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Ron Paul

Ron Paul about The Future Of The Federal Reserve

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Congressman Paul about his unique perspective and why the Fed is controversial again.

Me: Do you think the Fed is the main culprit behind the current economic crisis?

Paul: I don't believe you can have financial bubbles without artificially expanding the supply of money and credit, and only the Fed can do that in collusion with the banks, who can operate under fractional reserve banking. So that's where the financial bubbles come from, whether it's housing or the stock market or the bond market. That's the source of the bubble, and that's what has to be addressed, and yet the Fed has been able to operate in secrecy on exactly how they allocate credit and what they do with international markets. So yes, the Fed is the number one culprit.

I guess the response from defenders of Greenspan would be that to jack up interest rates enough to defuse the housing bubble would have been really bad for growth and unemployment, and that was unacceptable at the time.

Yes, and that's why he inflated it instead. It's like a drug addiction. Nobody wants the pain that comes with getting off the drug. But it's more than the pain of avoiding addiction that drives Bernanke. It's a deep-seated philosophy that inflation is the cure, and that it can prevent the correction. But the correction has been locked in place. In the year 2000 it was locked in place. The market was trying to tell us we needed a correction. But it was prolonged so the bubble was made even bigger. This bubble has been going on since 1971 when the dollar became fiat and we had international reserve currency without backing. Ultimately, no matter what the Fed does, you can't prop up a bad system, and that's why this one is different than any recession we've had since 1971.

So that's where your bill to audit the Fed comes in?

In a way it's a mini-step, but it's also the reason I have a lot of co-sponsors because I haven't gotten into the controversy of fractional reserve banking and the issue of monetary policy per se. My main goal is to find out exactly what the Fed has been doing, especially in this crisis. Since the crisis has hit, there's been this whole idea of transparency about what the Treasury does with the TARP funds. So now the American people want to know what the Fed does. I believe that reform is inevitable, and that's the second step.

What do you mean by "what the Fed is doing"?

What they're doing with foreign governments, international financial organizations, what they buy and sell, and what markets they interfere with... how decisions are made. We don't have absolute figures, but it's estimated that they might have a guarantee of 3 or 4 or 5 trillion dollars. It doesn't have to be on the books because it might just be guarantees. This is big stuff and the Congress should know about it.

What do you mean by reform of the Fed?

This system has failed in a financial sense. I believe the dollar will fail too. We are going to have very high interest rates and price inflation rates. Finally, they will have to stop. That's why I want to see what the Fed is talking about and what they're saying to the central banks in other countries. They know that reform is coming--they're looking to the IMF, and Obama's on that side of the argument. That's exactly the opposite type of reform that free-market and strict-constitutionalist people don't want. We want reform toward honest money and sound money, rather than looking to internationalism propping up the flawed system just by changing it from a dollar-run system to an interna. ional system. Debate has to come on what types of reform are necessary.



by  Matthew Bandyk

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