Paul was on a panel of speakers, including Gilbert Schwartz, former associate general counsel to the Federal Reserve, to discuss a new bill that will audit the Fed for the first time in its history. This comes at a time when the Fed’s balance sheet has almost tripled, from just over $800 billion before the financial crisis to almost $2.3 trillion now.
“We will only win when the people wake up and realize that transparency is what we need,” said Paul. “When we know exactly what’s happening, there will be monetary reform.”
Listen to Ron Paul’s speech below:Download the speech as an MP3 file here.
Listen to the entire event:Download the event as an MP3 file here.
Transcript of Ron Paul’s speech:
Caleb Brown: This is a Cato special podcast. I’m Caleb Brown. Republican congressman and two-time presidential candidate Ron Paul wants to audit the Federal Reserve, arguing that Americans need to know more about the Central Bank, especially given the dramatic increases in the size of the bank’s balance sheet. He spoke at the Cato Institute on June 24, 2009. The full event is available at Cato.org.
Ron Paul: Thank you very much. It’s a real delight to be here and, of course, I’m pleased to come here and discuss a subject that fascinates me and it’s been an interest of mine for not a couple of years, but quite a few decades. As a matter of fact, it was the monetary issue that first got me interested in running for Congress back in the 1970s and some of you here may even remember the 1970s and they were rather hectic. If you don’t remember them, you’ve probably had read about them and they were very hectic, and I was fascinated with the fact that the Austrian free market economists predicted early on in the 1960s that the Bretton-Woods arrangement would never last, and it failed, and then that led into chaos in the 1970s.
But on a lark, I thought I would speak out and run for Congress and there was a little bit of concern by my wife about this because she considered it a dangerous thing to do and I couldn’t understand that, and to her, the danger was I could end up getting elected. But I guaranteed that couldn’t happen because I was going to be talking about, you know, the Federal Reserve and the Federal Open Market Committee and who cared about that? But she was more right than I was on that.
But the 1970s were hectic and there was a cry even at that time to know more about the Federal Reserve, and even that decade was not the first time the people through their congressmen were speaking out and wanted more openness about what the Federal Reserve was doing. Early on, even from 1913 on, there was always somebody talking about it.
And interestingly enough, a lot of that sentiment originated in Texas. Anybody remember Wright Patman? He came from a populist viewpoint. He wanted to know more about how Wall Street was being taken cared of by the Federal Reserve and he wanted the books opened, and lo and behold, Henry Gonzalez advocated the same thing. But they came not from a free market perspective, but a populist perspective, but at least, they were advocating more openness.
In 1978, there was a change in the law. It was a law that we’re dealing with today and the law said that the Federal Reserve now can be audited and you think, “Well, that’s fine and dandy.” But interestingly enough, and this is not unusual for Congress, they said, “Sure, you can be audited except for A, B, C, and D.” And, of course, A, B, C, and D are all the important things that the Federal Reserve does, whether it has to do with FOMC meetings, whether it has to do with international agreements, deals that they make with other central banks, the international financial organizations. All that is to be kept secret and so it was more or less exempt from the Freedom of Information or Access to Freedom of Information Act, and therefore, really we don’t know a whole lot about goes on behind the scenes at the Federal Reserve.
But conditions have changed dramatically, if you haven’t noticed this past year, and although I’ve been talking about it for decades and arguing that we had a financial system that was very fragile, very vulnerable, and it was the Fed that was creating the bubbles, and therefore we should be looking into it and preventing these problems rather than waiting for a cataclysmic financial crisis to hit and there were more than a few talking about that.
But nevertheless, Congress and others were receiving too much benefit by a secretive Federal Reserve System that created money out of thin air and was able to finance big government. So there were two groups over the Hill that loved this set up. The one group, the conservatives. They loved it because you could finance war without being responsible, and the left liked it because you could finance welfare without direct taxation. It was the indirect taxation through inflation and diluting of the money supply that finance big government.
The best answer I have about defending my bill [on auditing the Fed, HR 1207]is asking a question, “why not?” I mean, why in the world should this much power be given to a Federal Reserve that has the authority to create a trillion dollars secretly? And Congress says nothing. I mean, why not? I mean, it just makes so much sense. So the sentiment has changed. It wasn’t because all of the sudden, the people woke up and decided the Federal Reserve indeed needed to be audited and we needed to know more about the Federal Reserve. It had to do with the TARP funds.
It was $700 billion. It’s sort of like what they do after an emergency like 9/11. “Well, we need a Patriot Act. If you don’t vote for the Patriot Act, you are not patriotic,” and they rushed that through in a couple of weeks and nobody gets to read it, but the people want action.
So when the crisis hit, TARP funds were passed, $700 billion. There are still a bunch of it floating around, but all of a sudden, some of those funds got into the hands of unsavory characters like people who ruined their companies and they end up getting hundreds of millions of, if not billions of dollars in bonuses coming from the American taxpayer. People say, “What is going on?” And they sent a strong message out to Congress, “We want to know what’s happening. We want transparency. Let’s find out what’s happening.”
But then it became known to so many people at the grassroots level that the Federal Reserve is very much involved. They don’t quite understand how the Federal Reserve created our problems, but they understand how the Federal Reserve has been very much involved. So though I have a different motivation for transparency overall because of the monetary system and what’s been going on for years, right now, the motivation is to know what kind of shenanigans the Federal Reserve has been up to and how they’ve been wheeling and dealing and bailing out their friends.
Congress deals in hundreds of billions of dollars. The Federal Reserve deals in trillions and we don’t know exactly how much line of credit, guarantees, and direct loans that they have made and promised. It’s estimated it could be $3 or $4 trillion in the past year. We don’t know exactly. So the real necessity is for us to find out, and then we deal with the aftermath.
The bill is mainly to open up the books and find out what’s going on. It does not deal with monetary policy. It does not deal with regulatory policy and it is mainly for opening up the books, so it’s less confrontational for those who want to design regulations and deal with monetary policy, and I think that’s why we’re getting such bipartisan support. The support is very strong, but it is a reflection, not of my ability to go around and twist arms because I have no clout whatsoever over in the Congress.
But there are a few spammers out there that are interested in what I’ve been doing and they’re letting their congressmen know. And for that reason, there’s a strong move on and there’s a lot of legislative consequences going on, on where this goes and when we’ll have hearings and whether it gets edited on in the Senate. I don’t think we have enough time to go into all those details, but one thing for sure is it’s never going to be the same again. Never! Because if tomorrow, if they come in and all the members of Congress removed their names. It changes and there’s no transparency, all we have to say is, “What do they have to hide?”
And for once, I think it’s the first time the Federal Reserve has hired a lobbyist to lobby the members of Congress against this bill, and guess where the lobbyist came from? Well, she is a hangover from Enron. She lobbied for Enron. So that’s very appropriate. She’ll know the ropes and she’ll recognize a Ponzi scheme and hopefully… but unfortunately, she’ll probably be wanting to protect it.
So anyway, we are very pleased with it and the thrust of the bill is just openness to find out what’s going on, and, of course, my ultimate will be that once you find out exactly what the Federal Reserve has been up to and the conclusion being that it’s the Federal Reserve that creates financial bubbles and, of course, Congress adds a lot of problems to that, but that’s the key to it, and once that is known and once you see the deterioration of the dollar, which will come – you can’t double the money supply in six months and not have some consequences to it – that is when we will have true monetary reform and that when we’ll have a lot more fun.
Caleb Brown: Ron Paul represents the 14th Congressional District of Texas. You can watch his full comments on Federal Reserve Transparency at Cato.org.