[Bret L]

Ron Paul Has the Council on Foreign Relations Worried


"lNear the start of this year Ron Paul (R-Texas) introduced H.R. 1207, the Federal Reserve Transparency Act of 2009. The bill was referred to the House Committee on Financial Services. As of this writing, H.R. 1207 has 282 cosponsors.

A Senate equivalent, S.604, the Federal Reserve Sunshine Act of 2009,
has been introduced by Bernie Sanders (I-Vt.). It has 23 cosponsors.
Both bills have received a tremendous groundswell of grass-roots
support. Much of the support is coming from ordinary people who have
become aware of the fact that the Federal Reserve has created
trillions of dollars literally out of nothing during the past calendar
year in its effort to micromanage its way out of the worst economic
crisis since the Great Depression.

If such a measure were passed by both houses of Congress and signed
into law by President Obama, the resulting bill would allow the
Government Accounting Office to conduct audits of Federal Reserve
System monetary policy. The bill proposes to scrutinize the Fed’s
dealings not just on domestic monetary policy but on dealings with
foreign central banks and foreign governments.

The power elite is worried. Evidence for this can be found in a short
article "The Fed's Political Problem" appearing on the website of
Foreign Affairs, flagship journal for the Council on Foreign Relations
(CFR). The article's author, Alan S. Blinder, is a senior-level
economics professor at Princeton University who also directs
Princeton’s Center for Economic Policy Studies. From 1994 to 1996 he
served as vice chairman of the Board of Governors of the Federal
Reserve System.

Blinder first argues a thesis he proposed back in 1997, that some
areas of government are properly political and others are properly
technocratic. He places monetary policy in the latter, where it can
operate independently of political oversight. The drawback of Ron
Paul’s bill is that it would transfer Fed oversight to the political
realm and end its independence.

Blinder describes Dr. Paul as “an extreme libertarian and longtime foe
of the Fed. He has, incredibly, persuaded almost two-thirds of the
House of Representatives to co-sponsor a bill that would jeopardize
the Fed’s independence.” According to Blinder, the Fed “gets plenty of
critical evaluations” of its policies and decisions. He maintains that
Dr. Paul’s bill “could easily develop into something quite dangerous.”
He imagines this scenario:

Sometime in 2010, the Fed, wanting to avoid inflation, will likely
begin to abandon the hyper-expansionary monetary policy it adopted
during the recent crisis as a way to stave off a depression. As it
does so, interest rates will start rising even as unemployment remains
high. Predictably, Congress, being more closely attuned to public
opinion, will be unhappy with this situation. Until now, the Fed’s
independence has ensured that it can afford to ignore public opinion
and take such necessary but unpopular economic measures. That is
precisely why we want an independent monetary policy. But if the Paul
bill passes, angry members of Congress could ask for a GAO audit. And,
if the report is critical, they could use it to browbeat members of
the Federal Open Market Committee, the Fed’s interest-rate-setting
body, for killing the country’s economic recovery.

This misses the key argument Ron Paul has been making, which follows
those of members of the Austrian school of economics (e.g., Ludwig von
Mises). What Blinder euphemistically calls hyper-expansionary monetary
policy actually is inflationary, if we understand inflation to be not
merely rising prices but an increase in the amount of fiat currency in
circulation. Mainstream economics has long preferred the public to see
inflation almost exclusively in terms of visibly rising prices. If
prices aren't rising, economists can maintain that inflation is low
even though the money creation spigot is going full blast — as it has
been since the economic crisis began a year ago.

If we understand inflation as an increase in the money supply,
however, we see immediately that the Fed, far from being a controller
of inflation, is actually an engine of inflation. Rising prices in
this case are just one possible effect of monetary inflation. The Fed
is responsible for the long-term decline in purchasing power of our
dollars, which have been backed literally by nothing except legal
tender laws and the willingness of the public to accept them since
1971, the year President Richard Nixon severed the last ties between
the dollar and gold. Fed monetary policy is the reason a hamburger
costs you several dollars when your grandfather could buy one for
thirty-five cents. The dollar has lost slightly over 96 percent of its
value since the Federal Reserve System was created in 1913. The
national debt has soared during the period since 1971 from a few
hundred million to its present $11.8 trillion. Millions will be added
to the debt during the brief time it takes to read this article!

The dollar’s value will drop considerably more should it lose its
status as the world’s reserve currency. The Chinese are getting very
nervous about the money-creation spigot in Washington, D.C. Perhaps
these are the kinds of developments that elites such as Blinder don’t
want the public to know about. Clearly the elites are uncomfortable
with the amount of attention the Fed has received — the public being
aware of the trillions having been created literally out of thin air
during the past year. “What will this do to the long-term purchasing
power of my money?” is a perfectly valid question many ordinary
Americans are asking.

What are the prospects for H.R. 1207 and S. 604? Even if these bills
pass and a compromise bill reaches President Barack Obama’s desk, it
is difficult to imagine him even considering signing it. The effort to
bring more of the Fed’s activities into the light of day may receive a
new ally in the Senate late next year, however, as Ron Paul’s son Rand
Paul has announced his candidacy for one of Kentucky’s two slots and
raised $815,000 as of this writing. Like father, like son: Rand Paul
is also highly critical of the lack of transparency that characterizes
crucial decisions made by the Federal Reserve and has vowed, if
elected to the Senate, to work to “shed light on this secretive
organization." He reminds us of the trillions the Fed has created out
of thin air and adds, “The American people have a right to know to
whom this money was given. For all its talk of transparency the
current administration has done nothing to tear the shroud off the
Fed.”

http://www.thenewamerican.com/index..../congress/1842