End the Fed

June 8, 2009 – I’ve lost count of how many trillions of dollars have been created ‘out of thin’ air by the Federal Reserve to bail out the banks. But regardless of the quantity, these newly created dollars along with the dollars created to fund the federal government budget deficits explain why the US dollar is on the road to the fiat currency graveyard and headed toward hyperinflation.

This outcome, however, is not inevitable. The dollar’s direction can be changed if the right decisions are made and if the right policies are followed. In this regard, I wholeheartedly support two bills before the House of Representatives that have been proposed by Congressman Ron Paul. The first is H.R. 833, which is entitled the Federal Reserve Abolition Act.

Its purpose is, as the bill itself says, “To abolish the Board of Governors of the Federal Reserve System and the Federal reserve banks, to repeal the Federal Reserve Act.” The full text of this important bill can be read at the following link: www.govtrack.us

To put the dollar back on the right track, it is first necessary to put the federal government back on the right track. It must be a government with limited monetary powers as envisioned by the framers, like the government more or less in place until the early twentieth century. To achieve this aim, it is necessary to separate ‘bank and state’, much like we follow the principle of separating ‘church and state’. This basic principle of prudent monetary policy has been expounded by Edwin Vieira, author of Pieces of Eight (see Pieces of Eight).

Abolishing the Federal Reserve would be a giant leap in the right direction. Without a Federal Reserve standing by to ensure that the federal government’s deficits are funded, the government would need to live within its means. And banks with bad management would not have a central bank to go to ‘hat in hand’ seeking a bailout.

Though it is the right thing to do, abolishing the Federal Reserve may seem like a drastic step to some legislators, or actually, perhaps many of them because so far Rep. Paul has not been able to secure a co-sponsor for this bill. He has, however, had far more success with a second piece of proposed legislation.

His H.R. 1207 has 190 co-sponsors, which is nearly one-half of the House of Representatives. The Federal Reserve Transparency Act of 2009 sets out to achieve transparency at the central bank and would require that the Federal Reserve be audited by the Comptroller General. This bill can be read at the following link: www.govtrack.us

A similar bill is also working its way through the Senate. S. 604 is entitled the Federal Reserve Sunshine Act of 2009, but so far Senator Sanders has been unable to secure any co-sponsors.

Nevertheless, many in Congress on both sides of the aisle have been irritated by the central bank’s in-your-face secrecy and its refusal to provide Congress with important information about its activities and bailouts. According to Reuters: www.reuters.com

“Members of Congress have chafed at the Fed’s bold use of its emergency powers and in particular its multibillion-dollar bailouts of investment bank Bear Stearns and insurer American International Group. Critics also bristle at the Fed’s practice of maintaining the confidentiality of the companies that borrow directly from the central bank…Many lawmakers and private analysts also fault the Fed for failing to stop risky lending and flawed market practices that laid the groundwork for the [present financial and economic] crisis.”

It is not too surprising that this legislation is rapidly working its way through Congress. The Federal Reserve is accountable to no one, except the big banks that control it. Bloomberg reports: www.bloomberg.com

“The central bank has been become a target to some members of Congress who’ve posted online videos of their interrogations of Fed officials during public hearings. One YouTube clip, of Florida Democratic Representative Alan Grayson’s grilling of [the Federal Reserve’s] Inspector General Elizabeth Coleman, has garnered almost 500,000 views in about a month.”

The views now total almost 600,000. Here’s the YouTube link, and it is well worth viewing. If you haven’t already seen it, I strongly recommend that you take five minutes to view it. www.youtube.com

It is obvious that by operating behind closed doors, the Federal Reserve is clearly demonstrating that it believes it is above the law. It is an intolerable proposition, but rather than reform its ways, guess what the Federal Reserve has decided to do about the growing demands in Congress for public scrutiny.

It is hiring a lobbyist – as if the Federal Reserve and the all-powerful banking lobby didn’t already have enough undue influence on Capitol Hill. What’s even more egregious is that the lobbyist it is hiring is Linda Robertson, who according to Reuters “was vice president for government affairs at now-defunct energy company Enron Corp from November 2000 until she closed its Washington office in early 2002. Enron collapsed in scandal in 2001 and her work there may raise some eyebrows.” I would hope that her record does more than just ‘raise eyebrows’. Enron used tons of money to induce favors from Capitol Hill until it finally collapsed.

As I have noted time and again, the Federal Reserve – and indeed, central banking itself – is a barbarous relic. My detailed analysis of this point of view is in my monograph at the following link:  barbarous-relic.pdf

The path that must be taken is clear. Until the US returns to sound money, expect more economic and monetary turmoil. To achieve this aim, the federal government must tie the dollar to gold and/or silver. It must also act on Congressman Paul’s legislation and abolish the Federal Reserve.