away with these actions because Congress lacks the authority to thoroughly and completely audit it. In fact, Federal Reserve Chairman Ben Bernanke appeared before Congress early in the crisis and was able to refuse a direct request to disclose which institutions were receiving trillions of taxpayer dollars from the Fed.

IN THE SHADOWS

It was only thanks to overwhelming grassroots support for Ron Paul’s Audit the Fed legislation that we have been granted limited insight into the Fed’s operations. If it hadn’t been for last minute efforts to water down his bill, we would have learned even more about the Fed’s actions before and during the crisis.

TIME FOR SOUND MONEY

As President, Ron Paul will work for passage of comprehensive audit legislation, and he will also fight to legalize sound money so Americans will have alternatives to the Fed’s inflated paper money.

Ultimately, he will lead the charge to end the dishonest, immoral, and unconstitutional Federal Reserve System, enabling America to take a giant step toward economic security, financial responsibility, and lasting prosperity.

Sponsored and Cosponsored Legislation

Federal Reserve Transparency Act of 2011 - Prime Sponsor

To require a full audit of the Board of Governors of the Federal Reserve System and the Federal reserve banks by the Comptroller General of the United States before the end of 2012, and for other purposes.

Federal Reserve Transparency Act of 2009 - Prime Sponsor

Repeals the authority of the Comptroller General to carry out an onsite examination of an open insured bank or bank holding company only if the appropriate federal regulatory agency has consented in writing. (Retains the authority of the Comptroller General to audit a federal agency.) Directs the Comptroller General to complete, before the end of 2010, an audit of the Board of Governors of the Federal Reserve System and of the federal reserve banks, followed by a detailed report to Congress.

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