“It’s the economy, stupid.”
The economy. It’s everyone’s favorite topic these days (with the occasional mention of such peripheral things as the overseas wars, the royal wedding, Steve Jobs, and oil spills). It’s one of my favorite topics – I expressed some of my musings on the foundation of all economies in a previous post.
There is, however, an element of the U.S. economy – perhaps the most critical – that is given far too little attention. This element has the power to print money on a whim, adjust interest rates to above or below the free market value, and bail out a myriad of entities – all of these actions are done without audits, and with minimal reporting/accountability requirements to the government or the people. This element’s actions affect the value of the dollar more than almost anything else ever has. Some would argue that this element holds the power to wreck the entire U.S. economy. This element is the Federal Reserve.
Ron Paul – a congressman, statesman, and economist, who has studied economic theory and policy for decades – has written a book that presents his solution for the problems posed by the Federal Reserve – it’s called End The Fed.
I have begun reading this book, and – just as I expected – it is phenomenal. Not only do the contents contain an enjoyable-to-read education about U.S. (and world) history and economics, Congressman Paul presents a case for auditing and ultimately putting an end to the Fed, and returning to a dollar backed by gold.
To some, this may sound crazy; to others, it sounds boring; to others, it is nothing short of brilliant. If you are one of the first two groups, I hope you will either buy his book and give it a chance, or keep reading this blog. For I intend to summarize the book – chapter by chapter – for those who (like me) find little time for reading random books suggested by friends or acquaintances.
I’ll try to make the summaries concise and easy to read, while still dealing with the pertinent information in each chapter. I hope you stick with me – I think it will be quite a revelatory experience!
Note: any text in italics is a verbatim quote from the book.
Without further ado…
END THE FED
by: Ron Paul
Dedication: To the young people who powered my presidential campaign and who are at the heart of the anti-Fed movement. In your hands is the hope of a free and prosperous society.
Chapter 1: Why You Should Care
If you read about the Federal Reserve, most sources will tell you that the Fed serves to stabilize the business cycle, control inflation, maintain a solvent banking system, regulate the financial system, and more. I disagree on each point. After all is said and done, the Fed has one power that is unique to it alone: it enables the creation of money out of thin air.
To understand money, one absolutely must understand what a central bank is all about. In the United States, the central bank is the Federal Reserve, the instrument by which our money and credit are constantly manipulated for the benefit of the privileged class.
Though the idea of ending the Fed seems radical and, perhaps, “out of the blue,” it is an idea that would be cheered by Thomas Jefferson, a dedicated opponent of the Fed’s predecessor, the Bank of the United States, and by Thomas Pain, who saw paper money as the enemy of individual liberty on grounds that it always gives rise to despotism.
Paul quotes Thomas Paine – the author of the pamphlet we all learned about in grade school – as saying, “As to the assumed authority of any assembly in making paper money, or paper of any kind, a legal tender, or in other language, a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom – and property no security – where this practice can be acted.”
Ending the Fed would end the depreciation of the dollar. Ever wonder why a movie ticket used to cost a quarter, or why a candy bar cost a nickel? I don’t remember those days, but I do remember when you could buy a 20-oz bottled soda from a vending machine with only a single dollar bill (and even get change back!). I was always taught that this was just “natural inflation,” which was the result of greedy businessmen edging up their prices to try to make a little more money. So the grocery store raises their prices a little, then the restaurants raise their prices a little, then all the people who eat (that’s everybody) raise the prices at their businesses, and it starts all over again.
Dollar depreciation (inflation) comes largely from the explosive growth of the monetary base – in other words, the Federal Reserve prints more dollar bills and puts them into circulation, but those dollars don’t represent NEW productivity. If productivity hasn’t increased (so the economy hasn’t grown), and more money is added to the circulating money supply, then the money already in circulation loses some of its value.
If you want to see the classic example of this, click here. Germany between WWI and WWII printed so much money (to pay all the reparations placed on them by the Treaty of Versailles) that the German mark became essentially worthless. The economic instability that resulted was one of the major impetuses for the rise (and national embrace) of Adolf Hitler.
The fact that the Fed can create trillions of dollars and distribute them to its cronies without congressional oversight should shock us all. In 2008-2009, the Fed created trillions of dollars (via the printing press and through electronic money [simply adding a zero to electronic account balances]) and refused to explain its actions.
Congressman Paul ends the chapter by quoting (and then briefly unpacking the quote) the current chairman of the Fed – Ben Bernanke. Here’s what Bernanke said on November 21, 2002: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”
What an incredible thing to say. It looks like magic! – which is exactly what Ron Paul (who is now the chairman of the Financial Services Subcommittee on Domestic Monetary Policy and Technology) said to Bernanke when given the opportunity to question him about the money the Fed was going to print in order to give more money to the International Monetary Fund in order to bail out Greece and any other European country. You can watch a video of that conversation below (especially from 5:42 to the end).
In closing, Congressman Paul rightly asserts that freedom itself is at stake in this struggle.