The Federal Reserve System, the Fed, is the most important financial institution in the nation. Yet few Americans understand the Fed’s real purpose for existence and the dangers it presents to our nation’s financial well-being. However, Congressman Ron Paul’s book End the Fed, a New York Times bestseller, is changing that.
Simply, the Fed is a central bank, which has the legal authority to “create money out of thin air.” As Congressman Paul notes, as have other critics of the Fed have noted, it is an inflation machine. Rising prices across the board are not—and have never been—the fault of OPEC, unions or greedy corporations. Inflation is a monetary phenomenon that lies primarily at the door of the Fed. Fractional reserve banking deserves its share of the blame for inflation, but fractional reserve banking is exacerbated by the very existence of the Fed.
First elected to Congress in 1976, Ron Paul became a thorn in the side of the Fed, annually introducing a bill to dismantle the Fed. In no year could the Congressman find even one cosponsor to his bill. The Fed is held with such esteem by members of Congress that no one will stand alongside Dr. Paul on this issue. He was a voice crying in the wilderness, and I don’t doubt but that many members of Congress ridiculed him for his position on the Fed. Now, Ron Paul may be David, about to slay Goliath.
When the Fed created literally trillions of dollars to bailout large financial institutions and Ben Bernanke, Fed Head, had the audacity to tell Congress that he was not going to reveal who got the money much less how much they got, there was an uproar across the country. For perhaps the first time ever, the Fed was the focal point of public criticism, and Ron Paul called for a real audit of the Fed with HR 1207.
So intense have been the attacks on the Fed that for the first time it hired a lobbyist to defend its position on Capitol Hill.
Paul’s Audit the Fed bill has 55 cosponsors and passed out of the House Financial Services Committee by a vote of 43 – 26. The Senate companion bill, S 604, has 31 cosponsors. Suddenly, Congressmen and Senators climbed on board the Ron Paul wagon. Undoubtedly, cosponsors climbed aboard not because they suddenly saw the evils of the Fed but because they saw the handwriting on the wall.
For nearly a hundred years, the Fed pretty much successfully concealed that it was the beast that its critics had said it was. To this day, most Americans do not know that the Fed, with its loose money policies of the 1920s, was the cause of the Great Depression of the 1930s.
In the 1970s, when prices rose at double digits rates, only Austrian economists correctly saw the Fed as responsible. The media, which by then had become fairly much the Fed’s lapdogs, blamed the “oil shock.”
Other times, rising price levels were attributed to “cost-push inflation,” a spurious theory that blamed businesses. When the CPI and GPI rose “only” 2%-3%, Americans were told “a little inflation is good.” Now, though, Ron Paul has told the truth.
The Fed is not a beneficent organization established for the good of mankind but exists solely for the benefit of big banking.
End the Fedis Ron Paul’s assessment of an institution whose machinations he has sought to expose since before becoming a member of Congress. He relates how he came to realize the immorality of the Fed and the inflation it creates. And, he tells of his conversations with Fed Heads Greenspan and Bernanke when they appeared before House committees.
Paul pulls no punches. He lays the blame for the financial crisis of 2008 and the housing crisis squarely at the feet of Alan Greenspan. “History will show that Greenspan, during his years as Fed chairman (1987-2006), planted all the seeds of the financial calamity that erupted in 2007 and 2008.”
Further, Paul declares Obama’s “solution” to the problem not a solution at all. “. . . the inflation and debt accumulation of the Obama years will not inflate our way out of it. This depression will likely last and last. (Note that Paul calls our present economic woes a depression, not a recession.) If the depression lasts a decade or more, its length cannot be blamed solely on Greenspan. That blame will be placed on the current Federal Reserve Board, Congress, the President, the Treasury, but above all on Keynesian economic policy, the same philosophy that gave us the Great Depression of the 1930s.”
Many persons familiar with Ron Paul’s assessments of our problems are quick to point out that he is a doctor, “not an economist.” To that, I would remind them that Ron Paul has studied economics his entire adult life. Further, he has hobnobbed with some of the foremost economic thinkers of the Austrian economic school, such greats as Murray Rothbard, Hans Sennholz, F. A. Hayek and the master himself, Ludwig von Mises.
Additionally, Ron Paul has authored at least ten books on economics and political thinking. The Revolution, a Manifesto, like End the Fed, became a New York Times bestseller. With Lewis Lehrman, Paul coauthored The Case for Gold, which was a minority report to the 1981 U.S. Gold Commission, a Ronald Reagan initiative to study the role that gold should play in our monetary system. (The commission was stacked with anti-gold members and the minority report was one of only two benefits to come from the commission’s work. The American Eagle bullion coin program was the other.)
Ron Paul’s grasp of economics and understanding of the political process make him eminently qualified to write about economics and to make economic forecasts. Sadly, Paul is not optimistic about the immediate outlook for our economy.
End the Fed is only 210 pages, divided into fifteen chapters. Although Paul’s explanation why this depression likely will “last and last” is scary, his Chapter 4, Central Banks and War, is a shocker. Simply put, central banks facilitate war and give politicians fewer reasons to seek political solutions to differences with other nations. “It is no coincidence that the century of total war coincided with the century of central banking.” Before the days of central banks (European as well as our Fed), wars resulted in higher taxes and shortages as resources were diverted from the domestic economy to the war effort.
When politicians have to tell the people that the wars they are about to embark upon will raise taxes and create shortages, political solutions become viable alternatives. When the costs of the wars can be hidden through the creation of new money via central banks, political solutions are less likely. Sadly, many investment banking houses actually agitate for war as they stand to make billions of dollars issuing and trading in the bonds and securities that are sold as a nation gears for war.
Ron Paul’s End the Fed is must reading for anyone seeking to survive today’s financial turmoil. Understanding the problem is the first step toward solving it.