Ron Paul and Paul Kanjorski Debate Bernanke and the Fed

Show: Squawk Box
Channel: CNBC
Date: 1/25/2010


News Anchor: Welcome back, everybody. The White House expressing confidence about Ben Bernanke’s confirmation. But it is clear that Bernanke continues to face some opposition to his nomination to his second term. For more on this and the other many controversial topics that are being debated in Washington, we’re joined right by Congressman Ron Paul. Also, our guest co-host for the next hour and a half is Congressman Paul Kanjorski. He’s the chairman of the capital market sub-committee. And gentlemen, good morning to both of you and thank you for being here.

Paul Kanjorski: Good morning, Becky.

Ron Paul: Good to be with you.

News Anchor: Congressman Paul, why don’t we start off talking a little bit about Bernanke. The White House is, at this point, expressing confidence that he will be re-nominated. Obviously, that vote goes through the Senate, but the House will have something to say too, in terms of the regulations that they have put forward. What do you think about his nomination process? You think it will go through the Senate?

Ron Paul: Oh, probably. But it might be just wishful thinking. You know, they have to sort of put a spin on there and try to build up some momentum. But I don’t think they know for certain. But it looks like he may well be appointed.

But, you know, I don’t know whether that’s the whole issue, because I think it’s been tremendous that we in this country and in the Congress now have addressed the Federal Reserve for the first time in many, many years and say, “What responsibility does the Federal Reserve have in the creation of this bubble and the crisis that we have?”.

And Bernanke is symbolic of, of course, the Fed. So I think this is great stuff. And, besides, it puts more emphasis on us having more transparency of the Fed because, you know, the reason we’re going to have a filibuster or a potential filibuster in the Senate is because we’re going to hold until they have a vote.

I mean, the people are only asking for a vote. We had the vote in the House, and it’s been passed. We have 317 co-sponsors. In the Senate, the people who support this position, both left and right, are saying, “Why can’t we have a vote?” because they know it’s going to pass. Because the American people want to know who the close friends are of the Federal Reserve, who they bail out, and what is going on. So, I think this is tremendous and I don’t think Bernanke should be reappointed. But even if he is, he is wounded, the attention is on the Fed, the economy is going down, the bubble has not been … the correction has not occurred. So, the American people will pay a lot more attention to the Federal Reserve now than ever before. And I consider that very, very beneficial to all of us.

News Anchor: Congressman Kanjorski, what do think the odds are that Ben Bernanke gets re-appointed? And talk a little bit about this legislation; what it might mean for the Fed?

Paul Kanjorski: Well, I sure do hope that they re-appoint Mr. Bernanke. I had the occasion to work with him through the rescue period, and I found he was incredible. Now that’s not to say that everything he’s done during his tenure at the Federal Reserve, both as chairman or as governor, was what we would have liked. But we never get a 100% performance from anyone. I just think that he’s extremely able. I think he’s got an ability to take the crisis and manage it well at critical times.

And I think the Fed has done a magnificent job. I would have lot of respect for Ron Paul, but his legislation, I voted against it. I would have continued to oppose it because I think it compromises the whole idea of a central independent banker. And we’ve seen a history of a 175 years when there didn’t happen to be a central banker and the constant crisis that we had. At least now we haven’t had a crisis for 75 years and we’re managing it and we need a good management.

The chairman of the Federal Reserve stepped forward and did a lot of the important things, that without that the rescue would not have been accomplished.

You know, I just heard a little glee in Ron Paul’s Voice that he was almost happy that we haven’t fully recovered. Don’t be happy. This is the American economy, it is our economy, it doesn’t belong to any one party. If it belongs to any party, it belongs to the Republican Party; Mr. Bernanke was a Republican appointee. The crisis came out of a Republican administration.

But I would hope we’d leave all that aside, and recognize that we are in a recovery position now. Let’s concentrate on getting that done, let’s not rock the ship. If we do, we could cause untold difficulty for the American people, including the markets and for the American economy. Let’s go easy and gingerly on this.

News Anchor: Congressman Paul, was there a glee in your voice?

Ron Paul: Well, I think he is over reacting. I think he’s trying to play a little game there. But, I do want to challenge one thing Paul did say, and that was we haven’t had a crisis since 1913. I mean, we’ve lost 98% of our value of our dollar against gold since 1913. We had the inflation through World War I, we had a depression in 1921, we had the inflation of the 1920s, we had a crash in 1929. I guess that wasn’t a crisis. We had a 15 year depression due to the Federal Reserve. Then we had guns and butter in the 1960s and we financed that through the Federal Reserve. And then look at the 1970s. If the 1970s wasn’t a crisis, what was it?

Paul Kanjorski: Ron Paul, we had 4, 5 major wars too.

Ron Paul: Why should you use the Fed to finance the wars? You don’t have a right to debase the currency just to fight a war, undeclared wars too.

Paul Kanjorski: Don’t you think your constituents are living a little better in Texas in 2010 than they were in 1932, 1950, 1975? Isn’t the American economy feeling the need for increasing the middle class?

Ron Paul: Now wait a minute. What makes you think that had anything to do with the Fed? Maybe it was in spite of the Fed. Maybe there wouldn’t be 17% unemployment right now if we don’t have the Fed. And we wouldn’t have 27% unemployment in Michigan. So this whole idea that we’re doing better…

Paul Kanjorski: 17% and 27% – those are really inflated; those are really inflated maximum approaches.

Ron Paul: No, Paul. You’re not quoting the right figures. The treasury says it’s 10%, but if you count everybody who quits looking for work, it’s 17%. And free market economists, who are more reliable than the government economists, say it’s 22%. To downplay the unemployment rate and say there is not a crisis and it is unrelated to the bubble that the Fed creates…

The problem is, is we’re always looking that what caused the crash. Even this new commission is looking for what caused the crash. And they never ask, “What caused the bubble?” The bubble causes the crash. But nobody asks, “Where do the bubbles come from?”

Paul Kanjorski: I think we had a couple of bubbles, didn’t we, Ron?

Ron Paul: The Federal Reserve creating too much money and interest rates of 0% and there’s nowhere for them to go today, because right now interest rates are 0% and if you have another down turn, what are they going to do? Make the interest rates -3%?

Paul Kanjorski: Well, I have this idea that rather than go back to the gold standard, I’d like to go back to the diamond standard.

Ron Paul: Well, I’m glad you brought that up, because I want to go forward to a gold standard. I want to just prevent the Federal Reserve from stealing from people and taxing people by doubling the money supply. It is cruel and unusual punishment to the economy to allow a secret organization like the Federal Reserve inflate the currency, deliberately destroy values, destroy the people who save.

Paul Kanjorski: So your theory is to have the Congress authorize the auditing of the Federal Reserve so the politicians in Congress can influence and effect and help decide what the Federal Reserve.

Ron Paul: No, you’re misinterpreting the bill. You should read it, because the bill says that the Congress has nothing to say about it for 6 months…

Paul Kanjorski: Now you know Ron…

Ron Paul: … wait a min, wait a minute, let me finish … then they can look at it. But what you’re arguing is the case for say this SEC finds out something about a bad company and then they say, “Well, let’s cover it up because it might hurt that company”. When the Fed knows something about a bank, you want secrecy because you say, “Well, it might hurt the company or the bank if people know it’s in trouble”. So you want the Federal Reserve to cover up so that we don’t know they can spend money, hurt the taxpayer, destroy our currency and give us a depression. And we’re not allowed to know about it. There no place in the Constitution that authorizes that kind of power.

Paul Kanjorski: Ron, I’ve been in congress long enough, and so have you. And we’ve used the General Accounting Office to put pressure on federal agencies, both independent agencies and non-independent agencies.

Ron Paul: That’s good.

Paul Kanjorski: When we call for audit of an agency, that sends a message that here comes the Congress; we’re going to take actions to curtail what you’re doing. That’s what we all worry about.

Ron Paul: No, that’s where you’re reading more into it, because I wrote a prohibition into the bill for that. But besides, I mean, morally speaking, don’t the people have a right to know what the Fed is doing? What kind of deals they make with foreign governments, foreign central banks, international financial organizations, private banks?

We have a right to know, we have an obligation, we have a moral obligation. And besides, we’re in this horrendous mess. It was the fault of the Federal Reserve and to say, “Oh, the Fed is wonderful, let them go, let them create all the money. Put Bernanke back in, he had nothing to do with it.” I mean, the American people are way ahead of you on this. And the American people have awakened. I’ll tell you that.

Paul Kanjorski: I was in a hearing the other day when your side proposed it wasn’t the Federal Reserve, it was GSEs (Government Sponsored Enterprises) that caused this. You got to take a decision. Do you know which one caused it? I don’t. That’s why I voted for the commission to do the study.

Ron Paul: The Federal Reserve causes the bubble. But you put kerosene on the fire by allocating credit and say you have to put money into a certain group. If the Fed creates money, we don’t know where it’s going to go. But because we say, “Put it into housing”, the housing bubble occurred. “Put it into medicine”, medical prices go up. “Put it into education”, education prices go up.

News Anchor: Wait a second, you think the Fed is responsible for the high education cost, and the higher cost for healthcare?

Ron Paul: Yes. Because the value of the dollar goes down and you don’t know where the money is going to go. But if you have a free market in distributing cellphones and computers, the market overwhelms the inflation. Prices actually go down. But the money is out there, it has to be put into something. Quality does not go up, and this is why the cost of medicine goes up without the quality going up. Education: everybody gets a college education, but the quality of education goes down. And it’s a fact that when you allocate credit, and if you do it in housing, it just puts fuel on the fire of the bubble. But you cannot have a bubble without easy money and easy credit. And if 0% interest rates isn’t easy money, then what is?

Paul Kanjorski: You know Ron, I just want to point out and just say stop. And I’m not going to argue that there aren’t causes and effects out there that we should be studying and looking at and taking sometimes corrective action. And that’s what we’re attempting to do now as we do regulatory reform. As you well know, we spent the last year intensely studying what could be done to try and prevent and project what may happen in the future and what actions could be taken to prevent those actions to stop these crises. But let me say it isn’t all bad. We had the creation of the SEC and the strong regulatory acts of the 1930s and we prevented a financial crisis in this country for 75 years. Even though every 25 years…

Ron Paul: Are you saying there was no crisis in the 1970s?

Paul Kanjorski: What crisis?

Ron Paul: Ask Paul Volcker if we had a crisis in the 1970s.

Paul Kanjorski: No, we had inflation and we were able to bring Volcker in and his policies and correct that inflation, and that’s what the system should do.

Ron Paul: So what do you call that, a minor correction but not a crisis?

Paul Kanjorski: Well, yeah. We didn’t have a total collapse this time. Maybe what we should have done is let that happen. And then all of you in the free market system would have been perfect, we would have been wiped out for decades and everybody would have been in a collapsed situation. Then you’d be happy. What Volcker did was act with responsible leadership with the security of treasury and the president, your president, your security of treasury, a Republican, not a Democrat, and they did a pretty good job of rescue. But all of fellows want to label this as a failure because you really don’t want to see it succeed. I think it you have a negative attitude towards the American economy.

Ron Paul: If regulations are so good, and I know we’re piling on the market for regulations. The SEC would have prevented this crisis, the SEC would have prevented the ENRON scandal. Sarbanes Oxley could have.. every time you put on regulations you chase our businesses overseas. That’s why the businessmen are leaving. And you’re going to do a lot more of that because the burden will be so great. And that’s why we’re not having a good recovery. We need to see taxes coming down and regulations coming down..

Paul Kanjorski: According to your theory, Ron, we should allow business to go uninterrupted, do anything at any time with anything, because they can’t possibly make mistakes.

Ron Paul: No, come on Paul. No, you allow them to go bankrupt, you don’t bail them out. Yes, we wouldn’t allow General Motors to do what they want. When they screw up and go bankrupt. Let them go bankrupt. You don’t take good people’s money and bail them out.

Paul Kanjorski: Do you accept the proposition that if we hadn’t gone into the rescue program a year ago, almost every large bank in the United States and in the world would have collapsed within 72 hours?

Ron Paul: No, some would. But we would be over it by now. In 1921, Paul, that’s exactly what we did; we still didn’t accept all your Keynesian economics. In 1921 the recession/depression was severe after the inflation of World War I. They had hands off, and it was over in a year. That’s what always happened before when they inflated, they caused the bubble, there was a correction. But in the 1930s, Hoover was the culprit and Roosevelt followed up, and they prolonged the agony for 15 years. That depression didn’t end until after World War II, believe me. People weren’t doing well until after then. So yes, you want hands off, but you want to enforce the laws against fraud and enforce the law of bankruptcy; that’s a federal regulation. But what we do is we don’t allow the bankruptcy, we take the good people’s money and bail out the bad investments, prop up all the mistakes and that is what you’re doing. You’re just pouring out the money hoping to patch up the hole in the bubble. And it’s not going to work, believe me. I’m not happy about it no matter what you say.

News Anchor: Congressman Paul, we want to thank you very much for your time. We appreciate you joining us today.