Ron Paul's Misguided Views on the Federal Reserve bank

@Andrew - I may be wrong but the chart doesn't seem to correlate the Fed and inflation, but rather the gold standard and inflation. Once the country was taken off the gold standard, that's when inflation seems to have picked up significantly. I don't think we're aiming for zero inflation either since that can be just as harmful. Japan has had near zero inflation for almost two decades and I wouldn't want that economy.

Here's another great video: http://www.youtube.com/watch?v=AeHWW5gbc0w

He campaigns as a libertarian, but primarily as the only candidate arguing for the rule of law. Follow the law of the land, or change it, but don't ignore it.

Economists agree: the Federal Reserve caused the Great Depression.[1]

Productivity has skyrocketed but wages simply haven't kept up.[2] The inflating dollar adds insult to injury. The dollar is inflated while the minimum wage stagnates. Yet executive salaries, buoyed by the resulting stock price increases, grow, further reducing the economic mobility of the poor.[3]

As for who the benificiaries are, you either get to play the "how can we help the people game" or you don't. If you want to be socialist with the money supply and talk about how many have homes now, come back in a month when all the foreclosures have gone through.[4] The principled approach lets one see the symptom and the root cause simultaneously; I condemn the unstable currency, the resulting unwise speculation, and any bailouts equally.

Finally, with regard to secrecy: deliberations aside (although we disagree on the wisdom of keeping those secret) what about the fact that as they pushed dilution of the money supply to ridiculous extremes, they simply stopped publishing the M3?[5] Again Ron Paul was there to take issue with that.[6]

I saw that someone quoted Jefferson and you want to find a Hamilton quote in response. If you want to chide people on their libertarian cred, I'd be wary of that, since Hamliton got a lot of play out of "implied powers" when others wanted to follow the law.[7] Hamilton was an elitist[8] and a strong Federalist (although he took it for granted the states would always have an advantage versus the national government[9]; little did he know). But Hamilton did demand a commodity standard[10], repayment of debts[11], and tried hard to keep the bank from printing money beyond its capitalization[12].


References:

1. B. S. Bernanke, "On Milton Friedman's Ninetieth Birthday", presented at the Conference to Honor Milton Friedman, University of Chicago, Chicago, Illinois, 8 November 2002. [Online]. Available: http://www.federalreserve.gov/boarddocs/speeches/2002/20021108/default.htm. [Accessed: 28 September 2007].

2. S. Greenhouse and D. Leonhardt, "Real Wages Fail to Match a Rise in Productivity", The New York Times, 28 August 2006. [Online]. Available: http://www.nytimes.com/2006/08/28/business/28wages.html. [Accessed: 28 September 2007].

3. L. Mishel, "CEO pay-to-minimum wage ratio soars", Economic Policy Institute, 27 June 2006. [Online]. Available: http://www.epi.org/content.cfm/webfeatures_snapshots_20060627. [Accessed: 28 September 2007].

4. Default Research Inc., "California Foreclosures Increase 300 Percent in August 2007", PR.com, 27 September 2007. [Online]. Available: http://www.pr.com/press-release/53905. [Accessed: 28 September 2007].

5. NowAndFutures.com, "Some key statistics as prediction aids". [Online]. Available: http://www.nowandfutures.com/key_stats.html. [Accessed: 28 September 2007].

6. "jp", "One Congressman's Fight to Save M3", The Capital Spectator, 10 March 2006. [Online]. Available: http://www.capitalspectator.com/archives/2006/03/one_congressman.html. [Accessed: 28 September 2007].

7. American Experience, "The Battle Over the Establishment of a National Bank", PBS. [Online]. Available: http://www.pbs.org/wgbh/amex/hamilton/sfeature/scenes_02_trans.html. [Accessed: 28 September 2007].

8. A. Hamilton, remarks at the Constitutional Convention concerning the United States Senate, 18 June 1787. [Online]. Available: http://quotes.liberty-tree.ca/quote/alexander_hamilton_quote_7233. [Accessed: 28 September 2007].

9. "Loud Mime", "Founder's Quote - (Alexander Hamilton's Big 'OOPS')", Free Republic, 24 September 2007. [Online]. Available: http://www.freerepublic.com/focus/f-news/1901293/posts. [Accessed: 28 September 2007].

10. A. Hamilton, "Report of the Secretary of the Treasury on the Subject of a Mint", Congress of the United States. [Online]. Available: http://www.coinfacts.com/mint_history/mint_history_1781_1791/alexander_hamilton_report_1791_page1.htm. [Accessed: 28 September 2007].

11. Ron Chernow, "Alexander Hamilton": The Penguin Press, April 2004. Excerpted by BusinessWeek, "Alexander Hamilton, Economic Prophet", 3 May 2004. [Online]. Available: http://www.businessweek.com/magazine/content/04_18/b3881113.htm. [Accessed: 28 September 2007].

12. Wikipedia contributors, "First Bank of the United States", Wikipedia, 27 September 2007 01:52 UTC. [Online]. http://en.wikipedia.org/w/index.php?title=First_Bank_of_the_United_States&oldid=160605605. [Accessed: 28 September 2007].

Why are they hiding M3?

The Fed has much less power than you think. They can influence short term rates but longer term rates are controlled by the purchase and sale of T-bonds, which the Fed can't control. Global markets, foreign countries (China) are increasingly what drive capital flows and interest rates. Don't believe it? The Fed cut interest rates last week by 50 basis points and the rates on 30 year mortgages have actually gone up. Sure, we could get rid of it, but the Fed does a bit more than just raise an interest rate here or there. It can serve as a lender of last resort to banks and has at times stepped in to stop potential global meltdowns (remember the Mexican economic crisis, LTC, and the Asian currency crisis). It's worth talking about additional oversight but that's like saying we should all know GEs earnings before they report it to the market. Financial information often requires discretion and can't be revealed prematurely without unduly influencing the markets.

"We would so be better off without the Fed and a hard currency."

This was already done. It's called the gold standard and it was a disaster. It led to chronic unemployment and regular boom and bust cycles. What's the unemployment rate now? The present Fed system really didn't come into play until after WWII and the Depression with the creation of the IMF.

Since that time, the global economy has boomed, living standards have soared, and Americans are richer and better off than they have ever been.

Abolishing the Fed is a draconian step that ignores the data and the indisputable fact that as a society we have done better with the Fed than without it.

Here's some info about the failures of the gold standard from the University of Iowa Center for International Finance and Development - not Wikipedia.

http://www.uiowa.edu/ifdebook/faq/faq_docs/gold_standard.shtml

Amanda P., that's why Alexander Hamilton in [10] above advocated a bimetallic standard. Have you read him? Ron Paul doesn't advocate a gold stardard; he does advocate a gold and silver standard because that's what's allowed according to his reading of the Constitution. However if you actually watch his interviews and debates, he has advocated that we look into commodity baskets and other such instruments.

"Indisputable" is a strong word. Economists agree: the Federal Reserve caused the Great Depression. You may argue as Bernanke does that they have learned since then, but you still have someone trying to be clever and manually run something they don't completely understand.

Many argue credibly that the policies of the Federal Reserve and the U.S. government are leading inevitably toward a huge crash. The response of the Federal Reserve was to simply stop publishing data key to that concern. Not behavior that engenders trust, in my view.

vsync - Indisputable is a strong word and perhaps not the best choice in a discussion such as this. The argument against a metallic choice as far as I can understand is that using it to level balance of payments is a pretty blunt instrument that often lags market forces. This is what led to chronic high unemployment and boom and bust cycles in the past.

Yes, the Fed may have been one cause of the Great Depression but what about the depressions that have been avoided by the Fed. What would the last 80 years have looked like? Surely you can't imagine it as more prosperous?

What evidence is there that the Fed is setting us up for another big bust? I remember my grandfather always saying things were bad and another depression was just around the corner. That was 30 years ago and he died during one of the biggest bull markets in history.

Amanda P., I'm arguing with facts and analysis, providing citations; you respond with charming anecdotes and emotions. It's not worth my time to continue this discussion. Best wishes.

vsync - You state:

"Many argue credibly that the policies of the Federal Reserve and the U.S. government are leading inevitably toward a huge crash."

I looked through your citations and don't see a single one that backs up this point of view. The views of Alexander Hamilton are interesting but hardly relevant. Nor does the disparity in CEO to average worker pay make the case or the lag in worker pay to productivity gains. These may be distributive issues but they are not proof of an impending collapse engineered by the Fed.

My anecdotes are also conventionally accepted knowledge. As Archie above states the Fed did prevent the collapse of the Mexican economy, it did help bail out LTC, and it did help end the Asian financial crisis. I can point you to a hundred sources that would confirm this.

If you are going to accuse the Fed of working to engineer a massive depression than the proof is on you Buddy to proove it. And you haven't done so. So please, skip the lecture on facts versus emotions.

Best,
Amanda

I just spent 40 minutes watching part of the that video Paul. I have to admit, I don't really agree with its central thesis: central banks and money changers are responsible for all of the world's ills. Let's take a couple of its contentions:

The Federal Reserve is a totally private bank not beholden to the US government. This is the central thesis of the entire video and it is false. The Federal Reserve is a part Federal, part private bank. The Board of Governors of the Federal Reserve, which runs and oversees the Fed's activities, is an independent federal government agency. The Board is required to report to Congress and members can be removed for probably cause. In addition, the Chairman of the Board must be nominated by the President and confirmed by the Senate. The Banks themselves also have featured of both Federal and private institutions. The video selectively mentions that in the case of Lewis versus the United States, the United States Court of Appeals for the Ninth Circuit stated that "the Reserve Banks are not federal instrumentalities for purposes of the FTCA [the Federal Tort Claims Act, but are independent, privately owned and locally controlled corporations." But what the video neglected to mention is that the opinion also stated that "the Reserve Banks have properly been held to be federal instrumentalities for some purposes."

So, once this basic fact had been distorted by the video I had a hard time digesting the rest of it. A lot of the video seemed like propaganda that purposely mis-stated or omitted facts for the purpose of proving a point.