Ron Paul exposes the Fed’s destructive monetary policy and talks about Wednesday’s hearing entitled “Can Monetary Policy Really Create Jobs?” (Tune in to CNBC at 10 am EST to watch the hearing)
Larry Kudlow: At the top of this half hour, we have an exclusive interview with the House Monetary Chairman, Ron Paul, he’s a Republican from Texas, on the eve of his first sub-committee hearing. Can he put an end to the economic damage from Ben Bernanke’s inflationary policies? Now, today, Richmond Fed President Jeffrey Lacker, said the economy is growing at 4%, and therefore, Mr. Lacker says, it’s time to review and re-evaluate QE2. And he was joined by Dallas Fed President Richard Fisher, who had a similar point of view. Meanwhile, House Budget Chair Paul Ryan blasted Bernanke today, saying the Fed’s missing inflation and ought to raise interest rates. Here’s what he said on CNBC this morning.
Paul Ryan: My fear is they’re going to try to mop up all this excess money after the cow is out of the barn, after the inflation expectations have been formed. Credibility and perception is everything when it comes to monetary policy, and my fear is sound money is secondary toward short term employment growth.
Larry Kudlow: Alright, let’s bring in our very special guest for an exclusive interview. We have Congressman Ron Paul, Republican from Texas, who now chairs the House Financial Services sub-committee which oversees the Fed.
Mr. Paul, as always, thank you for coming back on the show, sir.
Ron Paul: Thank you.
Larry Kudlow: Alright, let me just ask you. You heard what Paul Ryan said, you know what the two Fed guys, Lacker and Fisher, said today. Is the thrust of your hearing tomorrow going to be to try to jawbone QE2 down? Do you yourself think it’s time to stop QE2? Where would you like to go in tomorrow’s hearing?
Ron Paul: Well, tomorrow is to bring to light the relationship of monetary policy and unemployment. But I’m sure the subject about QE2 will come up and the mandate to maintain high employment. But I was never for QE2, I’m not for the Fed, I’m not for fixing interest rates. So Paul Ryan said a lot of what I agree with, but he said the Fed should raise interest rates. Well, I want the Fed to butt out and I want the market to set interest rates. That would raise interest rates, you know, they’re artificially low, and that’s where the real problem comes from. So I’m for less interference in the marketplace, I know you speak highly of the free market, but I like the free market in money as well, I like interest rates to give us the right signal so we know what to do: whether we should save, borrow, spend, invest, or whatever. But when you interfere with the interest rates – which is the job of the Fed, that’s all they do, is interfere with monetary policy by interfering with the interest rates – and I think that’s the source of so much of our trouble.
Larry Kudlow: So having said all that, the thrust of your hearing tomorrow is not really at QE2; you say that will come in, but you’re really looking at relationships between inflation and unemployment.
Ron Paul: The relationship of monetary policy and unemployment, because unemployment is the big deal. One Fed member today said that “the growth is there at 4%, we better turn the machine off.” And yet the unemployment rate is disastrous for those who are unemployed. We have so much unemployment and it’s so undercounted. You know, the free market economists report that there is probably 22% of unemployment. So that’s where the depression is, they can pump some numbers and Wall Street does a little bit better and there’s a little bit of growth. I mean, they should, they pumped in $4 trillion, they should have had a lot of jobs. But, you know, a few jobs are coming back. But how much did it cost us? And We haven’t even see the after effects, and that of course, is the price inflation that will come. And I think we’re certainly seeing signs of that in the commodities and, of course, I think the bond market’s getting pretty risky. The bond prices have been in a bubble, and it’s been going on for 30 years, and I think we’re moving into another 30 year period where you’re going to see a reversal of interest rates and we’re going to see a crashing of the bonds like it did 30 years ago, and it lasted for a long, long time.
Larry Kudlow: With all that in mind, is the Fed policy a failure?
Ron Paul: Oh, absolutely. I mean, they brought to the bubble, and they give us the recession and the corrections. But you know, they’ve gotten away with this for a good while. They’ve been running the show, we’ve had a total fiat currency since 1971. And they’ve gotten all the credit for the boom times when the business cycle is doing well. But then a recession would come and they would tinker with the interest rates and they would lower interest rates and they would get all the credit for getting us out of it. But you know, that runs out of steam. Eventually the bubble gets too big, it bursts for other reasons, and the malinvestment is so great, and the debt is so out of this world, that they can’t bring it about. And that’s where we are today, and this is why they’re giving a lot more attention to the Fed, and rightfully so. And I encourage that because I put them at the seat of responsibility. They’ve been involved, they don’t deserve credit for the good times, they deserve the blame for the inflation when we have it, and they deserve a lot of the blame for the unemployment. They’re other factors involved in unemployment, like taxes and regulations and things like that. But, when you have a recession, you have to expect unemployment.
Larry Kudlow: Mr. Paul, how much damage to the incipient economic recovery – it’s slow based, nobody is happy with it, it’s not creating jobs despite what the Fed says. How much damage will the Fed’s QE2 and their bond buying and their money creating – how much damage, how much harm will the Fed do to what’s left of this recovery?
Ron Paul: I think it’s almost unimaginable. I think it can be so devastating, it could bring a strong worldwide run on the dollar. And that would be devastating because we do have the reserve currency of the world. So I think we’re in uncharted territories. These recessions off and on for the past 30, 40 years, they’re going to be minimal compared to the conditions that have been created by the world fiat system, principally run by our Federal Reserve. So it’s not a domestic affair, it’s not a U.S. affair, this is a worldwide affair. And I think that we’re in for very, very devastating changes. I think we will see changes in our economy and our country almost equivalent to the change that occurred with the Soviet system. I think it will bring down our empire, we’re going to have to reassess things, we won’t be able to afford our welfare state, and we won’t be able to afford taking care of the world, too. And we’re essentially expected to do that. If there’s a bankruptcy in Greece or some other country, we’re expected to go rescue them. The states; they expect the Fed to rescue them. And we’re supposed to be there to rescue everything. And when we say, “We’re going to rescue them”, it’s always the dollar. All the weight is put on the dollar. It is the Congress that’s spending money, but it depends on the Fed to monetize that to keep interest rates low so they don’t turn off our so-called recovery.
Larry Kudlow: But Ben Bernanke said that he’s 100% certain that his policy would succeed. Now, some people believe his policies will not only not succeed, but they’re going to actually drive up the unemployment rate and drive down the economy. Is that your point of view? You disagree with Bernanke 100% succeeding?
Ron Paul: Yeah, and I sort of hope I’m wrong and that maybe he could be right just because I don’t like to see the pain and the suffering coming. But if he accomplishes that, he’s repealed so many economic laws, it will be absolutely baffling. And one time when Greenspan was before the committee and we were discussing a similar set of events like this, I said, “If you can do that, you’ve literally repealed economic laws. If you can make this fiat system work as if it’s the marketplace working, giving us the right information”. No, he can’t do it, it’s delusional to think that one person could know what the money supply should be and what interest rates should be and you can do total central economic planning through monetary policy. It’s positively baffling that we as a country who brag about the free enterprise system, have accepted the fact that one individual basically can control the economy through that one issue. Because when you control the money you control every single transaction because money is one-half of every transaction. So you’re interfering with everything. And this is why we have gotten to this point. We have deceived the people in Congress and the people, we make all these promises, and now nobody can turn the switch off. We can’t turn off the switch because we’re addicted to it and we need a lot of people to go into rehab in order to get our addictions under control.
Larry Kudlow: So, to protect the economy, to protect people in the economy, to protect their purchasing power, at the end of the day, would it just be better to re-link the dollar to gold?
Ron Paul: Well, in some sort, of course, the shifting of gears is not easy. We did it one time after the Civil War period when we had the Resumption Act of 1875 and we were off the gold standard for 15 years. But the conditions were different, we didn’t have a welfare state, we weren’t running the world, and people believed in the government when they told them what they would do. Today you can’t have a Resumption Act, but you could legalize competition. Now they put you in jail if you want to opt out of the system. You know, if you opt out of medical care, you can be in trouble there. But if you opt out of the monetary system, say I want to use such-and-such as my currency because it’s gold and silver, you can get into big trouble. You need to legalize competition. You’re familiar with Hayek, Hayek advised competing currencies. So I don’t think I know the perfect answer, but I know what history shows and I know what the market probably would pick. But I’d like to just get the monopoly power away from this cartel that pretends that they know how to run the entire economy.
Larry Kudlow: Just a last one, Congressman. Why isn’t a representative of the Fed coming to your hearing? I take it Bernanke is testifying before the House Budget Committee, but that’s not until Thursday, if I’m not mistaken. Why aren’t they showing up for your hearing?
Ron Paul: Well, one thing is I knew Bernanke won’t come, he will not come to my sub-committees because they say the Federal Reserve Board Chairman and Secretary of Treasury always go to the full committee. And he will come to the full committee at the beginning of March, and that will be sort of under my sub-committee, but it’s presented to the full committee. I didn’t specifically invite somebody from the Fed because I wanted to lay the groundwork because we have two Austrian economists and one Keynesian. The Keynesian will present the view on why you need to spend more money and run up debt and print more money. And I have two individuals that are going to set the stage and say, “That is precisely the wrong thing to do”. We set that as a stage for future hearings.
Larry Kudlow: Alright, I hear you, sir. Thank you ever so much, Congressman Ron Paul. Good luck in the hearings tomorrow.
Ron Paul: Thanks a lot.