Ron Paul's Congressional Farewell Speech

Delivered on the House Floor, November 14, 2012

Farewell to Congress

This may well be the last time I speak on the House Floor. At the end of the year I’ll leave Congress after 23 years in office over a 36 year period. My goals in 1976 were the same as they are today: promote peace and prosperity by a strict adherence to the principles of individual liberty.

It was my opinion, that the course the U.S. embarked on in the latter part of the 20th Century would bring us a major financial crisis and engulf us in a foreign policy that would overextend us and undermine our national security.

To achieve the goals I sought, government would have had to shrink in size and scope, reduce spending, change the monetary system, and reject the unsustainable costs of policing the world and expanding the American Empire.

The problems seemed to be overwhelming and impossible to solve, yet from my view point, just following the constraints placed on the federal government by the Constitution would have been a good place to start.

How Much Did I Accomplish?

In many ways, according to conventional wisdom, my off-and-on career in Congress, from 1976 to 2012, accomplished very little. No named legislation, no named federal buildings or highways—thank goodness. In spite of my efforts, the government has grown exponentially, taxes remain excessive, and the prolific increase of incomprehensible regulations continues. Wars are constant and pursued without Congressional declaration, deficits rise to the sky, poverty is rampant and dependency on the federal government is now worse than any time in our history.

All this with minimal concerns for the deficits and unfunded liabilities that common sense tells us cannot go on much longer. A grand, but never mentioned, bipartisan agreement allows for the well-kept secret that keeps the spending going. One side doesn’t give up one penny on military spending, the other side doesn’t give up one penny on welfare spending, while both sides support the bailouts and subsidies for the banking and corporate elite. And the spending continues as the economy weakens and the downward spiral continues. As the government continues fiddling around, our liberties and our wealth burn in the flames of a foreign policy that makes us less safe.

The major stumbling block to real change in Washington is the total resistance to admitting that the country is broke. This has made compromising, just to agree to increase spending, inevitable since neither side has any intention of cutting spending.

The country and the Congress will remain divisive since there’s no “loot left to divvy up.”

Without this recognition the spenders in Washington will continue the march toward a fiscal cliff much bigger than the one anticipated this coming January.

I have thought a lot about why those of us who believe in liberty, as a solution, have done so poorly in convincing others of its benefits. If liberty is what we claim it is- the principle that protects all personal, social and economic decisions necessary for maximum prosperity and the best chance for peace- it should be an easy sell. Yet, history has shown that the masses have been quite receptive to the promises of authoritarians which are rarely if ever fulfilled.

Authoritarianism vs. Liberty

If authoritarianism leads to poverty and war and less freedom for all individuals and is controlled by rich special interests, the people should be begging for liberty. There certainly was a strong enough sentiment for more freedom at the time of our founding that motivated those who were willing to fight in the revolution against the powerful British government.

During my time in Congress the appetite for liberty has been quite weak; the understanding of its significance negligible. Yet the good news is that compared to 1976 when I first came to Congress, the desire for more freedom and less government in 2012 is much greater and growing, especially in grassroots America. Tens of thousands of teenagers and college age students are, with great enthusiasm, welcoming the message of liberty.

I have a few thoughts as to why the people of a country like ours, once the freest and most prosperous, allowed the conditions to deteriorate to the degree that they have.

Freedom, private property, and enforceable voluntary contracts, generate wealth. In our early history we were very much aware of this. But in the early part of the 20th century our politicians promoted the notion that the tax and monetary systems had to change if we were to involve ourselves in excessive domestic and military spending. That is why Congress gave us the Federal Reserve and the income tax. The majority of Americans and many government officials agreed that sacrificing some liberty was necessary to carry out what some claimed to be “progressive” ideas. Pure democracy became acceptable.

They failed to recognized that what they were doing was exactly opposite of what the colonists were seeking when they broke away from the British.

Some complain that my arguments makes no sense, since great wealth and the standard of living improved for many Americans over the last 100 years, even with these new policies.

But the damage to the market economy, and the currency, has been insidious and steady. It took a long time to consume our wealth, destroy the currency and undermine productivity and get our financial obligations to a point of no return. Confidence sometimes lasts longer than deserved. Most of our wealth today depends on debt.

The wealth that we enjoyed and seemed to be endless, allowed concern for the principle of a free society to be neglected. As long as most people believed the material abundance would last forever, worrying about protecting a competitive productive economy and individual liberty seemed unnecessary.

The Age of Redistribution

This neglect ushered in an age of redistribution of wealth by government kowtowing to any and all special interests, except for those who just wanted to left alone. That is why today money in politics far surpasses money currently going into research and development and productive entrepreneurial efforts.

The material benefits became more important than the understanding and promoting the principles of liberty and a free market. It is good that material abundance is a result of liberty but if materialism is all that we care about, problems are guaranteed.

The crisis arrived because the illusion that wealth and prosperity would last forever has ended. Since it was based on debt and a pretense that debt can be papered over by an out-of-control fiat monetary system, it was doomed to fail. We have ended up with a system that doesn’t produce enough even to finance the debt and no fundamental understanding of why a free society is crucial to reversing these trends.

If this is not recognized, the recovery will linger for a long time. Bigger government, more spending, more debt, more poverty for the middle class, and a more intense scramble by the elite special interests will continue.

We Need an Intellectual Awakening

Without an intellectual awakening, the turning point will be driven by economic law. A dollar crisis will bring the current out-of-control system to its knees.

If it’s not accepted that big government, fiat money, ignoring liberty, central economic planning, welfarism, and warfarism caused our crisis we can expect a continuous and dangerous march toward corporatism and even fascism with even more loss of our liberties. Prosperity for a large middle class though will become an abstract dream.

This continuous move is no different than what we have seen in how our financial crisis of 2008 was handled. Congress first directed, with bipartisan support, bailouts for the wealthy. Then it was the Federal Reserve with its endless quantitative easing. If at first it doesn’t succeed try again; QE1, QE2, and QE3 and with no results we try QE indefinitely—that is until it too fails. There’s a cost to all of this and let me assure you delaying the payment is no longer an option. The rules of the market will extract its pound of flesh and it won’t be pretty.

The current crisis elicits a lot of pessimism. And the pessimism adds to less confidence in the future. The two feed on themselves, making our situation worse.

If the underlying cause of the crisis is not understood we cannot solve our problems. The issues of warfare, welfare, deficits, inflationism, corporatism, bailouts and authoritarianism cannot be ignored. By only expanding these policies we cannot expect good results.

Everyone claims support for freedom. But too often it’s for one’s own freedom and not for others. Too many believe that there must be limits on freedom. They argue that freedom must be directed and managed to achieve fairness and equality thus making it acceptable to curtail, through force, certain liberties.

Some decide what and whose freedoms are to be limited. These are the politicians whose goal in life is power. Their success depends on gaining support from special interests.

Continue reading - Ron Paul's Farewell Address - Full Text

Ron Paul's Congressional Farewell Speech - C-SPAN 11/14/2012

The Price of Money: Consequences of the Federal Reserve's Zero Interest | Ron Paul | Domestic Monetary Policy and Technology Subcommittee

United States House of Representatives
Committee on Financial Services
Subcommittee on Domestic Monetary Policy
Hearing on

"The Price of Money: Consequences of the Federal Reserve's Zero Interest Rate Policy"
September 21, 2012

Hearing on the Price of Money Sept 21, 2012

Ron Paul Lecture - "The Great Enabler: The Rise of the Federal Reserve and the Growth of Government"

Congressman Ron Paul delivered this Congressional lecture on "The Great Enabler: The Rise of the Federal Reserve and the Growth of Government." The introduction was given by Senator Rand Paul. As a continuing educational tool this lecture was filmed and is provided to the public.

Congressman Paul explains in this lecture the Federal Reserve's role as the enabler of big government. Through purchases of government debt, the Fed allows the government to spend beyond its means and contributes to the growth of the welfare-warfare state. If leviathan government is to be countered, understanding monetary policy and the fundamental role it plays in the relentless growth of government is a necessary first step.

Ron Paul Lecture - "The Great Enabler: The Rise of the Federal Reserve and the Growth of Government"


Rep. Ron Paul sponsored this Congressional lecture on "What Is the Fed's Future?", the final lecture in a three part series on the Federal Reserve System for Congressional staff. As a continuing educational tool this lecture was filmed and is provided to the public. The lecture was delivered by Dr. Roger Garrison, Professor Emeritus of Economics at Auburn University.

Dr. Garrison's lecture describes how the economic precepts on which the Fed operates are fundamentally flawed, making it only a matter of time before the Fed is the creator of its own demise. By contrasting the Keynesian macroeconomic theory upon which the Fed is based with the Austrian macroeconomic theory, what Garrison calls the capital-based framework, Dr. Garrison illustrates the market-distorting effects of the Fed's actions on the structure of production. Using this comparison, Professor Garrison provides a simple yet comprehensive explanation of how the Fed's monetary policy actions created the housing bubble and the subsequent financial crisis. He concludes by highlighting the bleak future for the Fed's ability to manage the economy, and emphasizes the necessity of decentralized banking.

"What is the Fed's Future?" with Roger Garrison -- Ron Paul Fed Lecture Series, Pt 3/3


Other lectures in the Fed series:

Pt. 1: Why Was the Fed Created? -- http://www.youtube.com/watch?v=JeIljifA8Ls

Pt. 2: What Does the Fed Do? -- http://www.youtube.com/watch?v=pRipVd5wxhI

Pt. 3: What Is the Fed's Future? -- http://www.youtube.com/watch?v=IdX60JgPTmA

Related: Ron Paul Money Lecture Series

Pt. 1: "What is Money" -- http://www.youtube.com/watch?v=vowbrq_g5NM

Pt. 2: "What is Constitutional Money?" -- http://www.youtube.com/watch?v=k6gMkKmQSW4

Pt. 3: "What About Money Causes Economic Crises?" -- http://www.youtube.com/watch?v=npJ0CUT8d_Y

Sound Money: Parallel Currencies and the Roadmap to Monetary Freedom | Ron Paul | Domestic Monetary Policy and Technology Subcommittee

Before the United States House of Representatives, Subcommittee on Domestic Monetary Policy, Hearing on Sound Money: Parallel Currencies and the Roadmap to Monetary Freedom, August 2, 2012

One of the most pressing issues of our time is the push for monetary freedom. The only sound monetary system is one which protects sound money and allows consumers, businesses, and investors the freedom to transact in the currency of their choice. The importance of sound money is summed up nicely by Ludwig von Mises: "It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments." It is no wonder that governments fight tooth and nail against sound money, as sound money protects the well-being of the middle class and the poor while preventing the expansion of government.

Governments throughout history have sought to monopolize the issuance of money, either directly or through the creation of central banks. The growth of central banking in the 20th century allowed governments to monetize their debt in an indirect manner while still ensuring a ready market for government debt. And central banks' slow but sure debasement of the currency allowed governments to repay their debts in devalued money. What debtor would not want such a sweetheart deal?

Indeed, the 20th century witnessed a revolt by governments against the strictures of sound money. In some countries such as Weimar Germany the revolution came quickly and the results were both immediately apparent and instantaneously disastrous. In other countries such as the United States, the revolt came more gradually, with the destructive effects of money printing only recently becoming apparent to more and more Americans.

Over the past 100 years, the Federal Reserve has continually pumped new money into the economy, resulting in a 96 percent devaluation of the dollar. This devaluation does not affect everyone equally, as the banks who receive this new money first benefit from using it before prices rise, while average Americans suffer the price rises first and receive only a trickle of money well afterward. In this way the Fed enriches Wall Street while impoverishing Main Street, leading to a growing disparity of wealth.

The wealthy are always able to protect the value of their assets against inflation to an extent that the middle class and poor cannot. Anyone with enough money and resources can set up a foreign bank account denominated in euros or Hong Kong dollars, or purchase gold and silver that will be safely stored in London or Singapore. The rich are best able to purchase precious metals, the only ones able to invest in high-yielding hedge funds, and the ones most able to shelter their assets from punitive taxation.

All the legislation and regulation that ostensibly protects the average American from losing money in fact does exactly the opposite. It keeps the average American from being able to defend against inflation by investing in precious metals, forces him into mediocre investment opportunities that do not even keep up with inflation, and leaves him at the mercy of the taxman. Compared to their counterparts in other countries, the average American has far fewer financial options available to them.

Mexican workers can set up accounts that are denominated in ounces of silver, and can take delivery of that silver whenever they want, tax-free. In Singapore and some other Asian countries, individuals can set up bank accounts denominated in gold and silver. Debit cards can be linked to gold and silver accounts so that customers can use their gold and silver to make point of sale transactions, a service which is only available to non-Americans. In short, Americans have far fewer options to protect their wealth than citizens of many foreign countries do.

The solution to this problem is to legalize monetary freedom and allow the circulation of parallel and competing currencies. There is no reason why Americans should not be able to transact, save, and invest in the currency of their choosing. Unfortunately, decades of government restrictions and regulations have hampered and prevented the circulation of parallel currencies and destroyed the familiarity of Americans with any sort of money aside from Federal Reserve Notes or bank deposits denominated in U.S. dollars. The thought of introducing parallel currencies undoubtedly scares many people who understandably wish to minimize their financial risk.

All financial activity is fraught with risk. Most people understand the risks inherent in stock or bond investment, but the risk of holding savings accounts or cash is still drastically under-appreciated. Everyone is familiar with the maxim "Don't put all your eggs in one basket" and investors and savers are constantly urged to diversify their portfolios, yet the U.S. government continues to set roadblocks that force Americans to transact and save in dollars that continue to depreciate.

According to the government's official figures, price inflation runs around two percent per year which means that, since interest rates on savings accounts are near zero, the real rate of return on savings accounts is negative. Anyone holding a savings account or cash is losing nearly two percent of the value of his savings per year with this relatively mild inflation. Some private economists estimate that actual price inflation is running closer to nine percent per year, which would make the loss from holding dollars enormous.

Even greater danger comes during bouts of hyperinflation, such as during Weimar Germany and more recently in Zimbabwe. But when Zimbabwe's dollar became worthless, people began to use U.S. dollars, South African rand, and Zambian kwacha to conduct transactions. Similarly in Weimar Germany, many individuals resorted to using dollars, pounds, and precious metals. So despite the economic hardship wrought by hyperinflation, not all economic activity ground to a halt, largely due to the circulation of parallel currencies. Should the United States ever face a hyperinflationary crisis, which due to the Fed's quantitative easing is very possible, the only means of survival would be through the use of parallel currencies.

It is horribly unjust to force the American people to do business with a dollar that is continuously debased by the Federal Reserve. Forcing a monopoly currency with legal tender status onto the people benefits the issuer (government) while harming consumers, investors, and savers. The American people should be free to use the currency of their choice, whether gold, silver, or other currencies, with no legal restrictions or punitive taxation standing in the way. Restoring the monetary system envisioned by the Constitution is the only way to ensure the economic security of the American people.

WITNESS LIST

Dr. Richard Ebeling, Professor of Economics, Northwood University
Mr. Nathan Lewis, Principal, Kiku Capital Management LLC
Mr. Rob Gray, Executive Director, The American Open Currency Standard

Sound Money: Parallel Currencies and the Roadmap to Monetary Freedom

BREAKING! Federal Reserve Audit Bill Overwhelmingly Passes The House 327-98

In a rare moment of bipartisanship, the House overwhelmingly passed a bill by Rep. Ron Paul (R-Texas) to audit the Federal Reserve.

The bill, which has 270 co-sponsors, passed 327 to 98. All but one Republican -- Rep. Bob Turner of New York -- voted for it, along with 89 Democrats.

Paul teamed up with former Rep. Alan Grayson (D-Fla.) in 2010 to pass similar legislation that became part of the final Wall Street reform bill. But Paul has said new audit legislation is needed because the 2010 bill didn't go far enough. Specifically, he states on his website that the audit called for in the 2010 bill only focused on emergency credit programs and procedural issues, rather than on the substantive details of the lending transactions. The 2012 bill doesn't limit the focus of the audit.

Fed Chairman Ben Bernanke recently told the House Financial Services Committee that he agrees with the "basic premise" that the Fed should be transparent, but raised concerns that Paul's bill doesn't exempt monetary policy and deliberations from its reach.

Not including an exemption on this point could create "a political dampening effect on the Federal Reserve's policy decisions," Bernanke warned.

But Rep. Dennis Kucinich (D-Ohio) pointed out that the House vote on the bill comes on the same day that the Washington Post reported that the New York Fed "did not communicate in key meetings with top regulators that British bank Barclays had admitted to Fed staffers that it was rigging LIBOR,” the index which sets interest rates worldwide.

"The Fed creates trillions of dollars out of nothing and gives it to banks. Congress is in the dark. The Fed sets the stage for the subprime meltdown. Congress is in the dark. The Fed takes a dive on LIBOR. Congress is in the dark. The Fed doesn’t tell regulators what is going on. Congress is in the dark," Kucinich shouted on the House floor, just before the vote.

"It is time for us to bring the Fed into the sunshine of accountability," he said.

Despite the broad support in the House, a senior Senate Democratic aide signaled the bill isn't likely to go anywhere in that chamber in the near future.

"Not this work period," the aide said about the Senate acting on the bill ahead of the month-long August recess. "Don’t know about September, but I doubt it."

Another top Senate Democratic aide concurred that the bill likely won't go anywhere, but speculated it could resurface in a different form.

"We probably won’t bring it up," said the aide, adding that Paul's son, Sen. Rand Paul (R-Ky.), "will probably start insisting on this as an amendment to everything under the sun, so it's possible it comes up for an amendment vote at some point."

"It would not be the craziest amendment we've voted on," the aide said.

Source: HuffPo: Federal Reserve Audit Bill Overwhelmingly Passes The House

Congressman Ron Paul's Floor Speech on Audit the Fed July 24, 2012


Ron Paul's Audit the Fed Bill PASSES!


A Win For The Constitution - Ron Paul Gets His Bill To Audit The Fed Passed


Kucinich Stands for 99%, Demands Audit of the Federal Reserve


Harry Reid vows Federal Transparency Act will never be voted on in the Senate

Supporters of Rep. Ron Paul and sound monetary policy rejoiced online as they heard of the passage of H.R. 456, the Federal Transparency Act, on Wednesday. Their joy, however, was short-lived as within an hour of the bill passing word spread from the office of the Harry Reid. The Senate Majority Leader and Nevada Democrat has vowed the Federal Reserve Transparency Act will not be put to a vote in the Senate.

Source: Harry Reid vows Federal Transparency Act will never be voted on in the Senate

In '95 Harry Reid wanted to Audit the Fed, and now he doesn't want to because Republicans have supported it--the very definition of bipartisan hypocrisy. This is the most important institution that controls all of our money/interest rates. Very important and he won't even put it to a vote in the Senate.

Harry Reid: "I think we should audit the Federal Reserve" in 1995!

Monetary Policy and the State of the Economy | Ron Paul vs Ben Bernanke

Before the United States House of Representatives, Committee on Financial Services, Hearing on Monetary Policy and the State of the Economy, July 18, 2012

Mr. Chairman, I thank you for calling this hearing today on monetary policy and the state of the economy. For the past few years the Federal Reserve has received criticism from all sides of the political spectrum, and rightly so, for its unprecedented intervention into the economy and its bailouts of large Wall Street banks and foreign central banks. Yet this criticism risks losing sight of the most insidious result of the Fed's actions, which is to enable the growth of government.

For nearly the first 40 years of its existence, the Fed operated as an adjunct of the Treasury Department, tasked with purchasing government debt in order to keep the government's borrowing costs low. Even after gaining its vaunted "independence" from Treasury in 1951, the Fed never shrank from enabling the growth of government. The extraordinary monetary policy of the last four years has reaffirmed that the Fed, its protestations to the contrary notwithstanding, is only too willing to enable growing government spending and massive fiscal deficits.

For centuries, banks have received special privileges from government in exchange for funding the government's wars. The creation of the Federal Reserve System in 1913 formalized and centralized this arrangement in the United States. From the very beginning, the Fed was intended to provide a more liquid market for federal government debt, enabling the growth of big government.

What we’ve seen over the last century is nothing less than the remaking of American government, thanks in large part to the Fed. Its loose monetary policy gave rise to: (i) the welfare state, encouraging dependency on government largesse and destroying the work ethic and family life of lower-income Americans; (ii) the warfare state, allowing the U.S. government to involve itself in wars of aggression around the world; and (iii) the regulatory state, the mammoth bureaucracy that relentlessly grinds away at the rights of the American people.

Little more than a decade ago, Fed economists were wringing their hands over the prospect that the federal government might pay off the national debt. Nothing could be worse for the Fed, because the Fed's monetary policy operations require the existence of government debt. Treasury debt is purchased from or sold to banks on the open market in order to influence interest rates. Without government debt, the Fed would have no idea how to conduct monetary policy. From a free market perspective this would be wonderful, as it is Fed monetary policy which largely creates the booms and busts of the business cycle. Unfortunately, the federal government has run up the national debt to unprecedented levels over the past decade, and the Federal Reserve has been right there, monetizing that debt to ensure that none of it goes unsold.

While the desire of foreign countries and private investors to purchase Treasuries was drying up, the Federal Reserve was only too willing to step in and enable the government to continue its deficit spending. The Fed's balance sheet exploded as it purchased over one trillion dollars in Treasury debt over the past few years. And before it did that, the Fed also purchased over a trillion dollars of overrated mortgage-backed securities from Wall Street banks, giving those banks the cash they needed to purchase Treasury debt of their own. Were it not for the Federal Reserve's actions, the federal government would not have been able to run trillion-dollar deficits for the past several years.

In fact, had the Federal Reserve never been created, the federal government never would have been able to run up a $16 trillion debt. No market actor would lend money to such a major debtor at such low interest rates. The only reason that banks are willing to buy Treasury debt at such low interest rates is because they can easily resell that debt to the Fed.

Without the Fed, interest rates would rise to such levels that the federal government would have no choice but to curtail its expenditures and focus only on doing what is truly necessary. With market discipline allowed to prevail, the size of the federal government would be drastically smaller. If Congress were really serious about limiting the size of government, it would eliminate the most important enabler of government profligacy by ending the Fed.

Source: Ron vs. Ben, for the Last Time

Ron Paul "We Talk About Solving A Worldwide Problem Of Insolvency By Just Printing Money"


Ron Paul "It's The Destruction Of The Currency That Destroys The Middle Class!"


Ron Paul "Under Your Philosophy I'd Say You've Done A Pretty Good Job! You Tripled Monetary Base..."

Fractional Reserve Banking and the Federal Reserve: The Economic Consequences of High-Powered Money | Ron Paul | Domestic Monetary Policy and Technology Subcommittee

This hearing, entitled "Fractional Reserve Banking and the Federal Reserve: The Economic Consequences of High-Powered Money," will be held on Thursday, June 28, at 2:00 p.m. in room 2128 of the Rayburn House Office Building.

Witnesses scheduled to testify:
Dr. John Cochran, Emeritus Professor of Economics and Emeritus Dean, School of Business, Metropolitan State College of Denver Dr. Joseph Salerno, Professor of Economics, Lubin School of Business, Pace University Dr. Lawrence H. White, Professors of Economics, George Mason University

"Fractional reserve banking underpins the entire banking system, yet its effects on society are completely ignored. Our financial system consists of vast amounts of credit pyramided on top of very small amounts of real savings-- all backstopped by explicit and implicit government guarantees. This poses significant risks to the stability of the economy and monetary system, which ought to give pause to any serious observer of financial markets. Hopefully this hearing will create a greater understanding among the American people about the nature of the banking system, and begin the movement towards serious systematic reform. The American people deserve a financial system that is stable and efficient; one that operates without taxpayer subsidies and bailouts." - Congressman Ron Paul

Hearing June 28 2012 Fractional Reserve Banking

The Federal Reserve System: Mend It or End It? | Ron Paul | Domestic Monetary Policy and Technology Subcommittee

Rep. Ron Paul (R-TX) chaired a House Financial Services Subcommittee hearing on six legislative proposals that either reform or suggest abolishing the Federal Reserve System.

"More and more people are beginning to understand just how destructive the Federal Reserve's monetary policy has been," said Chairman Paul. "I hope that this hearing will kickstart a serious discussion on the need to rein in the Fed. 100 years is far too long for Congress to have taken a hands-off approach," Paul continued. "The Fed continues to reward Wall Street banks while destroying the dollar's purchasing power and driving up the cost of living for average Americans. This reckless behavior must come to an end"

Calls for reforming various aspects of the Federal Reserve System have existed since its creation in 1913. However, with the onset of the financial crisis of 2008-2009 and during the prolonged recession, calls for reform have escalated.

The Federal Reserve responded to the financial crisis with unconventional monetary easing, leading some to claim the Federal Reserve attempted to do too much to stimulate economic growth and set the stage for sustained inflation when the economy recovers. Slow economic growth, however, has led others to argue the Federal Reserve has not done enough and must be more accommodative in its conduct of monetary policy.

The six proposals that will be discussed by the Subcommittee on Tuesday are:

H.R. 245, introduced by Rep. Mike Pence
H.R. 1094, the Federal Reserve Board Abolition Act, introduced by Rep. Paul
H.R. 1401, the Democratizing the Federal Reserve System Act, introduced by Rep. Marcy Kaptur
H.R. 2990, the National Emergency Employment Defense Act, introduced by Rep. Dennis Kucinich
H.R. 3428, introduced by Rep. Barney Frank
H.R. 4180, the Sound Dollar Act, introduced by Rep. Kevin Brady

Opening Statement

Although it has taken nearly a century, it seems that the entire spectrum of the American political establishment has finally realized the destructive power of the Federal Reserve System. Whether left, right, or libertarian, politicians are lining up to attack Ben Bernanke and the Fed's destructive monetary policy. Where there is disagreement or lack of understanding, however, is on why the Fed's monetary policy is destructive, how it harms the economy, and what should be done about it. Today's hearing will examine the various proposals that have been put forth both to mend and to end the Fed. It is my hope that this hearing will spur a vigorous and long-lasting discussion about the Fed's problems, a discussion which will lead to concrete actions once and for all to rein in the Fed.

Much confusion exists over what the Federal Reserve System actually is. Some people claim that is a secret cabal of elite bankers, while others claim that it is part of the federal government. In reality it is a bit of both. The Federal Reserve Board is a government agency, while the Federal Reserve Banks are privately-run government-chartered institutions, and monetary policy decisions are made by the Federal Open Market Committee, which has members from both the Board and the Reserve Banks.

The Federal Reserve System is the epitome of crony capitalism. It exemplifies the collusion between big government and big business to profit at the expense of the taxpayers. The Fed's bailout of large banks during the financial crisis propped up poorly-run corporations that should have gone under, giving them an advantage that no other business in the United States would have received. The bailouts continue today, as banks maintain $1.5 trillion worth of excess reserves at the Fed, reserves which were created through the Fed's purchase of worthless securities from banks. The trillions of dollars that the Fed has injected into the system have the goal of forcing down interest rates. But the Fed fails to realize that interest rates are a price, the price of money and credit, and that forcing interest rates down will only create an even bigger bubble and an enormous economic depression when this entire house of cards comes falling down.

The Federal Reserve is statutorily required to focus on three aims when engaged in monetary policy: full employment, stables prices, and moderate long-term interest rates. In practice, only the first two have received any attention, the so-called "dual mandate." Some reformers have called for the full employment mandate to be repealed, in order to allow the Fed to focus solely on stable prices. But these critics ignore the fact that stable prices are not a desirable goal. After all, with increasing productivity and technological innovation, the natural trend for most goods is for prices to decrease. By calling for the prices of goods to remain stable, the Fed would have to inflate the money supply in order to counteract this trend towards price declines, pumping new money into the system and creating economic distortions. This is exactly what happened during the 1920s, as the Fed's monetary pumping was masked by rising productivity. The result was stable prices, but the malinvestment caused by the Fed's loose monetary policy became evident by 1929. There is no reason to expect that focusing on stable prices today would have a dissimilar outcome.

Other reformers have called for changes to the composition of the Federal Open Market Committee, the body which sets the Fed's monetary policy objectives. On Constitutional grounds, the FOMC is undoubtedly problematic, as government appointees and the heads of the private Federal Reserve Banks work together to set monetary policy objectives that directly impact the strength of the dollar. While all of the members of the FOMC ought to be confirmed by the Senate, debates about the size of the FOMC or whether Reserve Bank Presidents should make up a majority of the members or whether they should even serve at all are largely a sideshow. While the only dissent to monetary policy decisions in recent years has come from Reserve Bank Presidents, there is no reason to think that expanding the FOMC to include more Reserve Bank Presidents would lead to any greater dissent or to any substantive changes to the conduct of monetary policy.

Another proposal for reform is for outright nationalization of the Fed or its functions. No longer would the Fed create money; that function would be taken up by the Treasury, issuing as much money as it sees fit. No longer would the Treasury issue debt to cover fiscal deficits, it would just issue new money to cover budget shortfalls. If what the Fed does now is bad, allowing the Treasury to print and issue money at will would be even worse. These types of proposals hearken back to the days of the first greenbacks, which the U.S. government began issuing in 1863. A pure fiat paper currency, unbacked by silver or gold, the greenbacks were widely reviled. Only once the greenbacks were made redeemable in gold were they accepted by the American people. The current system of Federal Reserve Notes is even worse than the greenback era in that there is no hope that they will ever be redeemable for gold or silver. The only limiting factor is that the Federal Reserve System only creates new money when purchasing assets, normally debt securities. Allowing the federal government to print money without at least a nominal check on the amount issued would inevitably lead to a Weimar-like hyperinflation.

So what then is the solution? The Fed maintains that a paper standard can be adequately managed without causing malinvestment, inflation, or other economic distortions. If the Fed were omniscient and knew the wishes, desires, and future actions of all Americans, this might be possible. But the Fed cannot possibly aggregate or act on the information necessary to engage in monetary policy. The actions of hundreds of millions of individuals, all seeking to better their position in life, acting purposefully towards that aim, cannot possibly be compiled into aggregates or calculated through mathematical equations or econometric models. Neither a single person, nor the members and staff of the FOMC, nor millions of people with millions of computers working in a new Goskomtsen will ever be able to accumulate, analyze, and act upon the information required to create a centrally planned monetary system. Centrally planned fiat paper standards such as the one currently in place in this country are doomed to failure.

This brings us to the question of the gold standard. 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, largely uninterrupted by war, the West made enormous advances. Economic productivity increased, art and culture flourished, and living standards rose so that even the poorest citizens lived a life their forebears could have only dreamed of.

But the problem with the gold standard is that it was run by the government, which exercised a monopoly over monetary affairs. The temptation to suspend gold redemption, so often resorted to by governments throughout history, 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 on the part of governments. Emancipated from the shackles of the gold standard, the Western world proceeded to set up a gold-exchange standard which lasted not even a decade before the easy money policies it enabled led to the Great Depression. While 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 mistakes that occurred from 1934 to 1971 as the government went first off the gold coin standard and finally off the gold bullion exchange standard.

The only viable solution for monetary stability is to get government out of the money business permanently. The way to bring this about is through currency competition: allowing parallel currencies to circulate without any one currency 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. The Federal Reserve is currently sowing the seeds of its own destruction through its loose and reckless monetary policy. The day of reckoning may still be many years in the future, but given the lack of understanding on the part of the Federal Reserve's decision makers, it is quickly coming upon us.

It is imperative that the American people be educated on the dangers of the Fed and the importance of restoring sound money. Now that nearly 50 years have elapsed since silver was removed from circulation, fewer and fewer Americans have firsthand familiarity with real 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.

Ron Paul Opening Statement - Federal Reserve Subcommittee Hearing - May 8, 2012


Congressman Paul Subcommittee Hearing "The Federal Reserve System: Mend It or End It?" PART 1


Panel II

• Dr. Jeffrey M. Herbener, Chairman, Economics Department, Grove City College
• Dr. Peter G. Klein, Associate Professor, Applied Social Sciences and Director, McQuinn Center for Entrepreneurial Leadership, University of Missouri
• Dr. John B. Taylor, Mary and Robert Raymond Professor of Economics, Stanford University and George P. Schultz Senior Fellow in Economics, Hoover Institution
• Dr. Alice Rivlin, Senior Fellow, Economic Studies, Brookings Institution, and former Vice Chair, Federal Reserve Board of Governors
• Dr. James K. Galbraith, Lloyd M. Bentsen, Jr. Chair in Government/Business Relations, LBJ School of Public Affairs, University of Texas at Austin

Congressman Paul Subcommittee Hearing "The Federal Reserve System: Mend It or End It?" PART 2

Economy Face Off: Ron Paul vs Paul Krugman

Nobel-prize winning economist Paul Krugman and Republican presidential candidate Ron Paul talk about inflation, monetary policy and the role of the Federal Reserve. They speak on Bloomberg Television's "Street Smart."

Ron Paul vs. Paul Krugman on Bloomberg TV - April 30, 2012