News Anchor: The new normal may mean big changes at the institution that controls America’s money; that, of course, is the Fed. Our latest survey from December at CNBC shows more than 30% of Americans have little or no confidence in Ben Bernanke’s Federal Reserve. So, are major changes in store for the Fed, changes that will affect how all of us live our lives, literally?
Texas Congressman Ron Paul is fighting for congressional oversight of the Fed. David Wessel is author of “In Fed We Trust: Ben Bernanke’s war on the great panic.” And, of course, he is the economics editor for the Wall Street Journal. Representative Paul, go ahead to the uninitiated and please make the case for what is so wrong at the Fed.
Ron Paul: Well, first off, the Fed was created in an unconstitutional method. You’re supposed to have authority somewhere to establish a central bank. And second, it’s only economic mischief that the Fed creates. They created bubbles in the 1920s and depressions in the 1930s and business cycles all depended on the Federal Reserve creating bubbles and then the bubble has to correct itself. It’s based on the theory that there should be central economic planning.
I happen to believe in the free market. And it amazes me listening to the business stations, how easily they just accept this notion that economic planning is okay and the Fed is in charge of it; they just manipulate interest rates. “Oh, they’re going to raise the interest rates a quarter percent.” Banks are still getting their money for free, and yet when the little guy and the businessman and the individuals go to the bank, they can’t get a loan. They either don’t have the right collateral, or they don’t qualify. And yet a bank can have bad collateral; they can dump all their bad assets on the Fed.
So it’s a wicked system, it’s immoral, it’s bad economics, it’s not constitutional, and at least even for those who disagree with me on what we should do, I have a large number of people in Washington now, 317 co-sponsors say “We at least ought to know what they’re doing. Who’s getting the money? What their deals are? How do they bail our foreign countries? What kind of deals they make with foreign countries and foreign central banks?” They have this authority, but we in the Congress have no right to know what they’re doing and I think that’s wrong.
News Anchor: Alright, I’m going to follow up on that in a moment. But first, David Wessel, obviously you were one of the most knowledgeable people about this institution in the world. What do you think about Ron Paul’s point? Is the Fed, despite all these minutes that come out after every meeting where they supposedly tell us what went on, is it still a black box institution as evidenced by what happened last night? They had a recent meeting and didn’t do anything and then they came out and surprised us last night with a rate hike.
News Anchor: We know where he stands, yes.
David Wessel: I think that the Fed has traditionally been too secretive for its own good. Every time somebody asks them for information, they say we can’t give it to you because it will harm the economy. Then a couple of years later they let the information out, and the economy doesn’t come to an end. I think the Fed does provide more information than Mr. Paul suggests, and frankly I don’t see how anybody was surprised by the discount rate move. You’re absolutely right, they were. Ben Bernanke said he was going to do it; we had the minutes of the meeting on Wednesday that said they were going to do it. And then on Thursday a whole bunch of people, who apparently don’t read the Wall Street Journal or listen to CNBC, said they’re surprised. The question is, why weren’t they listening.
News Anchor: But why didn’t they do it at a scheduled meeting? See, that is a fair question, isn’t it? I mean sure they everyone knows they’re going to do it at some point. But they like to keep us in the dark as to when. Why is that helpful?
David Wessel: I don’t know why they didn’t do it at a scheduled meeting, but frankly I don’t think that that’s really a big deal. I think the big deal and the thing that Mr. Paul is saying and which gets a lot of credibility with people is, we have set up in this country like in every capitalist democracy, an independent central bank that is not controlled by the elected leadership. And most of the elected leadership thinks that if they set interest rates, the economy would be worse. And as a result, they’re a kind of anti-democratic mysterious thing off to the side. And that was okay when the economy was great, it doesn’t look very good when we go through the worst crisis since the Great Depression. So they have become a lightning rod for everybody’s anger. Everybody senses that Wall Street got bailed out and Main Street didn’t.
Ron Paul: Can I answer that?
News Anchor: Ron Paul, go ahead.
Ron Paul: Because I don’t think it was intentional, but it was intended to discredit what I’m saying. But I don’t want Congress to set the interest rates. I want the market to set interest rates. I want the market rates of our CDs so the people who save… I used to think savings was a good idea; people who are frugal and take care of themselves. But today they get 1% or 2% on their CDs; the market rate might be 8%. So I don’t want the Congress to set the rates, and that’s a lot different than me saying, “Well, congress would know.” I mean, it would be a disaster. I don’t like economic intervention. And we don’t have capitalism, we have economic interventionism, we have crony capitalism. But we do not have free markets at all.
News Anchor: Let me ask you your point of view, Ron Paul, on what David Wessel said when he said, “I don’t think it’s a big deal that they did this inter-meeting.” And I know people will make the argument that it’s not really a rate hike and they’re trying to say it doesn’t matter and that’s why they did it. But isn’t what they did last night evidence of what you are concerned about in terms of the lack of transparency.
Ron Paul: Sure it is. To me that’s rather minor compared to what I’m interested in. I want to find out all the details about why a company like Goldman Sachs can come out pretty well and Lehman Brothers don’t come out so well. And I want to know what they do internationally as well. I mean, like for instance, I would like to ask Bernanke next week whether or not we were in the discussions to bail out Greece. I can’t for a minute think that we weren’t involved in that. And if it involves extending a loan or a grant or being involved and putting pressure on our dollars, indirectly over time, the middle class in this country, the people suffer because they lose purchasing power. The people are behind. Wall Street’s doing great; they’re making more profits now than last year. They’re all up. But the average person is not as well off as they were 10 years ago. And this is because we believe we can bail out everybody. I think the system is very politicized because Congress runs up the debt and they know the Fed will be there; they’ll monetize the debt. But the interest rates will sky rocket.
News Anchor: One quick final question I want to ask each of you to react to: Mohammed […]’s biggest concern now – it was not as big as a year ago, but it is now – is the Fed losing independence, which would be your dream coming true, Mr. Paul. He says he’s concerned if they lose very independence that all of a sudden something unforeseen, unexpected happens and the Fed can’t go and act because it’s got go get approval, I guess, from the GAO, under your plan. What’s your response, Dr. Paul?
Ron Paul: No, that’s completely wrong. I have no oversight for 6 months. There’s no interference in the FOMC. Under these conditions nothing would change other than the fact that they would know that one day, not in the too distant future, we’ll know what they’re doing. So that’s an absolute misinterpretation of what I’m talking about.
News Anchor: Final word, David Wessel, to Mohammed’s question.
David Wessel: I think there is a risk, not necessarily because of Ron Paul, that the Fed will not have as much freedom to respond to a financial fire next time. But I believe that in the end, the politicians don’t want that to happen. They make a lot of noise and they might change the way banks are regulated, but in the end they’re afraid of taking responsibility for the next crisis. They want the Fed to be able to get the blame so they’ll give them the freedom to fight the fire.
News Anchor: Thanks very much, Ron Paul and David Wessel.
Ron Paul: Thank you.