Download the interview as an MP3 file here (21:55 minutes).
Patt Morrison: Hi, I’m Patt Morrison, the Federal Reserve has been the subject of scrutiny since it came into existence, but perhaps nowhere no recently until HR1207, the question of auditing the Fed in a measure before the House of Representatives. The issue of how much authority the Federal Reserve has, has as I said, come before both houses of Congress. And there is some alarm at the question of the Fed’s power to regulate the nation’s biggest financial institutions, at a time when billions of dollars have gone out of the door to banking institutions, and whether or not that money has been adequately identified and tracked, is the subject of that House Resolution. I am joined by one member each of the House and the Senate to talk about where they think the Fed needs to be reigned in, where it needs to be regulated and where it needs to be scrutinized more thoroughly.
The first among them is Senator Bernie Sanders, an independent senator from Vermont. Senator, thank you for joining me.
Bernie Sanders: My pleasure.
Patt Morrison: We have before us an agency of government that has become very powerful very quickly. What are your concerns about the reach of its power and what ought to be done about it?
Bernie Sanders: Let me give you one example of my concerns among the senate budget committee. In April we had Chairman Bernanke before the committee and I asked him if he could tell me which financial institutions received over 2 trillion dollars in zero interest loans from the Fed. That is a lot of money and what they are doing is putting at risk 2 trillion dollars of taxpayers’ money. And his answer was “No, I can’t tell you.” And on that day I issued a legislation to demand that that information be made public. So what you have is, as you indicated, an institution with enormous power. And since the financial crisis on Wall Street, that power has increased very substantially. I think they need accountability. I think the American people need to know what kind of conflict of interest exists. I think we need transparency in a way that just doesn’t exist right now. So we’re working on two pieces of legislation. One with Congressman Paul which demands a GAO audit of the Fed, and the second is a more simple piece of legislation that says “You lent out 2 trillion dollars, tell us who got that money”.
Patt Morrison: Senator, do you think it was a case of Mr. Bernanke saying ‘I can’t tell’ or ‘I won’t tell’?
Bernie Sanders: I think it’s “I won’t tell.” I think he gives his reasons why and he suggests that if the public knew which financial institutions received that money it would indicated that these institutions might be in trouble, there might be a run on these financial institutions, etc, etc. and I think that’s very absurd argument. I think most of the taxpayers in this country would find it really quite amazing that they could receive financial support from the federal government at zero interest loans and not have to tell anybody who it was that received that.
Patt Morrison: Senator, we have testimony by the general counsel for the board of governors of the Federal Reserve saying, “Look we audit this, we have outside audit, we have the Government Accountability Office looking into the Fed, testimony before Congress 80 times, including 28 times so far this year.” What parts of the Fed’s workings are unknown?
Bernie Sanders: Well, one of them was just what I told you. If the Fed lends out 2 trillion dollars of taxpayers money […] we do not know which institutions received that. Does that sound like transparency to you?
Patt Morrison: The testimony of Mr. Alvarez says that Congress deliberately chose to exclude from GAO review both monetary policy deliberations, decisions and actions, and Federal Reserve transactions for or with foreign Central Banks. Are they not some areas that should be off limits to that kind of public scrutiny?
Bernie Sanders: I think there may be. But I think what we have seen since the collapse of Wall Street over a year ago, is a greatly expanded role of the Fed. They are taking on tremendous new responsibilities, playing an enormously powerful role in our economy, and I think that the old rules do not necessarily apply. There might well be some areas that should not be publicly disclosed. But I think, again, when you’re talking about lending out 2 trillion dollars of tax payers’ money, I think the American people have a right to know who got that money, what the terms are, whether there were any conflicts of interest.
The reality is that over a year ago we experienced a major Wall Street meltdown which was brought about, in my view, by the greed, the recklessness and illegal behavior of a small number of Wall Street tycoons who made substantial sums of money before the bailout, and are now back in line because they want their welfare checks once again. So I think that these people need to have transparency and the American people have a right to know how that institution functions.
Patt Morrison: One of the concerns that was expressed about this, Senator, is that the more that this information is made available and perhaps put under the aegis of the Congress, the more political the uses of monetary policy in this country might become.
Bernie Sanders: Well, given the record of the Fed in recent years where they basically turn the other eye when they’ve been contributed to the worst financial crisis since the great depression. I think we need to have new approaches to the Fed law. These are people who are responsible for millions of people losing their jobs, their savings, their hopes for the future. And to suggest that we should not be taking a new approach so that what happened over a year ago does not happen again, I think would be shortsighted.
Patt Morrison: If there were to be this new scrutiny, do you think that you would agree to allow the Fed to have more authority?
Bernie Sanders: Well, I think we have to take a hard look at the role of the Fed and that is precisely what this discussion is about. The bottom line is, again, what has happened over the last year is something that should wake up every American. And our goal should be “How did we get into this disaster,” which today if you add unemployment, underemployment and people who have given up looking for work works out to 17% of the American population. How did we get into this disaster? Who caused this disaster? How do we hold those people who caused this problem accountable? How do we make sure that never again we are put in this position?
Patt Morrison: Bringing in to the conversation, Congressman Ron Paul, a Texas Republican who introduced HR 1207 to audit the Fed. Congressman, thank you for joining us.
Ron Paul: Thank you, glad to be with you.
Patt Morrison: So, you’re advocating along with Senator Sanders this more rigorous auditing of how the Fed operates, but the underlying principle that you bring to this is that the Fed should be abolished in the first place.
Ron Paul: Yeah, I think we have very similar concerns, especially about transparency and he and I have share a view that large corporations and large banks have benefited by our financial structure so even though he comes from a different angle we do strongly agree on that. I think the magnificent thing about HR 1207 and the 300 people we have co-sponsoring it is that I believe we have been able to bring progressives and liberals and libertarians and conservatives and constitutionalist together and it’s mostly because the American people in many ways are demanding it.
And if we’re going to be responsible in Congress we have to know where this money is going. I mean, they’re acting outside the law and they’re acting outside of the Constitution because they just do what they want. They don’t even appropriate the money, they just create it. So it’s a government onto itself. And these arrangements they have with foreign governments and foreign central banks, I can’t see how they’re legal. Technically they’re legal because as you earlier said, we gave them permission. But that’s of course the thing that I want to address because I don’t want this much power given to the central bank.
Patt Morrison: So you would revoke or pull in some of the leash that Congress gave to the Fed?
Ron Paul: Oh yes, as a matter of fact HR 1207 does that. It eliminates that. And there is a strong move to remove the power for them to bail out banks or corporations directly. That was put into the Federal Reserve Act in 1913, but essentially it was not used for all these years until the emergency, the big emergency came. But no, I think it’s very important that we restudy this whole issue and relook at the power they have because quite frankly I believe strongly that the Federal Reserve has been the culprit in creating the business cycle and now the crisis that we have now, because they created the business cycle benefiting the financial institutions and large corporations and big government, and now the bailouts have gone to them. The bailouts haven’t gone to the little people, the little people lost their houses. So they aren’t taking care of the people and yet it is up to us in the Congress to straighten this mess up.
Patt Morrison: Congressman I asked Senator Sanders about it and I’ll ask you as well. The idea that an agency that is independent when it practices monetary policy, independent ideally from politics, means that the central bank can be used to, for example, fund budget deficits year after year that are created by the politicians with a deliberate eye for that.
Ron Paul: Well, that’s exactly what they have been doing, and that’s what I’d like to see stopped. As long as you got fiat money they will tend to do that. They will tend to finance even more military industrial complext. The military-industrial complex loves this because they can continue this process. But when they talk about independence they’re talking about secrecy, that’s what they’re talking about. They claim that we would politicize it, but you think Goldman Sachs has politicized this? The chairman of the Federal Reserve board was just reappointed over the years they have done studies to show that the Federal Reserve chairman always accommodates the President and tries to put this business cycle in the boom period so he can win re-elections and get re-elected. So it is very, very much politicized. It’s secrecy, but I don’t want the Congress to be in monetary policy day to day. So I don’t want that type of management anyway, that’s not what my argument has been.
Patt Morrison: Senator Sanders, I know we have to lose you in a couple of minutes but Congressman Paul mentioned a number of sponsors of this. How do you think this is going to fare in the senate?
Bernie Sanders: Well, I think we got a lot, in the Senate we got 30 co-sponsors, which is a heck of a lot. And I would mention to you that in April I introduced an amendment before the budget resolution on the floor of the Senate calling for transparency and demanding that the Fed tell us who received this 2 trillion plus dollars. And that won 59-39 in a strong bipartisan vote. I think Congressman Paul is right in saying that all over this country people are outraged by the treachery that has taken place on Wall Street with the collusion of the Fed. People are demanding transparency. People do not want to go where apparently we are going right now, back to where we were before this crisis so they will have a bigger one in 5 to 6 years. I think we need a serious discussion about the role of the Fed and certainly I think transparency is an integral part of that discussion.
Patt Morrison: And Senator Sanders, before let you go, what do you think the status of healthcare reform is in Congress, especially the public option?
Bernie Sanders: I fight as hard as I can for a public option, I think it’s absolutely imperative that the American people have a choice about whether they want a Medicare type option as opposed to private insurance. And second of all, if you’re talking about cost containment and the rapidly rising cost of healthcare in America, I think the private insurance companies need some competition in order to keep them on. So we’re going to fight very hard for that and see what happens.
Patt Morrison: Senator Sanders, thank you so much.
Bernie Sanders: Thank you very much.
Bernie Sanders: We’ll be back with Congressman Paul in a moment.
Patt Morrison: Hi, I’m Pat Morrison, we are talking about a measure on Capitol Hill that would require more accountability, more auditing and more oversight for the Federal Reserve. About the billions of dollars that have gone out the front door of the Federal Reserve, and as you’ve heard Senator Bernie Sanders, the Vermont independent is concerned about the lack of accountability in that. So is Congressman Ron Paul, who is a Texas Republican. We’ll be taking your calls here as well at 866-893-5722 if you have questions for Congressman Paul.
Congressman Paul, we left off with Senator Sanders on a questions about healthcare reform. You are also an MD, what are your thoughts about healthcare reform and how it should look in this country.
Ron Paul: Well, I probably don’t have any more confidence in the government managing healthcare than I have in the Federal Reserve managing the monetary system and the business cycle. So I’m not much into this “more government.” I see that the government has been involved since the 1960s and they served the corporations. They served the drug companies and the insurance companies and the health maintenance companies. And they get in the way and they push these programs and they tend to push costs up but they never give better services.
And even now with Obama’s program he’s really putting a lot more customers into the insurance industry. The insurance industry is actually going to benefit by this because everybody who is not insured will be forced to have insurance. And this will result in billions of dollars of more cash flow to the insurance companies. So I don’t think we’re on the verge of any improvement in the medical care system in this country.
Patt Morrison: So you don’t think that expanding a program like Medicare to extend to, say, the grandchildren of people who are on Medicare is a good idea?
Ron Paul: Not unless we paid for it and it was temporary. My program over the last few years has been that even though I advocate a strict constitutional libertarian viewpoint, I’m not close minded to taking care of people who have become dependent on government. But you can’t just pay for it out of thin air. You do need the Fed then. If you pay for it out of thin air then you don’t have the money, you can’t tax and you can’t borrow. So you have to get the Fed to print money and then you’re back in the problem again. So I would say the only way out to support a program like that is if people would be willing to cut spending and my argument is that you should cut money from all the militarism, the overseas spending, the kind of wars that continue. We could cut enough there, we could help people who absolutely have no medical care. But I would still argue for the marketplace to deliver medical care because we haven’t had that in more than 50 years.
Patt Morrison: Congressman, your book is called “End The Fed”. You and Senator Sanders may agree on more scrutiny and more oversight, but I think you may disagree on what to do with the Fed in the end. You write in the book “The Federal Reserve should be abolished because it is immoral and unconstitutional and impractical, promotes bad economics and undermines liberty. Its destructive nature makes it a tool of tyrannical government.” What should replace it, if anything?
Ron Paul: You don’t really need to. We haven’t had a central bank for most of our history. We’ve only had it since 1913. The mandate was to give us a sound dollar and steady interest rates and full employment. Interest rates are anywhere from 1% to 21%. The dollar is not sound, we’ve lost 96% of its value since 1913 and unemployment is continuing to rise. So I would say they have totally failed in fulfilling their mandate. But before 1913 we didn’t have it. It was less than perfect because they didn’t follow the rules steadily. But if anybody looks at charts starting at 1971 when the last link between the dollar and gold was severed, you could see that all the debt has skyrocketed, all the price inflation has skyrocketed. And actually, the standard of living for the average person especially in the last 15 years has gone down. In spite of all the fanfare, the standard of living for average working people is going down and it is because of the devaluation of the money.
Patt Morrison: So Congressman, should we go back to the gold standard or should we back it with salt or copper or how should that work?
Ron Paul: Well, we should go back to the Constitution which says “don’t print money,” you’re not allowed to print money under the constitution. Only gold and silver is legal tender. But there were some shortcomings in the 19th century because they mandated gold and silver and the sixth were linked together and they should have varied. But we can go forward with a more modern gold standard. The main purpose of the gold standard is to restraint the growth of government. When government grows, individual liberty is threatened and governments tend to pursue militarism. So if anybody wants to curtail this wild spending, supporting even the banking system or the industrialist or even the military establishment, they have to look at this and find out that is the way they get financed. Because they steal value from the middle class. Middle class always gets wiped out. Just think about how the middle class has been wiped out in Mexico. Each time they have a peso crisis the middle class saving were destroyed. Mexico now has introduced a silver standard. You can actually save in silver because the middle class has been wiped out so many times in Mexico. So you have to protect this middle class. The characteristic of inflation is the destruction of the middle class.
Patt Morrison: Congressman, we have a question for you from Charles. Charles, thanks for your call.
Charles: Hello Dr. Paul. Could you elaborate a little bit on how the Federal Reserve is used to finance unnecessary wars and break it down for those of us who don’t really understand money and monetization very well. How does the taxpayer, the average citizen wind up suffering?
Patt Morrison: We don’t have much time with the Congressman, so let’s get his answer.
Ron Paul: Well, very briefly governments never have enough money to fight wars; if people had to pay for them they wouldn’t fight wars. But because they can hide the spending what they do is because they can hide the spending they can run up debt and that’s a treasury bill. If you borrow the money from the market the interest rates would be maybe 15% to 20% and that would be unhealthy. So what they do is the Federal Reserve buys these treasury bills but they have a computer. They have no money, they just print money out of thin air. I look at these reports every week and some weeks they create 50 billion dollars in one week.
Now how that hurts the middle class is it dilutes the value of money. For the middle class the inflation rate is always much higher than anybody else’s. The government says “no inflation, no cost of living increase for Social Security beneficiaries.” But the average person the cost of living is going up close to 6% to 10%. And it’s going to go up much higher because they’re always looking for […] So there are huge deficits right now, 2 trillion dollars this year is going to be paid by the middle class because inflation is a tax, and they get stuck with it.
Patt Morrison: So Congressman, is there ever a justification for doing this, say waging war like World War II?
Ron Paul: Oh sure. You declare the war and I think it would always be better if you borrowed money and never allowed people to print the money. You should be able to borrow the money. Our Constitution says you can borrow money and you can declare war. What I detest is the fact that presidents go to war without declaration. I mean they’ve done that since World War II. We’ve had perpetual war and perpetual deficits and perpetual inflation.
Patt Morrison: Okay Congressman, we have Mark from downtown. Mark, thanks for your call.
Mark: Yeah hi. I would like to ask the following question to the Congressman. He is a doctor and he was talking about healthcare before, but what prevents the U.S. to have a system like France? France has a wonderful system, it works by all standards and is much better than here and costs much less. What makes this difficult?
Ron Paul: I’m not sure I got the whole thing. I don’t know the French system well enough, but I do know that people who have government run healthcare systems may work for a while but it eventually contributes to bankruptcy. I mean if you go to the extreme of socialism you have a Sovietized system and you know that the big guys always get good care. But some systems have worked for a while to a degree just like our Social Security system works fairly well but it is also greatly in debt. All these social systems in European nations are in every bit as much debt as we are. But our Social Security as well as Medicare and Medicaid are not viable because they are facing bankruptcy. So it’s all just based on the fact that we can get more workers out there paying higher taxes. But our numbers are smaller that are going in the workforce. Jobs are less, jobs aren’t paying as much. So this system is not viable and is not viable in the long term in Europe either.
Patt Morrison: Congressman, I know we don’t have much more time with you. I’d like to ask you about a political questions, and that is about the nature of some of the Republican opposition to President Obama, how it is shaping up to be, being critical of him in very personal ways. Questioning, among other things, his citizenship. Do you think this is a reasonable political tactic, or are you concerned about the tone of what you see going on in Washington?
Ron Paul: No, I think it’s a total distraction because even as much as I disagreed with George Bush on his foreign policy, I worked real hard not to personalize it and I talked about neoconservatism and I talked about the philosophy of intervention and why we should obey the Constitution. But I think when it gets into personalities and innuendos and charges like that, I’d much rather stick to arguing the principles of sound money and limited government and personal liberty. So I think it does the Republicans more harm than good.
Patt Morrison: Congressman, thank you. Please come back.
Ron Paul: Thank you.
Patt Morrison: Congressman Ron Paul is a Republican from Texas. He is sponsoring on the House side of Capitol Hill HR 1207, about auditing the Federal Reserve. He’s also the author of the book called “End The Fed”.