Ron Paul and the Fed

Armstrong Willams | 3/29/2012, 1:36 p.m.
Ron Paul wants to abolish the Federal Reserve. He may be right, as it's hard...
At Thanksgiving, embracing the winds of change and increasing our faith

Ron Paul wants to abolish the Federal Reserve. He may be right, as it's hard to see how the Fed has enhanced the U.S. economy.

Since 1971, when President Richard Nixon ended the gold standard, the dollar has been more volatile than in any time period before, not only in immediate, day-to-day volatility, but also over the long run. People often marvel that a loaf of bread used to cost a dime, but they never ask why so much inflation has occurred over these past few decades.

There are several reasons, but the biggest of these is undoubtedly the Fed. By devaluing the dollar, like China is doing to the yuan, the Fed and its technocrats try to encourage our exports, but as we know, the market will not permit distortions and will punish them: This is bad policy.

Quantitative easing, author Lewis Lehrman says, is just "a euphemism for money printing or credit creation." These excess dollars go abroad as reserves and are then invested in U.S. securities to finance the deficit, so we receive back what we give out: We buy without paying. If economic growth were this easy, why stop printing money?

The Fed creates demand for goods and assets without increasing supply. This is a recipe for crippling inflation; it is an insult to hard-working Americans who want to pass down their wealth to their children and not see it turn to worthless paper.

Thus has the Fed not only fed our consumer culture by financing the national debt and discouraging savings by weakening the dollar, it has also masked the problem of vanishing American exports, making the situation look better than it really is. How ironic that this veneer of health is actually helping foreign imports!

One of the many causes of the Great Recession, from which we are now still struggling to escape, is the seemingly endless Federal Reserve subsidies--that's what they are--given to the world banking system.

Not only did the Fed help cause the recession, but it has slowed the recovery. By keeping interest rates low, the Fed has hurt savers and pension funds when our nation needs, above all, more savings. Who wants to save $1,000 annually only to receive 25 basis points or $25 a year from their bank? There is a certain irony that the financial recession was caused by overextended lending in the real estate sector and the Fed's solution is to reduce interest rates in that sector of the market. Does the Fed truly want to encourage Americans to borrow more money to invest in real estate? Our money supply has increased about three times--is this not an inflation nightmare waiting to happen?

Paul deserves credit--if you'll pardon the pun--for raising the question of monetary policy among the general electorate. We must examine the wisdom of its independence from congressional oversight. A more moderate view--one we should all be able to agree on--is that the Federal Reserve must be subject to a public audit of its activities. Surely no one on either side of the aisle thinks it wise to put so much power in the hands of so few without any checks or balances.