End the Fed
By: Ron Paul
Index
Quotes
Chapter Seven: Conversations with Bernanke
We have a savings rate which is negative. If we had true capitalism, this would be very, very serious we’d have no savings and no capital to invest…We can create credit and money out of thin air and it acts as capital by stealing value from the existing currency. Page 101
They don’t say inflate the currency, they don’t say debase the currency, they don’t say devalue the currency, they don’t say cheat the people. They say lower the interest rates. . Page 104
[Politicians] first create the problems and then they are delighted with all the activity in expanding government and solving the very problem they created. Page 110
In his role as House Member, Ron Paul questioned Ben Bernanke several times. He used these occasions to challenge Mr. Bernanke on the concepts of sound monetary policy. He challenged Bernanke on the idea that growth is the cause of inflation, that inflation is good, that inflation is confiscation, on the decrease in real wages, the wisdom of a weak dollar and the idea of moving away from the fiat dollar. Bernanke’s answers are decent, but also evasive.
Bernanke’s ascertains that the economy is sound only months before the financial collapse shows the failings at the Fed. The problem if an expanding money supply is ignored when the country is in good times, and the solution to bad times is to continue expanding the money supply. The only way to avoid this cycle of boom and bust is to take the power to create money out of thin air away from the government.
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This was a good chapter, but a bit of a copy of previous chapters. Essentially, Ron Paul is making the same argument he made in the first several chapters to Ben Bernanke and writing down the answers. So it was a good chapter, and I suppose it has value in the sense that we know that Bernanke was told these things and dismissed them.
Frankly, Bernanke doesn’t come across as bad as perhaps Ron Paul had intended. His answers are pretty good really, except that they disagree with Ron Paul of course. As Bernanke pointed out, the reason the Fed was created was because of the financial panics in 1903 and 1914, which are excellent points.
As I read his book I find myself agreeing with a lot of his points, but keep coming back to a key question, do we really want the money supplied left completely on its own? The Federal insurance on deposits has worked wonderfully to protect people from bank runs and panics. Does Ron Paul make a good case that the Fed has too much power and interferes too much? Yeah. But Bernanke hit the point on the head, the cycle of boom and bust existed before the Fed.
Quotes Chapter Eight: Congress’s Interest in Monetary Policy“…in all seriousness, a member asked me in private whether the dollar was “backed” by gold, having up until then assumed that it was.” Page 114
“This ignorance is what allows conservative and librals alike to spend, borrow, tax, and inflate to finance their various programs, both foreign and domestic.” Page 115
“Authoritarianism, supporting statism on moral grounds for whatever reason, is the real threat.” Page 121
Congress’s Interest in monetary policy can be explained as non-existent. Congress doesn’t know what the Fed does, how it does or why it does it. Without a proper understanding of the Fed or Monetary policy, Congress can’t perform proper oversight. What the Fed does, is provide enough money for the politicians to have both their guns and butter. There is no need for fiscal constraint when you can print money,
The Fed has also been used for undue political benefit. The interest rates tend to drop before elections and nominations, where as economic slumps between elections are fought less fiercely. Allowing an institution to play with our nation’s money supply for base political motives hurts all of us.
Some accuse Congress and the Fed of constituting a conspiracy to control the money, that assigns more intent than is really there. There isn’t any secret conspiracy working to hurt the economy for imagined political gains. Rather, the system is broken and flawed, and Congress is an incapable bastion of oversight. Even if Congressmen understood monetary policy, the system is inherently flawed in that it attempts to control the free market, something more powerful than any of us.
More Information Review / CritiqueThe Fed (wiki)
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Why the Flat Tax would be better (post. Slightly off topic, but it’s about how congress uses taxes for political gain and how that is bad for America.)
Congress’s Interest in monetary policy can be explained as non-existent. Congress doesn’t know what the Fed does, how it does or why it does it. Without a proper understanding of the Fed or Monetary policy, Congress can’t perform proper oversight. What the Fed does, is provide enough money for the politicians to have both their guns and butter. There is no need for fiscal constraint when you can print money,
The Fed has also been used for undue political benefit. The interest rates tend to drop before elections and nominations, where as economic slumps between elections are fought less fiercely. Allowing an institution to play with our nation’s money supply for base political motives hurts all of us.
Some accuse Congress and the Fed of constituting a conspiracy to control the money, that assigns more intent than is really there. There isn’t any secret conspiracy working to hurt the economy for imagined political gains. Rather, the system is broken and flawed, and Congress is an incapable bastion of oversight. Even if Congressmen understood monetary policy, the system is inherently flawed in that it attempts to control the free market, something more powerful than any of us.
Quotes Chapter Nine: The Current Mess“Artificially low interest rates are achieved by inflating the money supply, and they penalize the thrifty and cheat those who save.” – Page 133
“With the collapse of the imbalances created by the dream of easy wealth, the poor, deceived into believing politicians could deliver the moon, are now unemployed and without a home.” Page 137
“[The stimulus] will only stimulate sectors of the economy that are failing. This is like trying to rid the world of gravity by throwing things up in the air. It addresses the symptoms, not causes.” Page 139
The seeds of the current mess were laid by Greenspan after 9/11. There was a national desire not to let the terrorists win by hurting out economy. He dropped the interest rate from 6.5% down to 1% and held it there for a full year. This delivered the desired result, it gave the appearance of a strong economy. It created wealth, but that wealth was, in the words of Barack Obama, illusory. When the interest rates returned to 5.5%, the bubble popped and the housing and financial markets collapsed.
A slew of governments agencies and departments are involved in intervening in the natural workings of the free market. These agencies though are the cause of the problem are not the cure. They work together to take risk out of the system. Any system that allows for profit without risk through creates a moral hazard, a risk that is born by ‘someone else‘. That leads to risky economic decisions that leads to eventual economic disaster.
After intervening in the housing market with a 1% interest rate, and experiencing the result, we are now intervening in propping up the financial markets and car industry, with the government now responsible for hiring and firing CEO’s. As bad a job as the government did picking winners in 2001, we’re likely to do equally bad picking winners with the stimulus bill. The only result will be more fake money creating more illusory wealth.
More Information Review / CritiqueAlan Greenspan (wiki)
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48% of Houses underwater (Post)
Paul Krugman: Why markets can’t cure healthcare (Post)
More about the aftermath of 9/11 The Great Story Ever Sold (book)
This was perhaps the most relevant chapter so far. He’s beginning to bring all of his previous arguments together and demonstrating how previous actions lead to the current crisis, and how current actions are setting us up for the next one.
His explanation of how 9/11 shaped our money policy isn’t surprising, but it does put a new light on those decisions. He makes a point of not attaching any kind of partisan or untoward intentions. America had been hit hard, and those in power didn’t want to let the terrorists hurt us further by inflicting us with a bad recession, so they fought that recession as hard as they could. As Ron Paul says, Greenspan tried to shoot the terrorists in the head, instead he shot the economy in the foot. I think that story is perhaps the most important part of the book so far. We did this to ourselves. There were no ill intentions behind any of this, but out of a sense of fear that we’d look weak or suffer through a bad year, we fought to push off the inevitable and when we finally got the bill, the bill was the Great Recession. The current mess. Very good chapter.
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