Channel: Fox Business
News Anchor: Just over an hour ago, the Federal Reserve announced it will leave interest rates unchanged. So what does one of the most vocal critics of the Fed have to say about this decision, and then the possibility that the agency will expand its powers?
Republican Congressman Ron Paul of Texas is a member of the Joint Economic Committee, and the Financial Services Committee. He also wrote the book on the subject, literally. His book is titled “End the Fed”. He joins me now in an exclusive interview from Capitol Hill. Welcome, thank you for being here, Representative.
Ron Paul: Thank you, it is nice to be with you.
News Anchor: Good to have you. Well, we had the Fed meeting which wrapped up and, needless to say, nothing happened. They didn’t do anything right here. Do you think that the Fed’s exit strategy is on par with what really should be done?
Ron Paul: I don’t think they have one. I mean, it just really is totally bewildering that a country and billions of dollars can be held in check and waiting for the chairman to say well, is he going to say “extended period of time,” or not? I mean, how can one person have this much power over the monetary system? No, he has no plan. You know, I was looking back over some statistics to find out if the Fed ever shrunk their balance sheet. And it was very, very rarely. And the balance sheet is so huge. And he’s not even willing to say, “Maybe someday in the future I might raise interest rates.” They’re not even talking about raising interest rates, they’re just saying possibility in the future. So no, he is locked in with a lot of inflation. And by continuing the policy he is doing some… he’s continuing inflation.
News Anchor: Representative, there are no signs of inflation just yet. There is no wage inflation because we have such high unemployment.
Ron Paul: Yeah, but you’re talking about price inflation; inflation is the increase in the supply of money and credit. And then that subsequently leads to higher prices in some areas, like in education and in medical care. So you don’t have to have a CPI or wages to go up to have inflation. I think this is a misdiagnosis and misdefinition to say inflation is only rising prices. I mean, there are a lot of price increases. But the point is, we’ve already had the inflation. The money supply has been increased. Now we’re just ready and waiting for the inflationary expectations, which is psychological, it’s subjective. You don’t know when that’s going to turn on. You don’t know how to measure velocity of money. And that’s all sitting there. And if you ever get this economy going, that’s what you’re going to have; explosion of prices. It will be an explosion of prices.
News Anchor: Well, just as very smart investors say, for example, like Warren Buffett, and some members of Congress on both sides of the aisle support him and say he actually helped save the financial system. You, of course, have been a real critic of Fed chief Ben Bernanke. In fact, recently we couldn’t help but notice on February 24th, the last time chairman Bernanke testified on the hill, you two had an exchange that generated quite a bit of attention. Let’s watch for a minute and then we’ll talk more about it.
Ron Paul: It has been reported in the past that during the 1980s that the Fed actually facilitated a 5.5 billion dollar loan to Saddam Hussein, and he then brought weapons from our military-industrial complex. And also that is when he invested in a nuclear reactor. That money was not appropriated by the Congress as the Constitution says. Also, there have been reports that the cash used in the Watergate scandal came through the Federal Reserve. And when investigators back in those years tried to find out, they were always stonewalled and we couldn’t get the information. Would you grant that the American people deserve to know whether the Federal Reserve has been involved in this and what kind of shenanigans they involved with foreign countries and foreign central banks, and find out that possibly you’re working right now to bail out Greece, for all we know.
Ben Bernanke: Congressman, these specific allegations you’ve made, I think, are absolutely bizarre and I have absolutely no knowledge of anything remotely like what you just described.
News Anchor: So, Representative, I’m pretty sure you guys aren’t dinning inside the Beltway at those fancy restaurants there. Clearly there is arguing here between you two. Is what you were saying just a longer way of saying that you want more transparency from the Fed going forward?
Ron Paul: That’s right. And even the bill that Dodd has just presented, he’s giving more power to the Fed, and no auditing procedures. So I would say the problems are getting much worse rather than better. And it is to me so crucial that we do know what’s going on. I mean, literally the one thing that they really want to protect are their agreements with other central banks and other governments. Well, you know, what keeps them from extending a loan to another central bank and credit, and tell them to buy up treasury bills to keep interest rates low? So we can’t even measure what the Fed is doing directly, because we look at their balance sheet. But they literally have the ability to extend credit to other central banks and have them buy treasury bills. And you know, that might be the reason that foreigners are still buying our treasury bills. But this is not a solution. You say that he saved the economy, but that’s sort of like saying that you give a drug addict a shot and he feels better.
News Anchor: Let’s go back to Chris Dodd’s new plan for financial regulation changes. And it would give the Fed quite a bit more power, certainly, as far as consumer financial protection is concerned, but also giving them oversight of the largest banks; ones that are 50 billion plus. So, on balance, though, it also appears to rein in risks that financial institutions could take so that they don’t get into trouble again and need the tax payers’ shoulders to stand on again. Is this a bill you could support if it had tweaks to it?
Ron Paul: No, not at all. Because you’re not addressing the real problem. The real problem is the Federal Reserve has been designed and it has operated since its very beginning… it’s the lender of last resort. That means that there will always be people too big to fail. This idea that you can regulate away the imbalances of the malinvestment and the debt problems that we have by just having more regulators there, I think that’s very deceptive. You have to deal with the system of money if you want to prevent the bubbles from forming. And they’re struggling right now to create the next bubble. They’re trying to build more houses. Can you imagine trying to stimulate the housing business and keeping prices up? Well, in a correction you want the prices to come down and you want the market to clear itself. But you don’t want to stimulate housing. So all these derivatives dealing with housing, mortgages and securities; they haven’t been liquidated. They have been all bought up by the tax payer, they’re held on the books. And this prolongs the agony and prolongs the correction. So, therefore, we can expect this to go on for a long time, even if you have blips and you get a government statistic that says you’re feeling better. But I’ll tell you what; people who are unemployed – and now the government admits that there are 20% unemployed.
News Anchor: They don’t feel better at all. What if we simply said, “You guys will fail. If you get yourself in trouble again, you will fail”? Now, Chris Dodd would argue that that’s going to be in this bill.
Ron Paul: Good luck. No, it’s not going to happen because you’d have to repeal the Federal Reserve Act to do that, because the Fed is there to prop up bad debt. And when the banks get into trouble, the Federal Reserve, that’s their whole purpose, to keep the system together by making sure the bankruptcies don’t just catch hold and precipitate…
News Anchor: .. authority that’s built into the system to break them up in an orderly way, such as we have the SNL crisis.
Ron Paul: Yeah, I’m sure the government can do things very orderly. That would be like breaking up the post office in an orderly fashion. They’re not going to do it that way. They are allowing the bubbles to be formed because it’s all based on a flawed concept of money and this idea that one person can sit in a room and come out and say, “Well, we’re going to continue this for an indefinite period”, and the markets say, “Ahh, we feel better now because Ben Bernanke is going to inflate the currency forever.” It will not last forever. That’s one thing I can guarantee you.
News Anchor: Representative Ron Paul, please come again. Thank you so much.
Ron Paul: Thank you.
News Anchor: He’s an independent thinker, that’s for sure.