by Ron Paul

The Federal Reserve’s interest rate price-setting board, the FOMC, met last week. They will continue to set the federal funds rate at well below 1%, and plan to keep it low until the end of 2014. That’s a year and half longer than they planned when they met just last month. Chairman Bernanke says they are keeping interest rates so low for so long because the economic outlook warrants it.

The fallacies in their reasoning would be amusing if they weren’t so dangerous. The Fed wants to keep the price of money at essentially zero – in other words “free” – to boost the economy. But the boost they are attempting won’t get here for another three years. That’s not a recovery. And we’ve already tried this tactic. That’s how we got into this mess in the first place: with interest rates artificially low for a very long time. Free money doesn’t stimulate growth, as Japan’s two lost decades clearly show. Artificially low interest rates only serve to punish saving, distort market signals, and cause further malinvestment. They also do nothing to address the only real solution to our economic woes: liquidation of the bad debt that hangs around the neck of the world’s economy, preventing recovery. Artificially low interest rates merely ensure that we remain a debt-financed consumer economy guaranteed to end up with a weaker economy and higher prices.

What baffles me even more is that two decades after the collapse of Soviet planning and decades more since the U.S. and economists purportedly rejected the idea of price setting, we find nothing wrong with the Fed setting the price of money. We all agree it is a bad idea to have a board saying the price of wheat should be $250 a ton today, or carpenters wages should be $25 an hour until the end of 2014. But we are perfectly comfortable with having a board set the price of one half of every transaction in our economy. And our markets are supposedly free.

The Fed policies of low interest rates, Operation Twist, and rounds of quantitative easing are all attempts to keep the economy alive artificially. But the 12 FOMC participants cannot manage the economy any better than the bureaucrats of the Soviet Union. The policies haven’t worked. They won’t work. Real economic recovery cannot come until we liquidate the bad debt, until we eradicate the poor decisions we made over the last decade, and start with a sound foundation. It is time we acknowledge the truth of the Fed’s activities: they are merely using fancy words for price setting.

Treasury Secretary Andrew Mellon was correct in the 1920s when he said “liquidate everything.” That’s what we did in the severe depression of 1920-21, and we recovered so quickly it is never even talked about. We didn’t take his advice after the 1929 crash, and ended up with the Great Depression. We are committing the same mistakes, destined to live in this Great Recession for a decade or more—it has already been four years, the Fed says it will be at least three more! It’s time we start rethinking what the Fed’s policies are really doing to our economy, because obviously, by their own admission, they haven’t helped.

Transcript

This is a rush transcript. If you notice any errors please report them using the “Help improve this post” link at the bottom of this post.

Mika Brzezinski: Joining the table is Republican president candidate and Texas Congressman, Ron Paul. It’s good to have you on the show, sir. And Pulitzer Prize winning associate editor at the Washington Post, Bob Woodward, it’s good to see you. We were at Chris Matthew’s party last night, and Bob gave us the topics.

Joe Scarborough: He gave us the topics. He said, “You know, it’s the opposite. Usually the shows call you up and say these are the things you want to be talking about, three minutes here”.

Mika Brzezinski: Exactly, there’s a little framework of questions put together by a 23 year old producer.

Joe Scarborough: We just sort of wake up and look at the papers and say, … but Bob, last night, was ready with a laser focus on the super committee, so it’s a perfect matchup here because we’ve got Ron Paul.

Mika Brzezinski: We brought him here for you.

Joe Scarborough: A guy who has been warning about the debt, and Ron, let’s start. Before we talk about America’s debt, let’s start with Greece’s debt. It looks like a deal was made, now the Greeks seem to be rebelling against it, once again proving they don’t want to live within their means. What does it mean for the rest of us?

Ron Paul: We all face the same problem, nobody wants to admit the truth. The world is bankrupt, the system is bankrupt, it’s not viable, and we’re facing the same consequences because we spend way beyond our means and nobody wants to cut a nickel. I mean, all this talk is just talk, there aren’t any cuts. Even the proposed cuts are cuts in the future, 5 or 10 years out. So I think that if you live beyond your means, you have to live within your means, and that means you have to cut back and that’s not acceptable because too many people have become too dependent. And they’ve been taught for many, many decades that deficits really don’t matter, and this Keynesian idea that it’s always the consumer who drives the economy, which I don’t buy into. Which means that the demand is that the consumer spends more money to stimulate the economy. Well, they’re broke and they don’t have jobs and they have too many credit cards, so that can’t be the solution.

Joe Scarborough: You know, Bob, the problem is this: even if the super-committee were to succeed by the low standards that we all have set for it (cutting 4 trillion dollars) now, a decade ago 4 trillion dollars would have been significant. Now, 4 trillion dollars doesn’t even pay for what we’ve spent over the last 4 years.

Bob Woodward: And they’re not even going to go there.

Joe Scarborough: And they’re not even going to go there.

Bob Woodward: They’re talking about 1.2 trillion dollars, as the Congressman points out, over 10 years. So that’s, maybe a 100 billion dollars a year. And if you get into the weeds on some of this, which I’m trying to do to answer the question, ‘How is the economy being managed and what is the nature of the jeopardy we’re in?’ Take something, you remember this from your days in Congress; farm subsidies. Okay, they talked and they said, “We can cut 29 billion dollars in farm subsidies”, and the Republicans say, “Okay, that’s a great idea, let’s do it”. And then the White House comes in and says, “No, let’s only cut farm subsidies 2% of that for rich farmers”. And so you’re talking night and day, and they’re not together on this, and you go through item after item and it gets blown up and they don’t agree on even a small bite.

Joe Scarborough: You know, one and a half trillion dollars, if that’s what they’re talking about cutting, Ron, over a decade, is such a joke, considering that last Christmas the President and the Republican Congress agreed to a plan that raised the deficit immediately, or the national debt, by an additional trillion dollars. Nobody is serious on Capitol Hill, what’s happened?

Ron Paul: Well, I don’t think you can accuse me of not being serious.

Joe Scarborough: Well, when I say nobody is serious…

Ron Paul: I think it’s so dangerous and so bad, and we’re facing something the world has never faced before, that my token effort to start off with, would be to cut a trillion dollars of real cuts in 1 year, and I think it would be helpful. And I argue this because of what we did after World War II. We cut spending by 60% and we cut taxes by 30% and we sent 10 million people into the workforce, and guess what, it finally ended the depression. People went back to work again because the changes occurred, the debt had been liquidated and we were ready to go back to work again. So you just can’t solve the problem of spending and debt with more spending and debt and the printing of money, it’s absurd and they are not changing their mind.

Bob Woodward: And the word that’s not being used here, which is the word in Greece, “Austerity”. And here everyone is talking about, “Oh, this is manageable”. It’s like when they talk about Iraq of Afghanistan and say, “Hard, but not hopeless”. But again, when you go into the numbers, time and time again, there is no agreement on the smallest things. Now, I think the campaign next year is going to get down to presidential leadership; can you manage the economy, does somebody have their hands on the steering wheel? And I think the sense people have now is, “There are no hands, or 20 hands, on the steering wheel”. And somebody has got to come up and say, “This is the plan, let’s face it”. And the public voters are not going to like the word “Austerity” but that’s where we’re headed.

Mika Brzezinski: I don’t disagree with you at all. Sam Stein, I wonder though, if that person, whoever that person is who has to say that, has to also say, “We are not going to get back to where we were”, that this is going to be a long process and unemployment is probably going to last for this-long or this-long and this is what we’re going to have to do to reboot? Who has the guts to say that, that there’s not a lot of hope in our current situation, of rectifying it to back before the bubble bursts?

Sam Stein: I would argue that, and to a certain extent he’s being criticized for it, President Obama has gone on and said this is going to be a long slog and that the economy that we once had, which was manufacturing-based, largely, was not going to be the economy that we have in the future. Let me just add a few data points to this because I think it’s worthwhile to note that, in addition to the 1.2 trillion dollars that the super-committee wants to cut, they did achieve about a 900 to a trillion dollars in cuts as part of the debt-ceiling deal in August. And, in addition to that, there is supposed to be – now we have to wait and see for this – another 1 trillion dollars in savings from drawing down the war. Those still don’t get to the crux of the matter, which is that we have a huge rising healthcare costs problem in this country. But one of the ways to solve it is not simply just to cut, which is valid, but to get people back to work so that we can actually increase the tax base in this country. And one of the questions is how do you get people back to work, and does government people a role in that? Now I know where you stand on that, government probably should not play a role. But I’m wondering, in the interim, for you, would there be anything that you would be proud of supporting the government actually doing to stimulate some job growth to actually expand the tax base?

Ron Paul: The government does have a role, they ought to give us sound money, they ought to give us market interest rates, and they ought to let us spend the money. I don’t talk in terms of austerity and sacrifice because I tell the people I was with that it’s not a sacrifice for you to get your freedom back and get the market back and get you to keep your money and get you to spend your money. The people who have to sacrifice and give up are the people who have been living off the government and living off the tax payers, they don’t need any more bailouts. So it’s not a sacrifice.

Sam Stein: What can the government do, between now and let’s say 3 months, to maybe get some jobs back, is there anything that the government can do?

Ron Paul: The only thing you can do is to show the people that you’re going to change the direction of the country. But it’s not a budgetary problem, it is a philosophy problem. You can’t cut nickels and dimes from the militarism and the military budget unless you change the foreign policy. You can’t cut entitlements unless you give up on the principle of entitlement. So we have to decide whether we want to live within the confines of the constitution, or we want to continue to do what we’ve been doing, which means that the pie is shrinking and the demands are growing and the anger is increasing.

Bob Woodward: But no one really wants to bite the bullet on this. I mean, you’re talking numbers of 900 billion dollars or 1 trillion dollars cut here and so forth. If you really follow the numbers and get beyond the smoke and mirrors, a lot of those numbers are rounding errors. I mean, we now have an annual deficit of 1.6 trillion dollars, that’s in 1 year. And if you go out and say, “Well, let’s cut a little less than that in 10 years”, ….

Joe Scarborough: Those were budget caps that were set. So, Ron, it seems to be that this is your time, this should be your time as a presidential candidate. I’ve been talking about deficits and the debt since 1994 and I’ve been talking about it non-stop. But you were talking about it before I came to Congress, you’ve been talking about it after I left Congress, you’ve been talking about this for 20, 25 years. I always go back to your quote, it was actually in September of 2003, when you predicted – it’s frightening, Bob – exactly what was going to happen with Fannie and Freddy and the banks. He said this is going to create a housing bubble, it’s going to be a housing bubble that’s going to spread a virus in the entire economy, across the entire world, and when it pops, we’re in big trouble. So you’ve been predicting this coming debt crisis, why do people not come out on the campaign trail?

Ron Paul: Oh, people I talk to. The other day I had 1,200 people come out at the University of Iowa and they were enthusiastic about it. So I just think that the time has changed. You say, “Well, if this is true and they’re coming my way, why am I not at the top?” I’ll tell you what, we have a solid base, the country has changed, it’s dramatically different compared to 4 years ago. Right, just think of the success with the Federal Reserve. Bernanke has to come before the people at press conferences, they’re on the defensive now. 65% of American people say we need to know how they’re passing out this credit, 15 trillion dollars worth of credit they deal out, they’re bigger than the Congress. 5 trillion dollars went to foreigners.

Joe Scarborough: Bob, you know about transparency, you know Ron has obviously been focused on the Fed for a very long time. It is extraordinary the power the Fed chairmen have behind closed doors. How did we get to a position where one of the most powerful people in the world is able act, I won’t say with impunity, but certainly without the most basic democratic checks?

Bob Woodward: Well, it’s all about money and following that money.

Joe Scarborough: By the way, does that arrangement that the Fed chief has so much power and they want to work in secret bother you?

Bob Woodward: Certainly, but there’s more and more transparency, as we know, and right now there’s not much they can do because we effectively have 0% interest rates. So their lever is gone, as you well know. So, in a sense, they’re reduced to pronouncements and press conferences and quantitative easing and so forth, which is something that is not the old interest rate- lever which really has an impact or can have an impact on the economy.

Mika Brzezinski: So Congressman, why is Herman Cain at the top of the polls?

Ron Paul: I think he’s gotten some very big show. The week where is really soared, he won a straw vote in Florida and he was on the news constantly and people felt, “Oh wow, look at that”. That same week I won a straw vote in California, and I got zero coverage.

Joe Scarborough: Why is that?

Ron Paul: I think I’m attacking the status quo like never before, I mean, the whole entitlement system. And I think there’s a lot more support out there for what I’m talking about than they realized, and they’re not going to give me a boost because I’m challenging the whole banking system, the military-industrial complex, the welfare state, our foreign policy. I want to go back to following strictly the constitution. It’s not in the cards right now, except the growing number of people is very significant. So the movement is in our direction because of this failure. You talk about the failure of the Fed, this is significant, they don’t have any cards left to play, this whole economy has no cards left to play. So this is going to be reversed, this economy is going to go to the dogs.

Bob Woodward: So are you the candidate of austerity, are you going out and saying …

Ron Paul: Well, I never said that, I’m the candidate of liberty where people have energy and incentives.

Bob Woodward: But to get there, we’re going to have a real long drought of austerity, aren’t we?

Ron Paul: No, no. The records show that when you do it, it only takes about a year. You should look at the 1921 depression, as well as what my example was of World War II. We cut it, and in a year everybody is back to work; 10 million people; 60% cut in the deficit.

Bob Woodward: You don’t want to have the campaign slogan, “Midnight in America”, you want to talk about what?

Ron Paul: The people that come to my rallies are enthusiastic, they say, “This is the most positive thing we’ve ever heard”. You know why? Because we are admitting the truth and saying there’s something seriously wrong, we have to make a difference. Because if you’re in total denial and we continue to lie to ourselves, there’s no hope. It’s sort of like getting better from cancer not admitting you have it and taking a medication. But the medication isn’t nearly as bad as they’d like to paint it to be. So it’s not a sacrifice, liberty is not a sacrifice.

Joe Scarborough: Let’s go from budget to Afghanistan, something we talk about around this table all the time. Bob, you’ve talked about it a good bit. Congressman, obviously you’ve been very concerned for a very long time with America’s ever-expanding the military state. The White House is now talking about looking into possibly drawing down in Afghanistan quicker. Can you explain why we are still in Afghanistan after a decade?

Ron Paul: There’s no sane reason for us to be there. And this drawing down in Iraq is a complete farce, they’re not drawing down. We have an embassy there that is the biggest I the world, it’s a fort for 17,000 people to be, they’re going to be contractors. We may take a few troops out and spread them around, they are going to put more troops in Kuwait, we are not vacating anything. So as long as we’re there, believe me, there is going to be incentive to kill us.

Sam Stein: Can I ask you something on that, because I’ve been to a bunch of these speeches on the trail, and usually when you get to the foreign policy section of your speech you’ll see half the crowd cheer you wildly, they go nuts. And then you see the other half of the crowd star booing. And I’m wondering if you could talk a little bit about Republican politics, with respect to foreign policy specifically, and look at the past 10 years starting with the rise of the neo-conservative link and where the Republican Party stands now, as a unit, with respect to foreign policy?

Ron Paul: I think what you’re saying is a strictly Republican meeting.

Sam Stein: Yea.

Ron Paul: See, but if I go to a campus, it’s 95%. These young people who bearing the burden and inheriting the debt, have to fight these wars. And the military, guess what, I get more money from active military duty personal, twice as much as all the other candidates, they’re sick and tired of it.

Joe Scarborough: Did you want to know, Bob, in the 2008 campaign, while you have neo-cons trashing Ron Paul because he said bring the troops home, in the last campaign and in this campaign, military members and their families gave, easily, more to Ron than anybody else because they understand the strain better than some politician or somebody in the think-tank in Washington DC. But this is a readiness issue, we’re stretching and it is expanding, ever expanding.

Bob Woodward: But at the same time, I think you have to give credit to President Obama on this, he is drawing down. Now, the question is, and lots of other Republicans say he may be doing that too fast in Iraq, that he needs some troops there as an insurance policy, and there’s a certain rational there. But the White House is on the Pentagon on spending, on getting troops out of Afghanistan and Iraq. But you’re right, Joe, we’re not taking the flag down, and no President wants to.

Joe Scarborough: We are spending 2 million dollars a week in Afghanistan. And you’re talking about college campuses, I have yet to find people outside of Washington DC, Ron, that think it makes sense for us to spend 2 billion dollars a week in Afghanistan a decade later.

Ron Paul: No, it absolutely makes no sense, and there’s no money, we’re in this huge deficit. And if we can’t cut the occupation of these countries, there’s no hope for us, let me tell you that, there’s just no hope for us. We better be willing to do it, we have to change the policy. If the design is to police the world and nation-build and solidify everybody’s borderlines, believe me, we’re doomed because we’re doing exactly what the Soviets did. We need to change our attitude, take care of our people at home. How do you get medical care at home if you’re spending all this money bombing people and then rebuilding their countries, it’s insane.

Bob Woodward: The rationale for staying in Afghanistan is to keep Al-Qaida from coming back into Afghanistan, and, as we know, Al-Qaida is has had a bad couple of years and they are going back into Afghanistan.

Ron Paul: They’re in Iraq now, they weren’t there when we went to war. So we’re only giving incentive to the Al-Qaida.

Bob Woodward: And they’re in Pakistan, you’re right.

Mika Brzezinski: Congressman Ron Paul, it was very good to have you on the set, please come back.

Joe Scarborough: Thank you, Ron, great to see you. Good luck.

Transcript

This is a rush transcript. If you notice any errors please report them using the “Help improve this post” link at the bottom of this post.

Larry Kudlow: This is story No. 1, Ben Bernanke and the Fed’s ominous warning: growth will be much slower than expected, unemployment will be at 8.6% a year from now, and the Fed stands ready to buy mortgage backed bonds; more quantitative easing. How do we solve all this? Well, Congressman Ron Paul is our special guest tonight. We welcome back to the show Texas Congressman Ron Paul, who is obviously a Republican Presidential candidate as well. He is also an expert on Federal Reserve policy who is following Ben Bernanke’s news conference today. Congressman Paul, welcome back to the program. I just want to get your take and pick your mind on a couple of Bernanke’s key statements. Probably the most provocative thing was that he argued to help housing and to solve the high unemployment. The Fed stands ready to buy mortgage-backed bonds, which would mean more Quantitative Easing. What’s your thought on more QE and buying bonds?

Ron Paul: By the way, I think we’re still in QE because he’s guaranteed that interest rates are going to stay at about 0% for the next couple of years. But to buy more just exasperates our problem, we’re just transferring debt from one group to another group; basically from those who held this mortgages to the taxpayer. And I see no benefit from this whatsoever, I think we don’t get the correction that we need. We need some of that debt liquidated, we need some of that mal-investment taken care of, we need prices to go down. So he’s doing, from my viewpoint, exactly the opposite of what he should be doing.

Larry Kudlow: Well, that’s interesting, because some of the reporters asked him, given his relatively gloomy assessment of the economy – I mean, unemployment is expected to be near 9% even a year from now – “What went wrong?” We’ve had all these Fed activism as you point out, 0% interest rates, QE1, QE2, and Bernanke basically said, “Bad luck”, he basically said, “Bad luck” was the problem. What would you answer? How would you respond to Bernanke?

Ron Paul: Well, somebody asked me this yesterday, “What should he do?” and I said what I would really like to hear that he’s thrown in the towel and he’s giving up, that he admits that his theories are wrong and that all this QE stuff doesn’t work. But, you know, really right now the consequence of all this, and I know nobody looks at the money supply anymore, but M1 is growing at a 30% rate for these past 6 months. So that’s a lot of quantitative easing. And to continue to do this for ever and not talk about getting the tax rates down and get taxes lower with cutting spending, if we don’t do that, all the QEs in the world won’t solve our problems, it will eventually destroy our currency. And the world financial markets are not receiving what he’s saying or doing or what anybody else is saying or doing, because they’ve all studied from the same economic text books and I’d like to get them to think about free markets and how they should work.

Larry Kudlow: Congressman Paul, let me ask you about another Bernanke statement. He maintains that inflation is not going to be a problem, this despite the fact that, as you may know, the Consumer Price Index is up 3.9% in the last 12 months; oil and energy prices are still historically rather high. He says inflation is not a problem, and therefore the door would open for some Fed easings; that was his implication. Your comment on inflation, sir?

Ron Paul: Well, I think he’s wrong and I think the inflation is here because I start with the increase in the money supply, and I’ve already mentioned that. But I don’t believe the government statistics on CPI because if you look at this from the old measure of the CPI, actually it’s over 9%. And if you look at the unemployed and the low-income people, their inflation rate is always much higher. But if he’s admitting it’s almost 4% already, that’s pretty big. And besides, he doesn’t know exactly what the rate will be next year, I don’t know, I don’t believe you know exactly what it will be. It could be much, much worse because there are a lot of factors that go into pushing prices up. But we know that the stimulus has been put out there, and all we need to do is have a multiplier effect, and this thing could get way out of control and eventually I believe that’s what’s going to happen.

Larry Kudlow: Alright, 1.6 trillion dollars in excess reserves, the Fed could go into it. Let me ask you about another one. Bernanke was asked about Republican criticism of his policies, you, of course, being among them. As a Fed expert, you’ve been very critical of Bernanke. They asked, “So what are you think of them? He said, “I don’t listen to them, the Fed has to be independent”. I want to ask you, what would a President Paul do? What do you think about the Fed, how to reform it?

Ron Paul: Well, the whole thing is, to them independence is one thing, but to me that’s secrecy and I don’t think it should be secret. Of course, my ultimate goal would be to diminish the power of the Fed to monetize debt, because that gives the incentive for the members of Congress to spend forever. If we didn’t have the Fed to be the lender of last resort, interest rates would go up and that would restrain the Congress. So, in the mean time, because I can’t get competing currencies going, I would say the more transparency, the better. And I think it’s great that’s he’s being forced to hold these press conferences, I think it’s great that the country now, in the last 3 or 4 years, has come to look at the significance and the importance of monetary policy. 5 or 10 years ago I never dreamed this would happen. I think we’re making great progress, the American people are now with my arguments, 65% Americans believe now that we should have more transparency of the Fed, and that’s why he’s holding these press conferences. But he is going to be stubborn, because for him to do what I want him to do, he’d have to admit his whole career was misdirected. So that’s not going to happen, eventually you’d have to have a new Fed chairman at least to look at this thing differently.

Larry Kudlow: Congressman, you have said, as I recall – this will be the last question – that if you were elected, you would not reappoint Bernanke. Is that the case?

Ron Paul: Absolutely.

Larry Kudlow: And who might you reappoint? I think you actually indicated a name at one point, did you not?

Ron Paul: Yea, I did the other day, and you may know him, it’s somebody that I have admired for a long time. He’s very bright, he’s known on Wall Street, and that’s Jim Grant. And I think he’s capable because he is a free market person, he understands sound money, and I think if he had to work within the system, he would be able to restrain the Fed money machine as much as anybody else could.

Larry Kudlow: Jim Grant is an old friend of mine and a frequent guest on this program. Congressman Ron Paul, thank you for helping us, sir, good luck on the campaign trail.

Ron Paul: Thanks a lot.

Larry Kudlow: Alright, by the way, Jim Grant is a staunch advocate of gold, it’s interesting that Ron Paul would like to see Grant run the Fed.

Herman Cain: “The Federal Reserve already has so many internal audits it’s ridiculous. I don’t know why people think we’re going to learn this great amount of information by auditing the Federal Reserve. Now I no longer serve on the board of the Federal Reserve [...] but people who say “we gotta audit the Fed because we don’t know enough about it,” well, here’s the advice I’ve given to people: Call them up! And ask them! If you can stop by and have one of their PR people or one of their public relations people explain to you how the Federal Reserve operates. I think a lot of people are calling for this audit of the Federal Reserve because they don’t know enough about it.”

by Ron Paul

Last week the Federal Reserve began the second incarnation of “Operation Twist”, an attempt to drive down interest rates by purchasing long-term Treasury debt and selling short-term debt. This is just the latest instance of the central bank desperately flailing around doing something merely for the sake of doing something. Fed officials still do not understand — or admit — that the Fed itself caused the financial crisis by driving interest rates too low and relentlessly expanding the money supply. Thus, this latest action will just exacerbate the problem.

Markets, however, understand that the Fed has failed and has no clue what it is doing. This is why markets went into a tailspin after the Fed’s new strategy was announced. Stock, bonds, and commodities dropped in price while the financial press wondered whether this worldwide sell-off meant that the entire system was collapsing. Not since 2008 had there been such a dramatic drop across so many different sectors of the market.

Because of continued rising inflation and the Federal Reserve’s suppression of interest rates, investing in traditional safe havens such as savings accounts, mutual funds, and Treasury bonds has become unprofitable. Lots of money is moving through the system seeking a return on investments or at least some measure of safety, as increasingly desperate investors move their funds around in search of long-term profits and stability. Until the Fed stops its monetary intervention and allows interest rates to be set by the free market, investors will move their money in a volatile manner. They will invest in commodities and stocks while prices swing upwards, but will flee to bonds and cash at the first sign of a downturn.

The uncertainty caused by the Fed does help some people – professional traders on Wall Street for example. Increased volatility and huge price swings mean more opportunities for profit, as sophisticated electronic trading programs can buy and sell huge positions within a fraction of a second of a major market movement. But small businessmen are misled by the artificially low interest rates into making unwise investments, and those whose jobs vanish when the Federal Reserve’s latest bubble pops suffer. Without the knowledge or ability to move with the markets or diversify overseas, average Americans see their savings stagnate or depreciate — along with their hopes and dreams for a better tomorrow.

The only way to return to a sound economy is for the Federal Reserve to cease and desist its monetary manipulation and allow interest rates to be determined by markets, just as the price of goods, services, and labor should be determined by markets. Everything the Fed is doing by pumping money into the economy benefits only the insolvent, too-big-to-fail banks. Low interest rates encourage consumers to take on more debt, meaning more profits for the banks issuing those loans. Purchasing mortgage-backed securities, as the Fed has done, keeps housing prices inflated, helping the banks who have non-performing mortgages on their books. However, it hurts consumers who continue to be priced out of the housing market. In order to maintain a decent standard of living for the American people and to restore the vibrancy of the U.S. economy, it is time to end the Fed.

Transcript

This is a rush transcript. If you notice any errors please report them using the “Help improve this post” link at the bottom of this post.

News Anchor: Live by telephone, good morning, Congressman Paul, thanks for getting up early and coming on with us. We appreciate it.

Ron Paul: Good morning, good to be with you.

News Anchor: We talk to you all the time when you’re on about the Federal Reserve, and I actually may get to that in a moment, but I wanted to ask your view on FEMA in the wake of what’s happened with hurricane Irene before we get that to that. You, from what I’ve read and what I’ve seen in your comments, think we’d almost be better off without this agency which was set up to help out with disasters. But tell us your own view, before I put words in your mouth, about what should happen with FEMA?

Ron Paul: Well, during the 1970s, FEMA was created by an executive order by Carter. I was in the Congress at the time, and I opposed it because I thought it was bad economic policy to have government buy insurance for people because they couldn’t afford it in low areas, which to mean meant that they would encourage more building and take more risks. Insurance is a good idea because it tells you how much risk you’re taking, but once you destroy the principle of insurance, you invite more trouble, and we’ve been doing it, it’s been very, very expensive. And we’re not only as a country broke, but FEMA is broke too. So economically I think it’s a very bad thing to do. But the big problem is people like to pull that stuff up, you know, all of a sudden they see a lot of suffering and a lot of problems and they think, “Well, this is the only way you can do it”. The government actually makes problems worse so often rather than solving problems. FEMA’s really an inefficient agency when you look at it in detail too.

News Anchor: Well, it may be, but what about the people up in just one isolated area in Vermont today, for example? And I bring up Vermont because we were talking, just in the last hour, to one of the emergency management officials up there and they were telling me about all these towns that are isolated. And I said to him at the end of the interview, “How are you paying for this?” And he said, “We’re getting a lot of help from the federal government to do it”. A lot of these states, as you know, are strapped for cash, doesn’t FEMA help out in this particular situation when things are so bad.

Ron Paul: You don’t think the federal government is strapped for cash?

News Anchor: Well, of course it is.

Ron Paul: They don’t have any money at all, every penny we spend we borrow. So this whole thing about states being strapped for cash…. Of course, sure there is a humanitarian concern that people have. Matter of fact, I’ve been very open to taking care of these problems even though in principle I think it was in the wrong direction, because I live on the coast and we have hurricanes here and in my district. But I’ve had this position all along and yet the position really is a very popular position because the people get so disgusted with FEMA. I’ve had more complaints about FEMA than all the other agencies of government put together.

News Anchor: I can understand it from an ideological point of view, but you’re saying in these situations we have to help the people?

Ron Paul: Yea, and this is what I would do, and this is what I proposed in the past: is since we don’t have any money in the bank and it’s a very, very serious economic problem that we face, I say cut spending someplace. Cut enough where you can cut some deficits, such as overseas. Just think of the 1.4 trillion dollars we’re spending to maintain an empire. I can find 5 billion dollars pretty easily; put half of it towards the deficit and put half of it towards our infrastructure. So yes, I understand how we get … I mean just think of all the programs that are technically unconstitutional in this country that people are so dependent on; whether it’s medical care for the elderly or whatever, and yet there is no money. So I would say that if you care about the economy and if you think there’s any concern at all about our economic system and our financial system, we have to quit some of this spending. So all I’m saying is use some commonsense, take care of these people, save the money, cut the deficit, and I think the world would be better for it.

News Anchor: A quick question on the Federal Reserve, just to change topics on you real quick, Congressman Paul. A lot of people pointed to the markets this morning and it’s what we’re covering and saying. “The Federal Reserve might take even more action”: that seems to be their takeaway from watching Ben Bernanke make his speech last week and the minutes of the meeting that were released yesterday. Your thoughts, being a long time critic of the Fed, in terms of more action that can be taken to help the economy?

Ron Paul: Well, I think they take action steadily, you know, he announced that he would keep interest rates down to practically 0% up until 2013. Well, that’s major action. He doesn’t call it QE, but in a way it is. How do you keep interest rates down that low? You have to steadily buy debt. He has guaranteed that there would be no relinquishing on his efforts to continue the monetization of debt, so that’s it, that’s how we got into trouble. Even when Greenspan was in, it was said that he kept interest rates too low for too long. Well, that was in a way a quantitative easing. That’s all the Fed can do, they do it steadily, that’s the only tool that they have and at times they have surges in their buying of debt and in injecting more money. But the problems are always there, it’s always covered up, and that is the problem, it cannot be a solution.

News Anchor: How would a President Ron Paul work with Ben Bernanke, because as critical as you’ve been, you guys would be stuck working together if you were elected, Congressman Paul, wouldn’t you be?

Ron Paul: Yea, I thought the Fed was supposed to be independent, that’s what they argue all the time. Of course, the President always works with them. And it isn’t Bernanke himself that’s the problem, it’s the system. It’s the system that you have of no restraints on monetary authority, which means you have no restraints on spending because the Congress does not have to be responsible. So in a way, Bernanke was somewhat correct the other day when he said, “I throw up my hands, I can’t do it anymore, it’s all up to the Congress”. But he could do a lot more. Congress should quit spending and then they don’t put the pressure on the Fed to monetize. But if the Federal Reserve was not allowed to monetize, the Congress would see the interest rates rising and there would be an automatic check on it. So no, Bernanke, you’re not supposed to run the Federal Reserve, that is all a farce. They complained and I always argued that they’re independent, but it’s the system that you have to address and someday we’ll have to. Not because all of a sudden people will gain wisdom, but because this system is on its last legs. The dollar reserve standard of the world is failing and that’s why the world is in chaos.

News Anchor: Let me ask you a little bit about the campaign then. You’ve had success certainly in Iowa in the straw poll, and we were talking earlier about how you’ve moved up in some of the other polls. It will be interesting to see – and we talk about this all the time -how the campaign develops over time. People always try to make it into top tier and bottom tier; all this kind of handicapping so early in the race. But how do you see it developing, because inevitably somebody is going to drop out, it already happened with Tim Pawlenty. As that happens, do supporters of certain candidates go to you? Or is this theory that some have thrown out correct that the supporters that Ron Paul is going to get already support him, it’s such a strong base of support. But how will you be able to expand upon that base?

Ron Paul: All I know is my job is to keep doing what I have been doing for 30 years, and all of a sudden there has been a surge of interests in what I’ve been doing, and there’s certainly a need. The people are tired of the wars, they know there’s something wrong with the Federal Reserve, they know the spending is a tremendous hazard to us, so people are coming over. And the one thing that all the polls show is that if you are a Ron Paul supporter, you usually don’t leave, so there’s no bouncing up and down. With the other ones, you know, there’s a lot of shifting around. So when new people enter the race, they say, “Oh, what’s he going to do to him?” Well, it doesn’t do anything to me, it just dilutes the other field. But I think we have steady growth, that’s about all I can say, and it’s been that way over many years and certainly over the last 4 years we have seen this happening.

News Anchor: Well, let me follow up on that point because you’re probably right about that in terms of you’re not losing support. So let’s say Rick Perry enters the race or whoever might still make a late entry into the race, you don’t necessarily lose any of your core supporters there. But when someone leaves the race, are you able to kind of broaden the scope enough or be attractive enough to people who don’t currently support you and may support somebody else who’s still running but will still at some point drop out? For example, a Pawlenty supporter coming to you; do you see enough of that or will you be able to do enough of that?

Ron Paul: Well, it remains to be seen, but yes we see it all the time because that’s where our growth would have to come from, but I don’t know if anybody can actually measure that. We’re always reaching out to people and the longer the time goes on, the more appropriate our view seems to be.

News Anchor: Alright, Congressman Paul, it was good to talk to you again. We’ll check back as the campaign continues. Thanks for coming on.

Ron Paul: Sure thing.

News Anchor: Congressman Ron Paul running for President on the Republican side.

Transcript

Wolf Blitzer: The Republican presidential candidates are focusing largely on two early primary states today, New Hampshire and South Carolina. Michelle Bachmann and Ron Paul are looking to build on their first and second place showings in the Iowa Straw Poll last weekend.

And joining us now from Manchester New Hampshire, the Republican Congressman Ron Paul, he’s a candidate for President of the United States, Congressman thanks very much for coming in.

Ron Paul: Thank you Wolf, good to be with you.

Wolf Blitzer: Thank you, at that last Republican debate, you really differentiated yourself from all the other Republican candidates, there I say the Democratic candidate, that will be the president of the United States, as well, when you made it clear that on national security and foreign policy, you want to bring American troops home immediately from Iraq, Afghanistan, Germany, South Korea. Is that right?

Ron Paul: That is correct and immediate of course can be qualified a little bit, you know it takes a few days to get over there and pick them up. No, as soon as possible, the American people are with me on that, the majority respond in that manner, I don’t think we can afford it anymore, I don’t believe it’s in our best interest to be there because I think it undermines our national security.

Wolf Blitzer: So including Germany and South Korea, bring those thousands of troops home?

Ron Paul: Yeah, you know, the immediate benefit before you reorganize and decide how big the Army and Navy should be is, just think of all those troops spending all that money back at home. A few years ago and they’re thinking about then, again to close down all the bases here at home. Well there are some bases in this country that probably shouldn’t be open, but the ones overseas are more important to be closed down than the ones here, so I’d bring the troops home and have them spend all their salaries here at home, ‘cause Germany actually likes us to be over there for economic reasons, that helps them, helps their economy as well as the other countries. So I would say the immediate effect would be even the psychological benefit of knowing, “Wow, things are changing, he’s bringing these troops home, this is going to help our economy.”

Wolf Blitzer: And I just want to clarify your position on Iran, do you believe Iran represents no real threat to the United States?

Ron Paul: No real threat, I think it’s a threat just like there’s a lot of threats around the world, but if you compare it to what? Compare [...] Soviets that we stood down, they had 30,000 nuclear weapons and that’s when I was in the military during the Cuban crisis, is when I was drafted. So yes, there’s always some threat but there’s not that much from a country like Iran, they can’t even produce enough of their own gasoline, they don’t have any intercontinental ballistic missile…

I see this so similar, Wolf, to what was happening to the lead up to the war in Iraq because remember they kept saying “Oh there are Al Qaeda over there, and there’s weapons of mass destruction, we have to go in there” and it turned out not to be true. Just think of the tragedies that have occurred since then.

So, no, I don’t think it’s a real threat and our CIA as well as United Nations does not argue the case that they’re on the verge of having a nuclear weapon, so the last thing in the world we should be talking about is a war, and remember just recently Bob Gates coming home, he says, “Anybody that’s thinking about another war needs their head examined” and I think that’s the way the American people feel.

Wolf Blitzer: Because the president and other top officials they express fear that the Iranians are working to try to build a bomb even though they may not be on the verge of having it, they’re in the process of trying to develop one, you don’t agree?

Ron Paul: Well I think they certainly would have an incentive but we haven’t been able to verify it, that’s what my argument has been. But I even extend it one step further, what if in one year from now they have one nuclear bomb, what are they going to do with it? They can’t deliver it, and if they try to, they’d be wiped off the face of the earth because there’d be retaliation.

So they aren’t that threat that people play them up to be. Matter of fact, Iran has a pretty good history of not invading other countries and looking for these kind of fights. The last time they were in a war is when we instigated Iraq’s invasion of the Iranians, so no, I just don’t see that as a major threat. I see the radicalization of Islam fundamentalism as a result of our foreign policy going back all the way to 1953.

Wolf Blitzer: For years, you’ve been an outspoken critic of the Federal Reserve, the Central Bank in effect here in the United States. Now Rick Perry, the governor of Texas, your opponent for the Republican presidential nomination, he’s going one step further and blasting Ben Bernanke, the chairman who was originally named by President Bush. Let me play the clip and then we’ll discuss.

Rick Perry: If this guy prints more money between now and the election, I don’t know what you all would do to him in Iowa but we would treat him pretty ugly down in Texas. I mean, printing more money to play politics at this particular time in American history is almost treacherous, uh treasonous in my opinion.

Wolf Blitzer: Alright Congressman, your fellow Texan, what would you do to Ben Bernanke if he came to your state?

Ron Paul: I’d try to educate him, I’d try to explain to him why he’s embarked on a terrible course of history and that he’s not going to be remembered well unless he changes his way. But hopefully, you’ve never heard and at least I try never to make it the individual as much as the philosophy, the Federal Reserve System. Sometimes they’ll ask me, “What would you do, would you immediately get rid of Bernanke, will that solve our problems?” And it really doesn’t, it’s the system, it’s the Federal Reserve System, it’s the fiat money, it’s no backing to the currency, the monetization of debt, the way they do it in secret, the $15 trillion that they worked with in the bailout, the way they bailed out foreign central banks and foreign governments during the crisis, and a third of that money went over there.

So I would say it’s the philosophy, it’s the monetary policy that we have to deal with, so he is not my target even though I hopefully address it in a different manner when he’s before the committee and try to ask him questions to expose what he’s doing in running the monetary system.

Wolf Blitzer: So did Rick Perry cross the line in talking about treason, talking about getting ugly, I mean you know your governor, tell me, is he temperamentally qualified to be president of the United States?

Ron Paul: Well, it may surprise you, I don’t know the governor; I don’t recall ever having met him.

Wolf Blitzer: Really?

Ron Paul: No, I haven’t met him, I didn’t know he had an interest and I don’t know exactly what he’s up to, so I just don’t use that language. I would think that he wasn’t being literal, I just don’t believe that he believes that but those words did come out of his mouth as you just revealed. But I think it’s different, in politics it’s very easy to target somebody thy name and target your opponents and talk about them specifically; in many ways I try not to do that.

Wolf Blitzer: It’s hard for me to believe, he’s been governor for 10 years and he doesn’t know one of the most distinguished members of the Congressional delegation, but let me move on because we’re almost out of time. Has the national news media been fair to you?

Ron Paul: Well a lot other people say they have not been…

Wolf Blitzer: What do you say?

Ron Paul: Well, I think candidates have this belief that they’re never treated really fairly, but generally speaking I would say it was really weird and in that sense I guess that verges on what people are saying, it was very unfair that I did pretty well in Ames and achieved a bit of a victory from our perspective, and then to have five networks not take any interviews, and then we had one major network on Monday morning that got cancelled at the last minute, so it was definitely different.

But I don’t dwell on the word fairness and what am I going to do about it, I just try to keep doing my job and presenting my case and I figure we’d probably sort of won that little argument because we did get many, many interviews and many, many things on the Internet where I think we benefited by showing, what are they afraid of? Why can’t they recognize what Ron Paul is doing? So I would…

Wolf Blitzer: I was wondering, sorry for interrupting. but I just want to ask you one final question, a Twitter follower asked me to ask you, if you don’t get the Republican nomination, would you consider running as an independent?

Ron Paul: I haven’t thought about that, right now I’m concentrating, I’m in a middle of a race, I described it today as like, I used to run track. I don’t think much about the end, I just run hard and see how things come out. but as far as contemplating third party, that has not given me any serious thought at all.

Wolf Blitzer: Congressman, I’ll see you September 12th when CNN hosts the Republican presidential debate in Tampa Florida. Good luck.

Ron Paul: Thank you, Wolf.