Paul vs. Bernanke on Value of the Dollar

When you are Ron Paul, your public enemy No. 1 is the chairman of the Federal Reserve.

Because when you are Ron Paul, although you are technically a Republican, you are really a libertarian, and your strict adherence to the gospel of the Constitution leads you to question why the Federal Reserve -- the consortium of 12 reserve banks that acts as the U.S. central bank -- even exists.

It doesn't say anything about any central bank in the Constitution. Not only that, the primary responsibility of the Federal Reserve -- to control the money flow and availability of currency on the open market -- is something that you, Ron Paul, find incorrigible. The government, you believe, creates inflation when it prints money and moves it willy-nilly into the market to control the very inflation you think it's causing by moving that money around in the first place. Counterpoint: The gold standard was too inflexible, and the average citizen suffers when the government can't give the markets more fuel in the form of money. (And for your information, here's a Fed-produced interactive feature on the Fed.)

But you, as Ron Paul, have your druthers. You'd get right on back to the gold standard, where each dollar represents a set amount of gold. This whole artificial currency is maddening to you (and it's a lot of the reason you're running for president, although you get more press for being the only Republican candidate openly in opposition to the Iraq War). In fact, if you became president, one of the many pieces of the federal government you'd work to abolish, along with the Internal Revenue Service and the Department of Education, is the Fed.

So, when you're not out on the stump running for president but back at your day job in Washington, D.C., a job you plan to keep should you fail in your quest for the White House, it's a good thing for you, as congressman Ron Paul, to sit on the Joint Economic Committee, which from time to time hears testimony from Ben Bernanke, chairman of your hated Federal Reserve.

During today's testimony questions from most senators and representatives on the committee had to do with the housing crisis and whether a recession was in the offing.

But when Paul squared off with Bernanke, things were a bit different. More like Bernanke was dealing with a combative grad student during office hours at Princeton.

After a diatribe about how the government and the Fed are trying to patch up market woes without addressing core problems, Paul pointed out, "Nobody says, 'Where does it come from?' And what is the advice that you generally get, and that is inflate the currency. They don't say inflate the currency, they don't say debase the currency, they don't say devalue the currency, they don't say cheat the people. They say lower the interest rates.'"

But when people crow to the Fed to lower interest rates and make larger sums of money more accessible, argued Paul, they're not really asking for the interest rates to be lowered; they're asking for the government to print more money.

"But they never ask you, and I don't hear you say too often, 'The only way I can lower interest rates is I have to create more money. I have to lower the discount rate, I have to make it generous, I have to increase reserves, I have to lower the interest rates and fix the interest rates.'"

Later, Paul called it "a fallacy" that made the dollar "weaker" and "invites inflation."

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