Ron Paul (R-Texas)Ron Paul (R-Texas) is going to have a great time making the Federal Reserve miserable once he takes over as chair of the House subcommittee that overseas it. He has a better microphone than most Fed critics, and he'll use it to broadcast his anti-Fed bunk.

Without further delay, here are seven of Paul's views about the Fed, courtesy of the The New York Times, and why I think he's wrong:

  • The U.S. should return to the gold standard. Paul believes fervently that the only time we had "sound money" is when paper was backed with gold. I'm not sure what he means by "sound money," but the U.S. economy has been leading the world in the nearly 40 years since the U.S. went off the gold standard under Richard Nixon in 1971. I'd love to hear his explanation of how the U.S. has prospered for many decades with unsound money.
  • Bernanke sets the price of money around the world by printing worthless paper. The price of money is interest rates, and Paul argues that the Fed sets interest rates for the world. If that were true, then why are there such enormous gaps among the interest rates in the leading countries. For example, the rate on two-year government bonds in Greece is 11%, while it sits at a minuscule 0.64% in the U.S. Why does Paul think the Fed is setting Greece's interest rate or the rate for any other country?
  • The Fed is producing unsupervised inflation. Paul insists that the Fed's ability to create money leads to inflation. And he's exactly right that the Fed has created money -- witness the latest $600 billion program of quantative easing. One little problem with Paul's theory is that inflation is nonexistent these days. In fact, at 0.2%, U.S. inflation in October was at the lowest level in 53 years. Besides, the Fed has a 2% inflation target, and if it starts to get close to that level, it'll raise rates and buy back some of that money it created.
  • Paul Volcker has been the best Fed chairman since the late 1970s. Paul thinks Volcker is smarter and more personable than Alan Greenspan and Ben Bernanke. Having never met any of them I can only say that they all seem pretty smart to me. I have no way of knowing who's more personable or why that really matters to how well the Fed does its job.
  • Low interest rates steal from savers. Paul thinks that "manipulating" interest rates is immoral and economically destructive. He'd rather that the price of money be based on how much gold can be mined and stored in big underground bunkers. I suppose that would make sense if gold was actually used in the real economy. Otherwise, due to the limited supply, setting rates based on gold would likely cause an enormous upward spike in interest rates and slam the brakes on the economic recovery. Why is using gold to manipulate interest rates any more moral than the way the Fed does it now? And if savers don't like the low rates they're getting, they're free to invest elsewhere -- for example, the S&P 500 has risen at a 26.9% average annual rate since January 2009.
  • The Fed is a dictator in control of the economy. Paul believes that the Fed's bailouts of every major industry allow it to exert control over the entire economy. This is wrong in so many ways. First, the Fed has not taken over any industries -- a quick look at its balance sheet reveals that it has grown from around $800 billion to around $2.3 trillion by absorbing Wall Street's toxic waste. This makes the Fed more of a garbage-collector than a manipulator of the economy. Second, if the Fed controlled the economy, then it would force companies to hire the 15 million people who are out of work in order to ease Bernanke's concerns about high unemployment.
  • The U.S. is in an endless depression, thanks to Obama. I'm not sure how Paul defines depression, but the U.S. economy has been growing for the last six quarters. According to the National Bureau of Economic Research (NBER), which officially dates recessions, the one that began in December 2007 officially ended in June 2009. That was a recession but not a depression. How would Paul explain how the U.S. is in an endless depression if it hasn't even had one since the 1930s?
Paul is certainly entitled to his opinion about all these things. And I wouldn't mind being proven wrong with facts. In the meantime, it will be interesting to see whether Paul is now persuasive enough -- and powerful enough -- to change the Fed's role in the economy.

Increase your money and finance knowledge from home

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

Reading a Stock Quote

Learn to read the ingredients of a stock.

View Course »

Add a Comment

*0 / 3000 Character Maximum

74 Comments

Filter by:
Austrian

Unbelievable strawmen you have created.

September 04 2012 at 8:09 AM Report abuse rate up rate down Reply
derangeddragon99

Is Peter Cohen a "Liberal"? Somehow I do not believe that Mr. Cohen really knows what the economics of this country are; nor does he understand the difference between a "Fiat Dollar" and a "Gold-backed Dollar". I think he should study the difference a bit more before casting doubts against Ron Paul's Financial Playbook.

August 30 2012 at 9:59 PM Report abuse +1 rate up rate down Reply
Luis Augusto Fretes

People claiming that Ron Paul understand Monetary Policy are just proving they don't understand it themselves.

To start with, Ben Bernanke is a ******* libertarian, he just follows a true economist (and is a true economist), a guy named Milton Friedman, you don't who he is, nor I expect you to. Ron Paul follows F.A. Hayek, an unscientific "economist" against the use of math, statistics, or putting his theories to test.

Milton Friedman wrote a paper titled "The Great Contraction" in which he explained how The Great Depression was made such because how The Federal Reserve reacted in 1929. Has it reacted by increasing the money supply (instead of decreasing it), and lowering interest rates, it would had ended by 1931, he argues (he mathematically argues, not "out of ass" argues).

The Great Recession served to proved his point, since it ended in June 2009, instead of enduring many years, as it happen during The Great Depression when the US actually did what Ron Paul would like.

Ron Paul has been crying "hyper inflation" since years, but he has been wrong every time, interest rates didn't go up, there wasn't any kind of hyper inflation, nor there will. Moreover, the federal reserve doesn't add anything to debt, nor it can, I mean that literally, it is IMPOSSIBLE FOR THE FEDERAL RESERVE TO ADD DEBT. Ok? Got it? Even more importantly The Fed is profitable, all money The Fed spent came back, got it too?

Those are facts, I know Ron Paul's followers don't always like facts, I know that. You need to start eating facts, not blindly following a leader. Ron Paul, for all its virtues, and he has many, I even donated to his campaign because I like his libertarian views, doesn't know anything about economy, NOTHING. Nada. 0. He likes the Austrian School of Economics, which is an unscientific joke, it's only designed so people that don't know math, nor are interested on outlying actual theories, can claim to know about economy.

People claiming The Fed is Keynesian are just dumb people who don't know what Keynesian is, mostly, because they don't know Economics, because they don't know Math, and so they CAN'T ******* read the formulas and understand the theory. Ok?. The Fed is acted based Friedman's ideas, the most important libertarian economist to ever stepped on planet Earth.

April 22 2012 at 10:23 AM Report abuse rate up rate down Reply
Ryan LaFramboise

Wow you really don't understand Paul's positions. He is for competing currencies which would create sound money. You argument that it has worked for decades is nonsensical because the Fed's purpose was to work for decades because it creates unmanageable bubbles in the very long term and fake stability in the short term. Also, why is it that American families need 2 incomes to achieve the same level of prosperity they achieved previously with a single manufacturing income? Hmm Mr. COHAN I wonder? A private bank issuing the currency and creating deflation and inflation is really a safe monetary policy for a nation. Perhaps if you are a fan of the welfare state that cannot exist without this private bank manipulating the currency you would agree? Well maybe Paul's just crazy. Just listen to what he said:

""If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Oh excuse me, that was this other crazy guy from history, Thomas Jefferson. Idiot.

January 19 2012 at 10:52 PM Report abuse rate up rate down Reply
Capitan Frith II

MICHAEL MOORE: "There are no truly free markets. There is only monopoly. It oozes out of every dimension of society. From the two political parties, both of which belong to Wall Street, to the six corporations which control the mass media, to the few insurance conglomerates that conspire to kill 45,000 Americans and bankrupt a million others every year while they fatten their pockets, to the handful of oil corporations that dictate imperial policies, and ultimately to the dozen or so banks that control over 60% of the nation’s GDP.

There is no escaping. Nowhere to hide. No time to waste. The only thing to do is defy. Resist. That’s the real meaning of Occupy Wall Street."

November 05 2011 at 3:10 PM Report abuse rate up rate down Reply
Allison Bricker

Dear Mr. Peter Cohan,

You adherence to Keynesianism is fervrently evident in the misnomers you publish and attempt to use as absolutes.

The fact remains from 1795 until 1934 when the U.S. used SOUND MONEY, i.e. the type of money required by the Constitution, the U.S. dollar held steady at $20.00 per 1oz. of Gold.

Since that time an even MORESO since Nixon defaulted and foisted upon us an entirely fiat curreny the U.S. dollar has lost over 95% of its value, per the USBLS.

To put it another way:
In 1907, 1oz of Silver cost 0.55 cents, and purchased 9.2 Gallons of Gasoline.
In 2011, 1oz of Silver coasts ~$37.00, and purchases 9.2 Gallons of Gasoline.

Neither Gold, Silver, or Curde are "worth" more, the simple fact is the fiat debt instrument in your billfold, a dollar by name only is worth less.

This sir is inflation.

May 13 2011 at 4:51 PM Report abuse +1 rate up rate down Reply
clarzliberty

Author, wake up.

1. Yes, thinks look great, except you fail to see that the gold standard presented a guarantee and the fiat currentcy we currently have is back by trust in the government. Im not sure if you live with your head in the sand or you're just oblivious to politicians, but they generally work for their own financial interests and not that of the citizens of this nation. Our dollar's value has fallen since 1913 when the federal reserve act was signed by 93%. The removal of the gold standard crated the inflation bubble that is bursting as we speek. Currently nations are looking how they can jump off the dollar standard and move to a currentcy where politicians can't inflate it at will.


2. The federal reserve sets interest rates and prints the US dollar. This is the monitary policy that they will not even listen to criticism over. the Federal Reserve is unconstitutional by the way andBen Shalom Bernanke will not even answer questions during a congressional inquiry. What a rat.

3. YES IT IS. THEY WILL NOT DISCLOSE WHO GETS THE CASH, HOW MUCH IS PRINTED, AND WILL NOT SHOW THE BALANCE SHEET. Wake up, seriously. How much has your food, energy, and everything else increased in your lifetime? THIS IS INFLATION, SON! You're sounding like a paid for shill already. Maybe you are in the wrong line of work.

4. Volker should be in prison. He was key in the derivatives, deregulaion of the financial sector, and he was the main voice behind removing the Glass-Steagal act. Volker is the definition of "Financial Terrorist". How many on Main St. have lost their wealth as a result of Volker's post 1995 actions? I bet just about everyone you know lost some.

5. Perhaps Silver would be a better alternative than gold becuase of it's supply and affordability for average people. Look back to when the US was on the SILVER standard and then moved to the gold standard. Read on how much this negatively efected the average people.

6. The Chair of the Federal Reserve has more power than the pope. HE is the man that the government begs for cash, he is the man behind the scenes that can break a president. "Give me the power to create a nation's money and I care not who makes the laws." M. Rothschild (English branch).

7. Yup. We dont make much, we have unsustainable debt payment amounts, we will never pay off the principle. The slowing of our economy is compounded by people shopping for cheap imported commodities becuase American made goods are just too expensive these days. Example: would you want to pay $5,000 for an american made rifle or $200 for a Chinese made rifle? You might have to save up for the American model, but you can easily afford the junk from china. This is parallelled across all goods and commodities.

Thank you for writing this article. Your limited view and pundit position has given me a reason to NEVER again visit this website.

-C.Larz

May 13 2011 at 4:39 PM Report abuse +2 rate up rate down Reply
Bill Evelyn

1. The US economy has been inflating the worlds economy's over the past 40 years. They've used printed money to pay for all the things they can't do by taxation. Yet, it is taxation as the world inflates. In 1907 an ounce of silver cost $.55 cents and bought 9.72 gallons of gasoline. In 2011 an ounce of silver cost $37 and it buys 9.72 gallons of gas.

2. Yes it is artificially influencing interest rates, which causes malinvestment.

3. Yes it is producing inflation.

I can't go on ... the author is so economically immature, I'm not sure why the NY Times allows him to write.

May 13 2011 at 4:27 PM Report abuse +1 rate up rate down Reply
death

Who gave this retard a keyboard? I've seen some reasonable arguments (which are still false), but you're flat out lying and don't even understand how money works. Get an education and come back.

May 13 2011 at 4:16 PM Report abuse +2 rate up rate down Reply
Mr Whipple

"Life with the Fed: Sunshine and Lollipops?"

http://mises.org/daily/5174/Life-with-the-Fed-Sunshine-and-Lollipops

May 13 2011 at 3:58 PM Report abuse +1 rate up rate down Reply