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."
"It is that not only have we had a subprime market in housing; the whole economic system is sub prime," Paul railed. "We artificially lower interest rates. And it wasn't under your tenure in office; it's been going on for 10 years and longer and now we're bearing the fruits of that policy."
Paul argued the government shouldn't be concerning itself with deceptive lending practices but with its deceptive monetary policy.
"The real deception is when we distort the value of money, when we create money out of thin air. We have no savings. Yet there's so-called capital. There's money available. But it comes from what you have to do and the pressures put on you.
Several minutes into his questioning, Paul got to a question for Bernanke, though it was more of an entree to a larger debate: "How in the world can we expect to solve the problems of inflation, that is, the increase in the supply of money, with more inflation?"
Bernanke answered saying, in the parlance of an average economist, he's just doing what Congress created the Fed to do.
"What we're trying to do is follow the mandate that Congress gave us," Bernanke said. "And the mandate that Congress gave us is to look at employment and inflation as measured by domestic price growth. And as I talked about today, and I think you would agree that we do see risk to inflation and we are taking those into account and we want to make sure that prices remain as stable as possible in the United States."
Paul countered that by putting more money on the market, Bernanke and the Federal Reserve are devaluing the dollar and robbing from Americans.
"There's a dollar crisis out there and people's money is being stolen; people who have saved, they're being robbed. I mean, if you have a devaluation of the dollar at 10 percent, people have been robbed at 10 percent. But how can you pursue this policy without addressing the subject that somebody's losing their wealth because of a weaker dollar? And it's going to lead to higher interest rates and a weaker economy."
Bernanke argued that since Americans use dollars to buy their goods here in America, a devalued dollar will make imported goods more expensive.
Paul shot back, rounding out his five minutes of questions, "Yes, but not if you're retired and elderly and you have CDs and their cost of living is going up no matter what your CPI says. Their cost of living is going up and they are hurting."
It was an interesting exercise in theory, but Paul, even if he were to be elected president, probably would not have the votes in Congress to revamp the financial system, much less abolish the Fed.
A reason perhaps why none of this made wire or newspaper accounts of the hearing, all of which focused on Bernanke's contention that despite an intensifying slump in the housing market, slower than expected growth and higher inflation, he does not believe the country is headed for a recession and tried to divine where Bernanke's testimony signaled another interest rate cut.