The Fed: Mend It or End It?
by Ron Paul: Should
the US Be Even Closer to Israel?
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week I held a hearing to examine the various proposals that have
been put forth both to mend and to end the Fed. The purpose was
to spur a vigorous and long-lasting discussion about the Fed's problems,
hopefully leading to concrete actions to rein in the Fed.
First, it is
important to understand the Federal Reserve System. Some people
claim it is a secret cabal of elite bankers, while others claim
it is part of the federal government. In reality it is a bit of
both. The Federal Reserve System is the collusion of big government
and big business to profit at the expense of taxpayers. The Fed's
bailout of large banks during the financial crisis propped up poorly-run
corporations that should have gone under, giving them a market-distorting
advantage that no business in the United States should receive.
The recent news about JP Morgan is a case in point. JP Morgan, a
recipient of $25 billion in bailout money, recently announced it
lost another $2 billion. If a corporation shows itself to be a bottomless
money pit of "errors, sloppiness and bad judgment," the
Fed shouldn't have expected $25 billion in free money to change
that or teach anyone a lesson in fiscal discipline. But it determined
that this form of deliberate capital destruction was preferable
to one business suffering bankruptcy. Clearly, some changes need
to be made.
for the Fed were discussed at the hearing. One was a call for the
full employment mandate to be repealed, in order to allow the Fed
to focus solely on stable prices.
calls for changes to the composition of the Federal Open Market
Committee. Still another proposal was for outright nationalization
of the Fed or of its functions. But if what the Fed does now is
bad and inflationary, allowing the Treasury to print and issue money
at-will would be even worse, and could possibly lead to a Weimar-like
and advantages of the gold standard were discussed at the hearing.
The era of the classical gold standard was undoubtedly one of the
greatest eras in human history. For a period of several decades
in the late 19th century, the West made enormous advances. However,
the gold standard was still run by government. The temptation to
suspend gold redemption reared its head again with the outbreak
of World War I. Once the tie to gold was severed and fiscal restraint
thrown to the wind, undoing the damage would have required great
fiscal austerity. Instead, the Western world proceeded to set up
a gold-exchange standard which lasted not even a decade before easy
money led to the Great Depression.
returning to the gold standard would certainly be far better than
maintaining the current fiat paper system, as long as the government
retains the power to go off gold we may end up repeating the same
The only viable
solution is to get government out of the money business permanently.
The way to bring this about is through currency competition: allow
parallel currencies to circulate without receiving any special recognition
or favor from the government. Fiat paper monetary standards throughout
history have always collapsed due to their inflationary nature,
and our current fiat paper standard will be no different.
It is imperative
that the American people be educated on the dangers of the Fed and
the importance of restoring sound money. The laying of the groundwork
must begin today, so that the American people will be prepared for
the day when the mirage the Fed has created evaporates completely.
The full hearing footage is available on my website and I would
encourage every American to take a look.
the Ron Paul File
Paul is a Republican member of Congress from Texas.
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