You just have to admire Ron Paul for his tenacity and non-flip-flopping straightforwardness—a breath of fresh air in the putrid morass of Washington—even if you disagree with his policies. And while he still can, before retiring from Congress, he is slugging at the Fed again. This time, as Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy and Technology. The committee, which has oversight authority over the Fed, will convene on Tuesday to weigh six bills to “Reform or Abolish” the Federal Reserve, including his Federal Reserve Board Abolition Act. From the press release:
“More and more people are beginning to understand just how destructive the Federal Reserve’s monetary policy has been. I hope that this hearing will kick start a serious discussion on the need to rein in the Fed,” said Chairman Paul. “100 years is far too long for Congress to have taken a hands-off approach. The Fed continues to reward Wall Street banks while destroying the dollar’s purchasing power and driving up the cost of living for average Americans. This reckless behavior must come to an end.”
While his efforts to abolish the Fed have been fruitless, he scored a huge victory—after years of trying, and being shunted aside by members of Congress—when his legislation to slap the Fed with an audit was included in the Dodd-Frank Act. It made possible not just one but two audits of the Federal Reserve System by the Government Accountability Office (GAO). Though limited in scope, they nevertheless allowed a few rays of sunshine to pierce the Fed’s plantation shutters and illuminate some of the shenanigans, including octopus-like conflicts of interests that twisted their arms around everything during the multi-trillion-dollar bailout mania between 2007 and 2009.
Rep. Paul’s Federal Reserve Board Abolition Act might once again rev up the debate, but it is doomed in Congress—because Congress is addicted to the crack cocaine of deficit spending, and only the Fed’s printing press can make sure that there are no Greece-like funding disruptions. Last year was a great example because of the silly gyrations lawmakers performed publicly in trying to cut the deficit via the infamous Supercommittee—where spending cuts went to die. And the agreed-to “automatic” spending cuts will be modified away before they kick in. So, outlays in fiscal 2011 rose by 4.2% to $3.6 trillion, of which a sickening 38% was paid for with borrowed money … which, as of May 3, per the Treasury’s “Debt to the Penny,” amounted to 15,671,202,480,642 dollars and, indeed, ninety-eight cents.
At the rate Congress is shoveling moolah out the door, the national debt will balloon to $16 trillion in a few months. There are no guarantees that credit markets would be able or willing to digest that kind of onslaught, at least not at the current below-inflation and highly unappetizing yields. A debt crisis of epic proportions would practically be a certainty—if it weren’t for the Fed’s miraculous money machine whose humming and rattling we hear every day.
But we have to be sympathetic to lawmakers and their plight. They’re caught in a vice between raising taxes and cutting outlays—we can’t really talk about “cutting the budget” because Congress hasn’t passed a budget in years but instead lumbers from continuing resolution to continuing resolution.
Cutting outlays—ironically, even a micro-step towards living within one’s means is called “austerity” these days—would scoop money out of the big trough that is feeding just about everybody and everything in the US and often overseas: retirees, Big Oil, museums, Solyndra, defense contractors, GM, GE, non-profits, government agencies (useful or not), the rich, the poor, etc. And they’re all screaming for more. A very painful situation for lawmakers, whose ears can only take so much, and whose jobs depend on doling out money. And raising taxes? Deafening cacophony. Lawmakers have millions of reasons not to venture into that thorny thicket.
Instead, the Fed makes sure the money is there. Thus, campaigns can go on unperturbed, while the future of America is threatened by huge deficits and a gross national debt that will reach 120% of GDP possibly by 2014—a level that Italy is struggling with today. The Fed’s near-zero interest rate policy and monetization of the deficit shield Congress from the harsh but medicinal discipline of the markets—a medicine Congress fears more than anything else. And so, lawmakers will brush off Ron Paul’s efforts to slug at the Fed one more time, before he retires.