Ron Paul's War on the Fed

Eddie Braverman's picture
Rank: The Pro | 21,180

Refusing to go quietly into that good night, and taking advantage of a nascent Audit the Fed movement that is gaining steam, Texas Republican Ron Paul is firing a salvo at the Federal Reserve Bank - and it's not a warning shot across the bow.

Ron Paul's latest book, End The Fed, is already a Top-50 bestseller on Amazon and the book doesn't even get released until next Wednesday. I managed to get my hands on an advance copy of the first three chapters and the good doctor doesn't disappoint.

He explains in the early chapters that the title wasn't his, but rather it was the thing people started chanting at all his campaign rallies during the 2008 election. Despite the shabby treatment he received (and continues to receive) from the mainstream media, it seems the sound money arguments he based his campaign on resonate with the people.

Predictably, the first couple chapters are all history in order to give the book context. That said, they are well worth reading even by those well versed in the history of monetary policy in the U.S. He also describes his evolution as a student of the Austrian school of economic theory, and how Nixon's reneging on Bretton Woods in 1971 was the singular economic event that drove him to pursue a career in politics.

He even spends a little time grading the various Federal Reserve personalities he's known over his eleven terms in Congress, giving the highest marks to Paul Volcker (which surprised me a little) and the lowest marks to Alan Greenspan and Ben Bernanke (which surprised me not at all).

I'm sure the book will be controversial, to the extent that the lapdog media allows it to even become a topic of conversation. And if my buying the book has a chance of ratcheting up the heat on Bernanke even one scintilla, well then they've got my $13. But this stuff should really be a no-brainer, guys.

I'll leave you with this. It is Ron Paul's take on the bogeyman that is deflation, and how deflation is really a nonstarter when it is inflation that drives a country into the ground.

Today's politicians in Washington, oblivious as usual to the
dangers of inflation, show no concern for the dollar or the operations
of the Federal Reserve. They are, instead, terrified of
deflation. Think of what the word deflation means. Defined as
a declining money stock, deflation can actually be economically
clarifying. It causes banks to tighten up their lending standards
and encourages businesses to run tighter operations. It can put
the squeeze on government, as it becomes more costly to service
the debt. None of these is a regrettable trend.

Another definition of deflation concerns a falling price level.
This is another way of saying that your money becomes more
valuable over time. That is not something to regret, either.
Business can operate and thrive under these conditions: look at
the software and computer industries since the 1980s. And if
we look back at the last quarter of the nineteenth century, increased
purchasing power (deflation) was accompanied by the
greatest period of economic growth in world history, with the
benefits of capitalism spreading to all sectors of society.

You can buy the book on Amazon here.

Comments (40)

Sep 8, 2009

I love Ron Paul and I just wish more people would listen to him. That said, his idea of going back to the gold standard to end the Federal Reserve system is somewhat ludicrous. The gold standard was a huge component of the spread and the shifting of external events into internal catastrophe that was the Great Depression. I honestly hate the fiat currency system that we have today because it allows the government to finance all the debt they want as long as some idiot will buy the bonds. I don't think the gold standard is the answer, but the silver standard worked for China to an extent and did not draw them into the Great Depression as much. But if we were to shift to a partial commodity backed currency that would involve us outlawing the private ownership of commodity x- something that I doubt the US government can do very effectively. Also, another argument against the gold standard is that the total value of all the gold ever mined is something like $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $8.3 trillion is in circulation or in deposit. So, a return to the gold standard, if also combined with a mandated end to fractional reserve banking (like RP wants), would result in a significant increase in the current value of gold, which may limit its use.

So what do you do?
-I work for an investment banking firm.
Oh okay; you are like my brother, he works for Edward Jones.
-No, a college degree is required in my profession

Reality hits you hard, bro...

Sep 9, 2009
MMBinNC:

I honestly hate the fiat currency system that we have today because it allows the government to finance all the debt they want as long as some idiot will buy the bonds.

Seigniorage is good for the United States, if, as you said, people are willing to hold our currency.

Sep 8, 2009

MMB,

He actually addresses about half of those concerns in the first three chapters.

As for the total worldwide quantity of gold vs. money in circulation, the quantity of whatever chosen commodity backs a currency is largely irrelevant, as a given economy will simply adjust to the available quantity. I know that's kinda vague, so here's what I mean:

We'll just use your numbers. Let's say there is $8.3 trillion in fiat currency and $4.5 trillion in gold (obviously, I know the gold figure is worldwide and the currency figure is U.S. only, this is just for the purposes of illustration). On the day you revert to a gold standard, the fiat currency doesn't drive the price of gold up to $8.3 trillion, the gold drives the price of the worthless paper ($0) up to $4.5 trillion. There is no net effect on the underlying commodity, since you're simply applying a real value to something which had an arbitrary value the moment before.

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Sep 8, 2009

With the exception of his ties to white supremacists, Ron Paul is one of my favorite repubs. Keep up the good work , Paul.

Sep 8, 2009

I like his ideals and we definitely need more politicians like him, but some of his ideas are terrible.

Sep 8, 2009

...the fed is a joke. i dont want to make this into a ron paul circle jerk thread but the idea that 12 guys sit in a room and try to manage the economy by manipulating short-term interest rates and the money supply and its just excepted as being normal has always baffled me. And then when you throw in the little known fact that the fed is a private company, owned by the banking industry, that allows the President to appoint its directors the whole thing becomes pretty obvious...its just a banking cartel like OPEC and its only goal is to ensure the profitability of banks.

Sep 8, 2009
Bondarb:

...the fed is a joke. i dont want to make this into a ron paul circle jerk thread but the idea that 12 guys sit in a room and try to manage the economy by manipulating short-term interest rates and the money supply and its just excepted as being normal has always baffled me. And then when you throw in the little known fact that the fed is a private company, owned by the banking industry, that allows the President to appoint its directors the whole thing becomes pretty obvious...its just a banking cartel like OPEC and its only goal is to ensure the profitability of banks.

Couldn't agree more, yet somehow it's so difficult to convince the every day person that the Fed shouldn't operate the way it does. Even educated people who work in finance have told me "well the Fed has to regulate the economy" and I don't even know how to argue with them. The mass media has brainwashed the public into believing that the Fed is the only way to regulate the economy (which they do a terrible job at, obviously because that is not their goal).

Sep 9, 2009

I'd be curious to hear what options you guys (Edmundo, Bondarb and/or banker 88) think would be the best alternative solution to managing the money supply. Sure, we can all point to misaligned incentives and flaws in any system and say it is a "cartel" but to offer an alternative solution with less obvious problems is much more difficult.

gold standard? even Paul cautions:

"He said the transition to a Fed-less economy would be gradual, but that it may also have to be dramatic." ok, which one is it?

"The business cycle would be abruptly halted. It might cause even more panic and more disruption." not exactly what we need right now.

"But our monetary system has almost quit functioning. If it quits completely we'll have a dramatic transition, no matter what." Another doomsday scenario.

Are we screwed if the FED doesn't fight inflation when it is sure to ratchet up upon an economic recovery? sure. Does Paul or anyone else on here know what the potential catastrophic effects of abolishing the FED are? No.

Curious - does Paul actually offer a realistic road map in this book how to go about abolishing the FED without causing panic? how is this done "gradually"?

-Patrick

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Sep 9, 2009

The biggest problem with the Fed is that it is a private institution (check Hoovers for example - while the FDA is under control of the US government, the Fed is not), and that it is not accountable to anyone. Yes, Bernanke goes in front of Congress twice a year and gives roundabout answers to bullshit questions. And when he refuses to disclose where trillions of dollars went, nobody does anything.

There should be an organization/department that monitors and regulates the value of our currency that IS directly responsible to Congress (not to the President), as written in our Constitution. The Fed, being a private corporation that meets behind closed doors, is simply too dangerous to be allowed to control the value of the dollar.

As far as a new currency - I don't have an answer. There are too many US dollars in circulation, and there is even more money that only exists in digital form. If everyone in the United States decided to withdraw their currency from banks, there would not be enough due to the fractional reserve system. The money simply does not exist. I don't see a solution to fixing the system without causing a major collapse, as our entire economy is built on debt.

As for a gold standard - all the gold in the US was seized by the Fed in 1933 in the biggest swindle in American history - http://en.wikipedia.org/wiki/Executive_Order_6102. Since the Fed (who is really in charge?) owns virtually all the gold in the United States, going to a gold standard would simply transfer ALL wealth to the Fed. Since the Fed was never even audited, all that gold could be sitting in personal vaults of shareholders/owners of the Federal Reserve (I repeat - a PRIVATE CORPORATION).

There is no quick solution to the economy or to a stable currency. The fact that the Fed has operated for almost 100 years has pretty much put us in the biggest financial shithole ever. Frankly, I'm quite afraid of what will happen if the Fed is audited. But I am even more afraid of what will happen if the Fed continues to manipulate our (and thus the world) economy for much longer..........

NIB HIGH FOOTBALL RULES!

Sep 9, 2009

Jack Kennedy not only proposed but implemented a solution that would have made the Fed irrelevant by signing Executive Order 11110. The EO authorized and the Treasury issued $4 billion in UNITED STATES NOTES, a new silver certificate, free from the Fed and any of the Fed's interest.

Given a choice between the two currencies, of course the American people would prefer the one backed by silver, so it eventually would have made Federal Reserve Notes obsolete with no disruption to the economy.

Here's where we enter the realm of conspiracy theory. Five months after the executive order was signed, Kennedy was assassinated and the UNITED STATES NOTES were taken out of circulation and destroyed.

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Sep 9, 2009

The biggest problem with the Fed is that it is a private institution (check Hoovers for example - while the FDA is under control of the US government, the Fed is not), and that it is not accountable to anyone.

Well that's the fucking objective. The government does not control the Fed, otherwise it would manipulate the fucking money supply to unsavory ends.

applying a real value to something which had an arbitrary value

A real value? As in "gold as a real value"? Dude, the moment India stops buying so much gold for their engagement jewelry, the ounce of gold loses 10$. Where is its so-called intrinsic value?!

Thank god no one listens to the gold standard advocates.

Sep 9, 2009
maxcanada:

Well that's the fucking objective. The government does not control the Fed, otherwise it would manipulate the fucking money supply to unsavory ends.

That one actually made coffee shoot out my nose.

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Sep 9, 2009
maxcanada:

Well that's the fucking objective. The government does not control the Fed, otherwise it would manipulate the fucking money supply to unsavory ends.

LOL. What makes you think the Fed isn't doing this? In fact it has done this exactly - look at the money supply change over the past 100 years. The dollar has lost 95% of its value since the Fed was created. And how convenient it is for the Fed to stop tracking the M3 money supply - because the research is too costly - HA!
http://www.inflationdata.com/inflation/inflation_a...
You think that if monetary policy was controlled by the government (who are at least accountable to us - the people), then it would be too politicized? But a bunch of private bankers not accountable to anyone will make the right decision? Honestly bro stop drinking the MSM koolaid.

Sep 9, 2009
banker88:
maxcanada:

Well that's the fucking objective. The government does not control the Fed, otherwise it would manipulate the fucking money supply to unsavory ends.

LOL. What makes you think the Fed isn't doing this? In fact it has done this exactly - look at the money supply change over the past 100 years. The dollar has lost 95% of its value since the Fed was created. And how convenient it is for the Fed to stop tracking the M3 money supply - because the research is too costly - HA!
http://www.inflationdata.com/inflation/inflation_a...
You think that if monetary policy was controlled by the government (who are at least accountable to us - the people), then it would be too politicized? But a bunch of private bankers not accountable to anyone will make the right decision? Honestly bro stop drinking the MSM koolaid.

Why do you care if the value of a dollar has declined 95%? If you know this is the general trend you can invest and seek a higher return.

Sep 9, 2009

I refer you to, for instance,

Alesina & Summers, "Central Bank Independance and Macroeconomic Performance: Some Comparative Evidence", Journal of Money, Credit and Banking 25 (May 93)

Available here: http://www.deu.edu.tr/userweb/yesim.kustepeli/dosy...
PS: by "manipulating the fucking money supply", I mean conducting a generally expansionary monetary policy

Sep 9, 2009
maxcanada:

PS: by "manipulating the fucking money supply", I mean conducting a generally expansionary monetary policy

This time it was Pepsi flying out my nose. Please, any more of this and I'll drown...

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Sep 9, 2009
Sep 9, 2009

As long as it's not coke...

Sep 9, 2009

But I used Pepsi to avoid confusion.

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Sep 9, 2009

Oh also a very simple argument that the Fed just sucks - their purpose is to regulate the money supply / interest rates, and thus keep our economy stable.

Then please explain to me why since the Fed was created, we have had the Great Depression, the Savings and Loan crisis, and our current crisis? Either the Fed is completely incompetent, or they have terrible intentions. I believe is is the latter. Either way - they've got to go.

And if they have nothing incriminating to hide, why are they so terribly afraid of Ron Paul's audit? Look at Bernanke make up a complete lie to try and convince the public that the Fed should not be audited:
http://www.youtube.com/watch?v=HycCS0ONfns

Sep 9, 2009

Great info here. I'll be getting the book.

Ed, are you in total agreement with what Ron Paul has to say? Anything you'd add/change?

Sep 9, 2009

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Sep 9, 2009

...there are many alternatives to having the Fed manage money supply the way it does. Of course one could totally back the currency with gold but another option would simply to be to create a competing gold-backed currency and allow the fed to manage the money supply for the greenback but have market discpline imposed by the addition of a gold-backed buck. No system is perfect of course but people throw around phrases like "but how will we manage the money supply?" as if its inherently obvious that the supply of money needs to be "managed". Money is just a means to acquiring other goods and services, it is not some magical potion....in reality if the Fed stopped creating cash and the market badly needed more money for transactions (ie we had wicked deflation due to lack of money supply) we would see banks and private entities issuing currency and the private market stepping up to fill the void just like in any other product. We all agree that it sounds ludicrous to say "but how will the fed manage the labor supply? or how will the fed manage the supply of bread?" but money, which is just the other side of that transaction, somehow seems to be treated as some mystical object that needs to be managed by some higher authority.

The reason this notion is pounded into our heads since just about birth, is pretty simple...if we were to end the fed's abiltiy to create money we would immediately end the governments abiltiy to expand without regard to its fiscal condition. They could not fund wars thru money printing, they could not bail out banks by printing money, they couldnt "buy votes" thru social programs by printing cash...as a country we would actually have to live within our means. That's something that niether party or really any central government in the World wants to see happen. So those who advocate for it are labeled "kooks" or "conspiracy theorists" because its a dangerous idea for those in power.

I forget who said it, but I think the applicable quote goes something like "the printing press is the greatest tool ever invented for robbing people of liberty."

Sep 10, 2009

Bondarb, thanks for your response. Although I don't necessarily agree with everything you said, you do make some good points...but I wanted to ask some follow up below.

Bondarb:

...in reality if the Fed stopped creating cash and the market badly needed more money for transactions (ie we had wicked deflation due to lack of money supply) we would see banks and private entities issuing currency and the private market stepping up to fill the void just like in any other product.

Why is this a foregone conclusion to you? Why were banks and private entities hording their cash during the crash last fall? I think your belief hinges on the fact that markets are perfectly efficient and once the need is there it will be filled by natural market forces. While elegant in theory is this really what we saw before the drastic action taken with TARP? Are market particpants truly rationale? I highly doubt it. People panic, there was genuine fear last year. The verdict is still out how successful the bailout will be and we'll probably never know what would have happened without the super loose monetary policy employed by the Fed over the past year, but I don't think a statement like the one made above is such an obvious point. Deflation can beget MORE deflation.

We all agree that it sounds ludicrous to say "but how will the fed manage the labor supply? or how will the fed manage the supply of bread?" but money, which is just the other side of that transaction, somehow seems to be treated as some mystical object that needs to be managed by some higher authority.

It's not mystical, it's just the easiest way to manage economic growth.

The reason this notion is pounded into our heads since just about birth, is pretty simple...if we were to end the fed's abiltiy to create money we would immediately end the governments abiltiy to expand without regard to its fiscal condition.

So who are the masterminds brainwashing us at a young age? Politicians? Both parties? I think any educated person knows that fiscal irresponsibility will lead to our eventual demise as a nation...I am just not so convinced that abolishing the FED is the way to reverse that trend. Is this really the most logical or safest way to go about it?

-Patrick

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Sep 9, 2009

Glad to see I'm not the only one on these forums against the Fed. Got my copy of the book today but won't have time to read it until after recruiting...

Sep 10, 2009

i find it amazing how many people agree with these ideas that the fed is at best a questionable institution. Given the mainstream media coverage of the movement which basically paints it as a bunch of kooks I think its great that on a board like this opinion is basically split down the middle on this issue. It's great that people are thinking for themselves on WSO! When big government, big business, and academia are all aligned on the pro-Fed side it takes a good amount of independent thought and a contrarian spirit to come to the opposite conclusion.

Sep 10, 2009

The people behind the Fed own the government. No I'm not talking about Bernanke or Greenspan. They are just front-men. I'm talking about the wealthy elite ruling class the controls the Fed as well as the Government (think Rockefellers, Rothschilds, etc.)

They won't go quietly...

Sep 10, 2009
banker88:

The people behind the Fed own the government. No I'm not talking about Bernanke or Greenspan. They are just front-men. I'm talking about the wealthy elite ruling class the controls the Fed as well as the Government (think Rockefellers, Rothschilds, etc.)

They won't go quietly...

How is this the case? Do you really think the elite American families are calling up Beard to influence his work? Reason can pick apart the other stuff said in this thread, but this is just a random claim. I'm interested to hear more.

Sep 10, 2009

We're getting into conspiracy theories. Americans are so typical.

I find it funny that you suggest that the Fed be accountable to the government for the same reason it was made independent in the first place: to avoid manipulation.

Also, you utter big numbers like "a 96% decline in a century". Well that's only 3% inflation, the Fed's done a good job if it is responsible for it.

Also, your advocacy of a gold standard is preposterous. Especially when you say that private banks would step in with their own currency. Like in the good old days of scrips...

Sep 10, 2009

I'll admit, after looking through everything that was said/posted here, I did some more reading and research yesterday (didn't get any actual work done because of it, ha).

And to summarize my conclusion, I'll use the quote from Arlo Guthrie thats posted on Amazon about Paul's "End the Fed":
"Rarely has a single book not only challenged, but decisively changed my mind."

I'm blown away.

Sep 10, 2009

I think the mention of private banks stepping in with their own currency was just an example that we don't NEED the Fed to issue currency. However, that would obviously be inefficient with dozens or hundreds of currencies floating around the country/world.

All we need is for the Congress to get back the power:
"To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;
To provide for the punishment of counterfeiting the securities and current coin of the United States;"

Bernanke often cites that the power to print money was given to the Fed in the Federal Reserve Act of 1913 - but this act should never have been passed as it is UNCONSTITUTIONAL. I've also heard that the act was never properly ratified in the first place - but haven't done enough research on that claim.

Sep 10, 2009
banker88:

Bernanke often cites that the power to print money was given to the Fed in the Federal Reserve Act of 1913 - but this act should never have been passed as it is UNCONSTITUTIONAL. I've also heard that the act was never properly ratified in the first place - but haven't done enough research on that claim.

I actually think you're referring to the 16th amendment to the Constitution which authorized the income tax. There is in fact compelling evidence that it was never properly ratified. It happened around the same time as the Federal Reserve Act (thank you Woodrow Wilson).

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Sep 10, 2009

as he is one of the only politicians with the courage and insight to stand up to the fraud that is the Federal Reserve and the huge conflict of interests that exist between Wall St. and Main St. I think the history books will look back on him as either the first of a growing group of people who eventually lead to the removal of the Fed and a more sustainable monetary system for this country, or one of the only ones who warned of the dangers before the system collapsed.

Sep 10, 2009

Wallstreetoasis said above that "deflation begets deflation". Indeed it does when people are way over-leveraged and so deep in debt that they cannott service the assets they "own". Tuff shitt, thats why one shouldnt get into debt that they cant handle. But its worth thinking about what deflation is. Deflation is just a falling of the price level. It is GOOD for the average person. The only people it hurts are those who have not saved any money and those who are deep in debt. For inflation, the opposite is true. So when we pursue a policy of endless, steady inflation and talk about deflation like its the end of the World we breed a society that is in debt up to their eyeballs and dosent even know how to save. Sound familiar? We cant fix this problem with more inflation, we can only put it off and make it worse, which we have frantically been doing since the inception of the fed. In a World without an ever expanding money supply, there would always be mild deflation because technological advance makes things cheaper and easier to produce. This would be good, not bad.

Sep 12, 2009
Bondarb:

In a World without an ever expanding money supply, there would always be mild deflation because technological advance makes things cheaper and easier to produce.

You are right. However, deflation would depress expenditure. It would be good to have a more or less constant price level (whatever that means, since the basket of goods changes over time), but that it is easier said than done. It's better to have moderate inflation in the range 0-2% than -1% to 1%, in my opinion.

Sep 13, 2009
Bondarb:

Wallstreetoasis said above that "deflation begets deflation". Indeed it does when people are way over-leveraged and so deep in debt that they cannott service the assets they "own". Tuff shitt, thats why one shouldnt get into debt that they cant handle. But its worth thinking about what deflation is. Deflation is just a falling of the price level. It is GOOD for the average person. The only people it hurts are those who have not saved any money and those who are deep in debt. For inflation, the opposite is true. So when we pursue a policy of endless, steady inflation and talk about deflation like its the end of the World we breed a society that is in debt up to their eyeballs and dosent even know how to save. Sound familiar? We cant fix this problem with more inflation, we can only put it off and make it worse, which we have frantically been doing since the inception of the fed. In a World without an ever expanding money supply, there would always be mild deflation because technological advance makes things cheaper and easier to produce. This would be good, not bad.

Of course debating whether something is "good" or "bad" is all relative. If we define "good" as an increase in the standard of living for the average person then I think it is pretty hard to argue deflation is a good thing unless we are specifically referring to time when productivity growth sped up -- like the Industrial Revolution of the late 19th century (then it can go hand in hand with strong growth). However, if deflation reflects excess capacity and a slump in demand, it can be dangerous, as it was in the Great Depression of the 1930s (yes, the Bogey Man does exist, ask Japan). Prices collapsed and millions of jobs along with it...whether you have some saving or not, I don't think this is "good" by any measure. Unless you would like to take each individual, place them a vacuum and ask yourself, "is shit cheaper for this person and can they buy more with their savings?" sure...but then you might also want to ask, "will they have a job in 5 months?" (that's why your statement "The only people it hurts are those who have not saved any money and those who are deep in debt." is short-sited at best)

My primary point above wasn't that deflation begets deflation, but that I am not so convinced that abolishing the FED is the safest or most prudent way to regain some semblance of "responsible monetary policy." I don't have an answer, and I am not a FED lover by any means...I just prefer to hear realistic and well thought out alternatives (which some of you have given me, so thank you).

-Patrick

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Jul 25, 2012
WallStreetOasis.com:

I don't have an answer, and I am not a FED lover by any means...I just prefer to hear realistic and well thought out alternatives (which some of you have given me, so thank you).

A good start would be a very thorough audit of the Fed, which is going through Congress right now but will sadly, according to what I've read, get shut down in the Senate.

Regardless of what happens with the audit, the liberty movement needs to keep the pushing the issue here. Don't let up. Hopefully we can keep increasing the amount of attention America pays to central banking, our monetary system/monetary policy, and what constitutes money.

Sep 11, 2009
Sep 13, 2009
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Sep 13, 2009