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Ron Paul: Fed to Blame for Faltering Economy

Friday, 21 Oct 2011 08:32 AM

Republican Congressman and presidential candidate Ron Paul says that the Federal Reserve is to blame for our faltering economy.

"In many respects the governors of the Federal Reserve System and the members of the Federal Open Market Committee are like all other high-ranking powerful officials," Paul writes in The Wall Street Journal.

"Because they make decisions that profoundly affect the workings of the economy and because they have hundreds of bright economists working for them doing research and collecting data, they buy into the pretense of knowledge — the illusion that because they have all these resources at their fingertips they therefore have the ability to guide the economy as they see fit," the Texas lawmaker wrote.

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"Nothing could be further from the truth. No attitude could be more destructive," Paul wrote.

The Federal Reserve, says Paul, has caused every single boom and bust that has occurred in this country since the bank's creation in 1913.

Ron Paul
(Getty Images photo)
“It pumps new money into the financial system to lower interest rates and spur the economy,” Paul explains. “Adding new money increases the supply of money, making the price of money over time — the interest rate — lower than the market would make it.”

These lower interest rates affect the allocation of resources, causing capital to be malinvested throughout the economy, making certain projects and ventures that appear profitable when funded at artificially low interest rates are not in fact the best use of those resources.

“If the Fed would stop intervening and distorting the market, and would allow the functioning of a truly free market that deals with profit and loss, our economy could recover,” Paul says.

“The continued existence of an organization that can create trillions of dollars out of thin air to purchase financial assets and prop up a fundamentally insolvent banking system is a black mark on an economy that professes to be free.”

CNN reports that a new Government Accountability Office (GAO) audit says that the Federal Reserve banks need to better prevent conflicts of interest, according to a new government report that highlights transparency issues with financial executives serving on the banks' boards.

All 12 reserve banks should more "clearly document the roles and responsibilities of the (board) directors," the GAO said.

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