Rep. Ron Paul, one of four remaining GOP candidates seeking the nomination for president, returned to Capitol Hill this morning to attend a hearing with one of his chief rivals - the chairman of the Federal Reserve, Ben Bernanke.
Paul, a passionate critic of the Fed who has made its demise a cornerstone of his campaign, was recognized by the chairman of the committee, Rep. Spencer Bachus, as Bernanke's "thorn in your flesh."
"I guess over the last 30 or 40 years I have criticized the Fed on occasion," Paul, R-Texas, admitted as he began his opening remarks. "But the Congress deserves some criticism too. The Federal Reserve is a creature of the Congress."
The 12-term Republican said that the financial crisis is a sign of the "end stages of a grand experiment" on currency that derives its value from government regulation or law. Instead, Paul once again made the case for returning to the gold and silver standard.
"They've been debating currencies for hundreds if not thousands of years and they always end badly, they always return to market-based money, which is commodity money - gold and silver," Paul said. "People keep arguing from the other side of this argument that [the Fed] is working, it's doing well, and yet from my viewpoint and the viewpoint of the free market economists, all it is doing is building a bigger and bigger bubble."
Paul said that the Federal Reserve has "a responsibility to protect the value of the dollar" but without a consensus on the "definition of a dollar," the dollar's value cannot be sustained.
"Every single day it buys less the next day. To me it's sort of like…a builder had a yardstick that changed its value every single day. I mean, just think of the kind of building we would have," he wondered. "We have a debt-based system. The more debt we have, and the more debt the Federal Reserve buys, the more currency they can print, and they monetize this debt. And no wonder we're in a debt crisis."
Paul predicted that eventually the market will vindicate his position.
"I am betting that the market is smarter, commodity money is smarter," he told Bernanke. "Nobody is smart enough to have central economic planning."
Bernanke was invited to testify at the House Financial Services committee hearing today to discuss the Federal Reserve's semiannual monetary policy report, which he presented to Congress today.
The Tea Party favorite and Fed chairman enjoyed a lengthy exchange about inflation, which Paul said is aggravated by the Fed when it increases the money supply.
When it came time for questions, Paul asked Bernanke whether the chairman does his own grocery shopping.
"Yes I do," Bernanke answered.
"Ok, so you're aware of the prices, but you know this argument that the prices are going up about 2 percent, nobody believes it," Paul continued. "People on fixed incomes - they're really hurting, the middle class is really hurting because their inflation rate is very much higher than the government tries to tell them and that's why they lose trust in government."
To better illuminate his case, Paul compared the purchasing power of a silver ounce from when Bernanke first took over as chairman of the Fed in 2006 to what it could buy today.
"I have a silver ounce here, and this ounce of silver back in 2006 would buy over 4 gallons of gasoline. Today it'll buy almost 11 gallons of gasoline," he said. "That's preservation of value and that's what the market has always said should be money. Money comes into effect in a natural way, not in a edict, not by fiat, by governments declaring it is money."
"The record of what you've done in the last six years is destroy the value of real money." he added.
"First of all, good to see you again, Congressman Paul," Bernanke said, drawing laughter from members of Congress as he was finally able to get a word in. "Nobody prevents you from holding silver or gold if you want to. It's perfectly legal to do that….and it's also perfectly fine to hold other currencies - Euros or Yen, or whatever else, so in that respect you can do that."
Paul wasn't buying what Bernanke was selling.
"But Mr. Chairman, that's not money. When you pay taxes to buy a coin or you have a capital gains tax. If you have to settle a lawsuit it's always settled in depreciating Federal Reserve notes," Paul countered. "People could vote on it. Maybe they'll give up on the Federal Reserve note and vote for real money."