The Federal Reserve vs the Constitution
24. Sep, 2009 
23 Comments
by Ron Paul
Statement at Hearing of the House Financial Services Committee, February 15, 2007
Transparency in monetary policy is a goal we should all support. I’ve often wondered why Congress so willingly has given up its prerogative over monetary policy. Astonishingly, Congress in essence has ceded total control over the value of our money to a secretive central bank.
Congress created the Federal Reserve, yet it had no constitutional authority to do so. We forget that those powers not explicitly granted to Congress by the Constitution are inherently denied to Congress – and thus the authority to establish a central bank never was given.
Of course Jefferson and Hamilton had that debate early on, a debate seemingly settled in 1913.
But transparency and oversight are something else, and they’re worth considering. Congress, although not by law, essentially has given up all its oversight responsibility over the Federal Reserve.
There are no true audits, and Congress knows nothing of the conversations, plans, and actions taken in concert with other central banks. We get less and less information regarding the money supply each year, especially now that M3 is no longer reported.
The role the Fed plays in the President’s secretive Working Group on Financial Markets goes unnoticed by members of Congress. The Federal Reserve shows no willingness to inform Congress voluntarily about how often the Working Group meets, what actions it takes that affect the financial markets, or why it takes those actions.
But these actions, directed by the Federal Reserve, alter the purchasing power of our money. And that purchasing power is always reduced. The dollar today is worth only four cents compared to the dollar in 1913, when the Federal Reserve started. This has profound consequences for our economy and our political stability. All paper currencies are vulnerable to collapse, and history is replete with examples of great suffering caused by such collapses, especially to a nation’s poor and middle class. This leads to political turmoil.
Even before a currency collapse occurs, the damage done by a fiat system is significant. Our monetary system insidiously transfers wealth from the poor and middle class to the privileged rich. Wages never keep up with the profits of Wall Street and the banks, thus sowing the seeds of class discontent. When economic trouble hits, free markets and free trade often are blamed, while the harmful effects of a fiat monetary system are ignored. We deceive ourselves that all is well with the economy, and ignore the fundamental flaws that are a source of growing discontent among those who have not shared in the abundance of recent years.
Few understand that our consumption and apparent wealth is dependent on a current account deficit of $800 billion per year. This deficit shows that much of our prosperity is based on borrowing rather than a true increase in production. Statistics show year after year that our productive manufacturing jobs continue to go overseas. This phenomenon is not seen as a consequence of the international fiat monetary system, where the United States government benefits as the issuer of the world’s reserve currency.
Government officials consistently claim that inflation is in check at barely 2%, but middle class Americans know that their purchasing power – especially when it comes to housing, energy, medical care, and school tuition – is shrinking much faster than 2% each year.
Even if prices were held in check, in spite of our monetary inflation, concentrating on CPI distracts from the real issue. We must address the important consequences of Fed manipulation of interest rates. When interest rates are artificially low, below market rates, insidious mal-investment and excessive indebtedness inevitably bring about the economic downturn that everyone dreads.
We look at GDP numbers to reassure ourselves that all is well, yet a growing number of Americans still do not enjoy the higher standard of living that monetary inflation brings to the privileged few. Those few have access to the newly created money first, before its value is diluted.
For example: Before the breakdown of the Bretton Woods system, CEO income was about 30 times the average worker’s pay. Today, it’s closer to 500 times. It’s hard to explain this simply by market forces and increases in productivity. One Wall Street firm last year gave out bonuses totaling $16.5 billion. There’s little evidence that this represents free market capitalism.
In 2006 dollars, the minimum wage was $9.50 before the 1971 breakdown of Bretton Woods. Today that dollar is worth $5.15. Congress congratulates itself for raising the minimum wage by mandate, but in reality it has lowered the minimum wage by allowing the Fed to devalue the dollar. We must consider how the growing inequalities created by our monetary system will lead to social discord.
GDP purportedly is now growing at 3.5%, and everyone seems pleased. What we fail to understand is how much government entitlement spending contributes to the increase in the GDP. Rebuilding infrastructure destroyed by hurricanes, which simply gets us back to even, is considered part of GDP growth. Wall Street profits and salaries, pumped up by the Fed’s increase in money, also contribute to GDP statistical growth. Just buying military weapons that contribute nothing to the well being of our citizens, sending money down a rat hole, contributes to GDP growth! Simple price increases caused by Fed monetary inflation contribute to nominal GDP growth. None of these factors represent any kind of real increases in economic output. So we should not carelessly cite misleading GDP figures which don’t truly reflect what is happening in the economy. Bogus GDP figures explain in part why so many people are feeling squeezed despite our supposedly booming economy.
But since our fiat dollar system is not going away anytime soon, it would benefit Congress and the American people to bring more transparency to how and why Fed monetary policy functions.
For starters, the Federal Reserve should:
- Begin publishing the M3 statistics again. Let us see the numbers that most accurately reveal how much new money the Fed is pumping into the world economy.
- Tell us exactly what the President’s Working Group on Financial Markets does and why.
- Explain how interest rates are set. Conservatives profess to support free markets, without wage and price controls. Yet the most important price of all, the price of money as determined by interest rates, is set arbitrarily in secret by the Fed rather than by markets! Why is this policy written in stone? Why is there no congressional input at least?
- Change legal tender laws to allow constitutional legal tender (commodity money) to compete domestically with the dollar.
How can a policy of steadily debasing our currency be defended morally, knowing what harm it causes to those who still believe in saving money and assuming responsibility for themselves in their retirement years? Is it any wonder we are a nation of debtors rather than savers?
We need more transparency in how the Federal Reserve carries out monetary policy, and we need it soon.
Ron Paul is a Republican member of Congress from Texas. His “Audit the Fed” bill, HR1207, currently has over 290 co-sponsors in the House of Representatives. He is the author of seven books, including “The Revolution: A Manifesto,” and his latest, “End the Fed.”
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Whew! I had to read that several times before I understood I don’t understand. Okay, I get the transparency thing, but c’mon! How many voting patriots are going to read that and come out thinking “Yeah, I know just what to do about that!” I can’t even write a letter to my Congresswomen. People. Congresspeople. Actually, my Rep is probably a cosponsor, so that’s where I’ll start. The thing Greenspan brought to the game is that the Fed’s smoke screen is THICK; beyond Congressional comprehension. Bernank…Burna…the new guy has nothing new to offer. Congress is already buried under a pile of legislation defined by thousands of pages of legal-speak; these people are not on top of the Federal Reserve lingo, let alone how the gears work. Most of them are neglecting the issue out of sheer jargon intimidation! “Projections indicate a strong likelihood of a severe shortage of labor in several blah blah ZZZZzzzz….” I voted for Ron Paul, and I will vote for him again. But I’m a minority (white, male, conservative, middle class…). If Ron Paul and the Save America Party want to gain voter numbers y’all are going to have to translate your propaganda into English. Plain. Simple. English. Otherwise, on the rare occasion you reach Joe America at the Pub or Ray Liberal trying to figure out why he can’t afford to pimp his new ride like he saw on MTV, both of whom vote according to what puts a gallon of milk in the fridge, all they (we) are going to think is “My money is on a lung machine? Tell me somethin’ I don’t already know!”
I sadly, have to agree with the poster.
Clear, concise, and unabashed TRUTHFUL statements are what can
and should combat the endless barrage of hooey we get shoved down our throats from the so called ‘progressives’ nowadays.
For a few years now, I’ve lamented the fact that the repubs have run on platforms that are just dull: almost like beating some conservative drum, or repeating a mantra that they assume folks will rally behind.
I think of the character of William Wallace from the movie Braveheart: “…And if you would just lead them to freedom, they’d follow you. And so
would I.”
We’re dying for leadership here.
The kind that isn’t self-serving or outfoxed by flashy “hip” liberals.
my most humble .02
Rich
I appreciate the perspective of the first 2 comments here, but have to disagree. Why? Primarily because current events show this to not be the case. Ron Paul has been the lone voice in Washington D.C. speaking out against the federal reserve. He’s been using this kind of language the entire time.
And guess what? A few years ago when he introduced a similar bill to challenge the fed got no co-sponsors. There was very little public support, too.
Now, in major polls, more and more people are starting to understand, and wanting to know what goes on at the Fed. And he’s got enough co-sponsors of the bill to get it passed as it is.
On top of it all, his book – end the fed – which goes much further than this article, is currently on the New York Times best-seller list.
So obviously, this kind of language is communicating quite well with a LOT of people!
I think that the key lies in detaching the average people on the Left from this notion that the people they follow are acting in a compassionate way. It’s this lie that must be solved, for if the true intentions of the power hungry democratic leadership were to be revealed, how could they any longer be viewed as acting in the interest of humanity at large?
To understand the fed and the people behind it, a person needs to read “The Creature of Jeckell Island” where the “law that never was”, The 16th amendment was created,by the world bankers,the Shiff’s,Worbergs Rothchilds.Morgans and the like,to gain control of the economy of the U.S. If you control the money, it makes no difference who makes the laws. The fed has to be audited,all corperate and personal assets siezed and turned over to the congress to purchase gold and silver and get he U.S. back on a hard money system. And when we do, We had better have all our troops on home soil, a state of the art missel defense system, a strong milatary, and be ready to fight the New World Order with thier U.N. armies.
If We the People had 435 members of Congress who actually defended and supported the Constitution as opposed to defendeding and supporting their own personal greed, protecting their corporate interests, maintaining their career political lifestyles etc., we would not likely be having this conversation! Like begets like!! Crooks beget crooks!!
Perhaps what we need to see is the largest firing of public servants in the history of this country and We the People can do that by going to the voting booths in 2010. Can we get together and say ENOUGH!
The whole story of central banking is a phenomena of our nation’s descent into atheism. The “progressive” era which saw big government as the answer to all mankind’s problems was a direct outgrowth of Marxist ideology in Europe and Darwin’s absurd notion that sophisticated life forms marvelously sprang into existence and organized themselves intelligently along logical lines without the guiding hand or even existence of God. When we were a Christian nation, we would never allow the federal government to have so much power or look to it to solve our woes. I find it interesting that the atheistic community is largely silent about the Federal Reserve and that it is mostly among the conservative “right” that the alarm has been sounded.
Good for you, Patrick Henry Lives.
Atheism has had it’s day. Rotten to the core and destroyer of all that is good. Evolution, the religion of the Atheists, has left us in “shambles”.
1963 – Atheist O’Hare prevails with the Supreme Court. Prayer and Bible reading OUT of the Public Schools. It’s been “down hill” ever since.
The Robbers and Looters have come in FULL FORCE, run over our Beloved Constitution and left us “DESTITUTE”.
“It is time for Thee to work, O, God, for they have made void Thy Law.”
“Jesus is coming and boy, is He mad.” Common Vernacular
For God & Country
Transparancy is the first step in understanding the Fed. The arguments become clearer the more we see the operation, policies, and impacts tied to the policies. Just because it is complicated doesn’t mean we don’t continue to educate. Education/information is the key to everything, both good and bad. The people controlling monetary policy have the advantage of knowing how it works. We are at a disadvantage because we are failing to make the argument based on a beleief people in the “pub” will not care. They will care if we do our job right. Nothing happens over night and we must fight on many fronts…
Actually, with the establishment of the Fed, Congress committed two crimes (Can we call it anything else?)against the Supreme Law of the land. First, Congress attempted to pass of its vested powers to a second party. I say attempted, because a criminal has no legal title to something he/she steals – in this case the People’s authority. Would a court allow a thief to claim legal ownership of that which he/she has stolen?
Second, as stated, it had no authority to establish a bank. But then, it takes its marching orders from the President and the Supreme Court, doesn’t it.
We the People need to declare the whole sorry mess null and void, kick the criminals out, and start at square one.
Ed Perry
Constitution Party of Florida
Concerning the first two comments of the top, I have always found it so remarkably bold that one who does not understand an activist’s technical language demands it be reduced to slogans and mantras with fascist William Wallace catch-lines to appeal to the unwashed, naked masses. There is tremendous educational gaps in America but still one needs to think when they should speak and when they should not drag down the discourse with needs for a thesaurus! Not to mention Ron Paul is not asking of the reader, is this language too technical? He is asking, instead, what the hell is going on with our currency! How have we ceded control to private, occultist bankers who meet in cabals named Working Group on Financial Markets? How is this cell of self-interested money hoarding psychopaths planning to erode the freedoms America broke from the Bank of England for? To dumbify the discourse instead with appeals of, “I really like what you said, I think… but can you speak shopkeeper’s English?” is like shooting a show stallion in the hoof whom everyone else has come to see race. The erosion of education and higher English is a direct consequence of the few-rich, many-poor system the Fed and other bankers (Bilderberg Group! NWO!!) would like to actuate for their noxious offspring. Stop dealing with if Ron Paul speaks too eloquently and focus on what he’s talking about. When I was a child I would read adult books, I wouldn’t understand them entirely, I’d catch some of it but I kept reading. I used dictionaries, wikipedia… whatever. Those difficulties are private, not ones to be grandstanded. Shame on you! Focus on the debate.
Stephen, it’s because slogans, mantras and clear plain simple language is what is apparently needed to combat the “intellectual” elitist propaganda that so easily fries peoples brains into thinking a virtual communist should be our next President.
I’m sorry, but I think the first poster COULD perhaps represent a large portion of the conservative voting spectrum.
One that prefers to work hard, and not spend all frikin day bent over newspapers, trying in vain to sort through and understand the myriad of articles that go into great and painful details of how our financial banking system is in dire straights, or how the UN is undermining the sovereignty of the United States.
I humbly think average folks are just damn fed up with politics/positioning/muddy points made during debates/scripted answers/intellectual debate.
I think Sarah Palin struck a chord with many(myself included) with her down home, I’m a real person style/demeanor.
She could be a complete political idiot for all I know or care, but the fact is, she was a strong & simply spoken person who fired up alot of folks, and awoken hope that there’s still a lot of everyday people who do love this country, and aren’t afraid to speak out/up.
I could be wrong, and if so, that’s perfectly fine with me!
What was my point anyway?
R
And we need to put our money back on the gold standard. This will keep the government from printing more money at will because the gold has to be there to back it up.
The US Federal Reserve Bank: Dirty Secrets of the Temple
http://www.globalresearch.ca/index.php?context=va&aid=2712
“Give me control over a nation’s currency and I care not who makes its laws.” Baron M.A. Rothschild
http://www.save-a-patriot.org/files/view/whofed.html
Chart of who “owns” the Federal Reserve
“Give me control over a nation’s currency and I care not who makes its laws.” Baron M.A. Rothschild
I hate it when I get hung up on a little thing, don’t you? I’m going to post this, because I think my lengthy text is relevant to the tenth amendment issue, and then turn my attention to other things, because I truly don’t have time to be involved in everything; gotta pick my battles, ya know…
Coming from the gold mining industry, I have to agree with William. The gold standard would end the Fed’s game. The problem there is, there isn’t enough gold above and below ground to back what’s already been conjured up. At this point, it’s unclear what effect restoring the standard would have. We owe more fabricated money to foreign banks and governments than there is gold at anything like the current price per ounce. So the price would soar. Who will profit from that? Well, who has most of the gold? Betwixt countries, we’d be talking about masses of wealth the size that launch wars, and I’m talking about real wars; not the overly spendy yet comparatively small conflicts we’ve seen lately. Also, an audit would be a good start, as Ron Paul suggests. However, keep in mind that our precarious situation has its illusion of stability in its inherent mystery. This is one house of cards that needs to be dismantled very carefully from the top down. I don’t think those audit results are likely to be something we want to broadcast on Fox News. Maybe let that be worried over by a committee of state governors or comptrollers or something…
Now, I need to digress to deal with Stephen. My intent was not to drag down the discourse or disrespect Ron Paul, who is indeed eloquent. I often agree with him. I agree with the article in question. I don’t think I suggested otherwise. My point is that the 10th Amendment Center is not a debate forum exclusive to those who have higher education and time to consult references. I’ll digress even further briefly for perspective’s sake: I’m guessing the reason you have so much time to look things up is that, based on your deplorable grammar and spelling, and your admission– no, “grandstanding” about referring as a child to Wikipedia when confused by adult books indicates your, what, midway through college now? Wikipedia launched in 2001, dude. Save your scorn for later, when you actually have something to add to the “debate”.
However, in Stephen’s defense, since my previous comment was a drive-by (i.e., quickly posted, short, and under the assumption that my points would be well-taken or ignored), and since later comments either (surprisingly) took it or left it, I elaborate for those wondering what the heck I was get’n at (It’s relevant to the article, I swear.):
First, Stephen points out another problem with this movement: that word “debate” makes no sense in the context of a base camp, so to speak. Why should we be debating among ourselves? Is that not division? Let us converse and hawk ideas together here and save debating for the battlefield whereupon the enemy is present, okay?
Second, and to my previous point, when I registered on the site, the membership campaign seemed pointedly designed to sign up conservative people of ALL levels of education who want to join this most vital fray. Though Stephen clearly believes that the conversation should be reserved for those properly versed in the finer points of equine politics, even the horses know that what the spectators want doesn’t matter. In fact, in politics spectators don’t matter. Spectators are useless. The idea that some of us should shut up and only watch the debate guarantees that this will all amount to nothing but a horse race, instead of a battle to retake lost ground in the real world outside the fairgrounds. (I’m jacking Stephen’s similes here).
The men who originally limited Federal government power certainly recognized the equality of all manner of men IN the debate, as is made concise, clear, and to the point by their own writing. There is a place for eloquence; it is superior in its rightful place of use over shouting “You lie!” at the President, but out of its correct market eloquence is nothing more than blather, a barrier against effective mobilization of power. You don’t have to speak DOWN to regular folks to put us in our place (we know our place, thanks); you won’t get anywhere talking TO regular folks (we been ejumicated already and we gots jobs and famblies now, we is adolts); if you want results you will have to speak WITH regular folks, using regular language. I don’t recall suggesting slogans and mantras, but before rejecting such things off-hand, might we first consider that advertising, with its mantras and slogans, has been a fairly large and important percentage of successful campaign budgets for a reason.
Therefore, I am suggesting that front-page material on this site be tuned to the general audience on this site, meaning eloquent diatribes and rants be proportionate to the eloquent audience, which, I suspect, is actually quite small. I am not in the habit of posting frivolous comments; the article offered me a perfect example of the problem which conservative efforts often have in achieving unity and power. So, I quickly jumped on it. That Liberals sweep much of their support from under our own base ought to tell us that elitism is not restricted to the Progressive Elite; it’s hypocritically rampant in all conservative parties as well. The difference is, Liberals have no difficulty educating the “unwashed, naked masses”, as Stephen calls me and mine.
It has been pointed out on this forum and by the likes of Ron Paul that the 17th Amendment is relevant to the 10th Amendment matter, not singly because it transferred power from States to the Feds via popular vote, but also because it removed the influence of a pool of appointed, presumably well educated and experienced people from the congressional process. Until the 17th Amendment is repealed, it will be necessary for even the sort of conservative leadership truly qualified by education, public service, and military experience– a rare breed these days– to put up with silly ideas like embracing popular culture and average reading levels; that is, if the likes of Ron Paul wish to resonate with enough voters and congressional constituents to achieve the objectives already lost to those who already get it. Got it?
EVERYTHING we pledge when we borrow money is pledged, ultimately, to the Federal Reserve. Home loan, car loans, EVERYTHING is held, in title by the Fed.
Ask yourself this, what collateral does the U.S. Government pledge to the Federal Reserve in order to “secure” the loans made??
The Congress has no authority to delegate (further) the authority delegated to them in Article I of the Constitution. All of you should read the accurate historical record of how this was enacted and you would become instantly sick to your stomach. Let us stop arguing about Dems v. Reps. and realize Nixon took us off the gold standard, while Wilson gave us up to the Federal Reserve. Unbridled spending is the political act de jour. It insures ‘their’ re-election, while diluting the value of what we all work for … our own estate. Kennedy was no worse than Bush, and Bush no worse than Clinton, Roosevelt, Truman or Eisenhower. They are ALL the same.
Scott,
While I admire the quality of your writing I must take exception to the notion that 10th Amendment Center is geared towards conservatives. TAC is not a conservative organization, nor is it a liberal one.
The fact is that the con/lib labeling mechanism is just another tool of those who benefit from dividing the masses. What we are talking about here, in terms of the big picture, is two groups consisting of those who would support further centralization of our government and the increase of it’s power on one hand vs. those who are fighting for a decentralized, strictly limited government.
I do indeed appreciate your contribution and I submit to you that con/lib dem/rep rhetoric is not useful at this point.
I wish that when Federal Reserve v the Constitution issues were raised that people would reference the following excerpt from Jefferson’s writings. Although people can read into 1913 anything that they want to, Jefferson had reminded George Washington that the Founding states had REJECTED the idea of giving banking powers to the federal government.
“It is known that the very power now proposed as a means was rejected as an end by the Convention which formed the Constitution. A proposition was made to them to authorize Congress to open canals, and an amendatory one to empower them to incorporate. But the whole was rejected, and one of the reasons for rejection urged in debate was, that then they would have a power to erect a bank, which would render the great cities, where there were prejudices and jealousies on the subject, adverse to the reception of the Constitution.” –Thomas Jefferson, Jefferson’s Opinion on the Constitutionality of a National Bank : 1791 http://avalon.law.yale.edu/18th_century/bank-tj.asp
So with all due respect to Ron Paul, the following statement really has no meaning, IMO.
“Congress, although not by law, essentially has given up all its oversight responsibility over the Federal Reserve.”
After all, how do you make laws regulating anything without some kind of oversight responsibility?