In a House Financial Services Committee hearing on Wednesday, Texas Republican Rep. Ron Paul ripped into the Federal Reserve System, calling the central bank a “fallacy” and a “flawed system.”
“I think they have a job that they can’t do, because it’s an unmanageable job and it’s a fallacy, it’s a flawed system, and therefore we shouldn’t expect good results,” Paul told Federal Reserve Chairman Ben Bernanke.
Paul has strongly supported abolishing the Federal Reserve System and even proposed a Congressional resolution last year that would repeal the Federal Reserve Act.
While that particular position hasn’t caught much traction, Paul has helped spur Congress to audit the Fed and increase the central bank’s accountability and transparency.
For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law two years ago, mandated a one-time auditing of Federal Reserve dealings during a financial crisis. And just last month, the House Oversight Committee passed a bill sponsored by Paul requiring the Government Accountability Office to conduct a full audit of the Federal Reserve for the first time in its history.
The bill received bipartisan support and has 257 co-sponsors from both parties.
Like his former rivals Rick Perry and Newt Gingrich, presumptive Republican presidential nominee Mitt Romney has mirrored some of Paul’s criticism.
“The Fed’s stimulative effects have really run their course,” Romney said in June.
Bernanke, however, has shown resistance to Paul’s audit bill, saying it could compromise the independence of the central bank.
“That is very concerning because there’s a lot of evidence that an independent central bank that makes decisions based strictly on economic considerations and not based on political pressure will deliver lower inflation and better economic results in the longer term,” Bernanke told the House Financial Services Committee.
But the Fed is not immune to political pressure. In the 1970s, for example, scholars argued that then-Fed Chairman Arthur Burns lowered short-term interest rates to give his friend, then-President Richard Nixon, a boost prior to election day.
“Just the creation of money doesn’t restore the confidence that is necessary,” Paul said at the hearing. “Until we get to the bottom of this and restore the confidence, I don’t think we’re going to see economic growth.”
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