This month is the 100th anniversary of the Federal Reserve System, so of course I spoke with Ron Paul in my latest weekly podcast about the Fed’s performance so far and its future.
Below is a comprehensive recap of this interesting conversation on a timely topic.
Goyette: One hundred years of Federal Reserve calamity. Surely, Dr. Paul, it’s long past time to put the Fed out of our misery.
Paul: It’s easy to say they’ve been a failure, but from their viewpoint, there’s been no failure. They say it’s been a complete success. I compare this to a bank robbery — you know, getting in, robbing a bank and getting away, and nobody caught him. He says “Hey, I didn’t hurt anybody, didn’t shoot anybody. It’s a great success.” So that’s about the way I see the so-called success of the Federal Reserve. I think it’s been a total failure when it comes to taking care of the people and providing for a sound economy.
“But when you think about it, it’s more than just the economy that it affects. It affects our liberties, because once a government can spend endlessly and always have a borrower of last resort — that is, they can always borrow from the Fed and the Fed creates money out of thin air — it’s going to be an encouragement for big government to grow. And when governments grow, no matter what the argument is, liberty is diminished. And we’ve been doing that systematically for over 100 years. And although there are other issues, like income tax coming in at that particular time, these last 100 years have not been good for protection of liberty, and we can place the blame at the doorstep of the Federal Reserve.
“In many ways, what the Fed is doing is taxing. It’s an inflation tax. It’s even more sinister (than income tax), because they don’t have to come to your door with the IRS and threaten you with imprisonment for not paying your income tax. What they do is, if you have money in your shoebox or in your bank and you systematically get less back, (less of) your purchasing power back, it’s really a tax. So it’s a taxation system. It’s a threat to our liberties. It encourages governments to do bad things and politicians to do bad things. For instance, how many wars are fought without inflation? … So the Fed facilitates war mongering. We don’t pay any attention to declaring war anymore, so presidents by executive order go to war, and the Fed prints the money to keep the war going.
“And guess what? It’s very successful. Wars continue and there’s a lot of profiteering going on, and the arms manufacturers do quite well. But this is a system that we’ve put up with for 100 years, but if you look carefully at history, it doesn’t last forever. Although it has been systematically undermining the currency, it’s actually only gotten worse since 1971, when there was no link whatsoever to gold. But fiat money, artificial money, always ends — usually ends — badly. And yet the real price we’re going to pay right now for allowing the central bank to come into existence and pretending it is a road to wealth and prosperity is going to be very painful because yes, in the early years of the destruction of a currency you can have bits of productivity going up, you have the boom part of the cycle and people feel good about it, but you always have the downturns and the collapsing of the finance bubbles.
“And most of the time, just with more inflation and more spending, you can recover, until you get to nearly the end stages of the currency. I think that’s where we are today. This last downturn five years ago, we’re still in the middle of it, and the unemployment problems still exist, the inflation of prices of general services and commodities prices has yet to come. So we’re in the middle and witnessing something that’s rather dramatic. And I think we should, all who are concerned about this issue, take this opportunity of this 100th anniversary to talk a lot more about the Federal Reserve.
Goyette: Not so many years ago, not so many people even knew what it (the Fed) was. They certainly do in large numbers know today. What is your take on where we are in the process of awakening the people and doing something that lasts about the Federal Reserve?
Paul: That’s where I think we can look with a bit of optimism. Five years ago, before the crisis hit, there was not much talk about it. But I can recall going to Congress in the 1970s and working with some liberal Democrats. … There’s always been a few of us, but it wasn’t until five years ago that we got the attention because finally people started to realize that maybe the Fed does have something to do with it. But instead of explaining all these issues and saying “tomorrow we have to get rid of the Fed,” we approached this by asking for transparency. Everybody should be for transparency.
“And then they finally found out that there were a lot of shenanigans going on in the bailout — trillions of dollars being handed out to bankers and overseas governments and corporations around the word. So the American people started to wake up, and because of that they sent a message to their congressmen and twice we were able to get that bill to audit the Fed to the House floor. And both times it passed overwhelmingly with bipartisan support. … And I think we made great strides, but we have a long way to go, and I’m anticipating that the crisis will get a lot worse. It’s not going to be easily solved. So we have to be vigilant, be prepared to have an alternative to the current system that we have today.
Goyette: In the past five years, the Federal Reserve has grown its monetary base from roughly $800 billion or so to now knocking on the door of $4 trillion. But this has gone global in a way that is barely comprehensible. The big eight central banks of the world have gone from about $6 trillion in their monetary bases at the time of the mortgage meltdown to now $17 trillion. This is global in scale and it’s absolutely unprecedented in history.
Paul: That is correct and that is why it’s so important, because it used to be that countries would inflate and each country had an individual currency — and there are some disadvantages to that, especially if they are printing at different rates. This is different. It’s not that it is an automatic that an international currency is bad, but it has to be a non-fiat currency. It has to be a natural currency that people accept, like a gold standard. And under those conditions, you can have international finances that will be facilitated with something like that. But today it’s so different. It’s a fiat, dollar-reserve standard.
“The world is getting very upset with us because our deficits are exploding. And we expect them, foreign countries, to keep buying our debt. The Chinese are getting very nervous about this, and they have about $1.3 trillion of our debt. So they have an investment in what’s going on. … I think they’re going to work their way out of dollars, but they’re investing in oil production and natural resources around the world. But they’re not investing in invading other countries.
“So we have embarked on the wrong course since we’ve had this Federal Reserve and this system of money, and now the world is in a mess of a global bubble. So even if the Chinese might be managing their affairs better than we have — and they are a creditor nation, not a debtor nation — I think the crisis will engulf everybody. Because how do you, if people leave the dollar, how can China not be hurt by this? And the panic to get out of the dollar — nobody ever knows exactly when that would come.
“So the dollar has lost 96, 97 percent of its value in these last hundred years, but it could go to a lot lower level rather rapidly, and that’s where we’ll have to face up to the truth and decide what kind of system is going to replace what we have today.”
For your Freedom and Prosperity,