Abolish the Fed

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Remarks
delivered at the End the Fed rally in Washington, DC, November 22,
2008, across the street from the headquarters of the Federal Reserve
Board of Governors.

Welcome, and
thank you all for braving the cold weather to make it out here to
today’s rally. My name is Paul-Martin Foss, and I am representing
the office of US Congressman Ron Paul. Like many people in this
country, I made it all the way through college without any knowledge
at all of economics. While preparing for grad school, I began taking
economics courses at George Mason University, where I received my
first exposure to Ludwig von Mises, Murray Rothbard, and the Austrian
School of economics. Through my study of Austrian economics, I grew
aware of the grave danger posed to this country by the Federal Reserve.

Many of
you here are undoubtedly familiar with the workings of the Federal
Reserve, but for those of you who may be here out of curiosity,
I will give a brief description of the Fed. Created in 1913, the
Federal Reserve System is a government-chartered but privately owned
national banking monopoly, with a presidentially-appointed Board
of Governors, headquartered across the street. The Fed issues the
paper currency we use in day-to-day transactions, which currency
is given legal tender status. The Fed influences market interest
rates by making purchases of Treasury bonds, mortgage-backed securities,
and other assets on the open market, attempting to keep interest
rates at a certain targeted level. It acts as a lender of last resort
to failing banks, offering money through its discount window. It
engages in currency swap operations with foreign central banks.
It serves as a clearinghouse and regulator for the banks in its
system. And, as we have seen over the past several months, it increasingly
operates as the guarantor of the stability of the entire American
financial system.

Because
of its hybrid government/private nature, decisions regarding monetary
policy are not subject to effective oversight. The Federal Open
Market Committee, a government-created committee, makes monetary
policy decisions, which are then implemented by the Federal Reserve
Bank of New York, a private institution. For the past few decades,
based on Keynesian thinking, the Fed has been tasked by Congress
with maintaining full employment and a stable price level. However,
a cursory examination of money supply and price level data shows
that the Fed has failed miserably in that regard.

Inflation
is an increase in the supply of money, and the effect of inflation,
all other things being equal, is a rise in prices. Something that
cost one dollar only 10 years ago would cost $1.32 today. And that
is based on the official data published by the Fed, the accuracy
of which over the past 25 years is subject to dispute, since price
level data has been manipulated to produce lower inflation numbers
in order to conceal the true damage of inflation from the American
people. Looking at the long term, over the 95-year history of the
Federal Reserve System the dollar has lost 95 percent of its value.
Any company that had mismanaged its assets in such a manner would
have gone out of business long ago.

Inflation
has two very pernicious effects, the first being that it benefits
debtors and punishes savers, since debtors are able to repay their
debts with devalued dollars. Thrift is punished because savings
see their purchasing power eroded every year. The second effect
of inflation is that those who receive new money first are able
to purchase assets before prices rise, while those who receive the
money last have had to deal with high prices before receiving the
benefit of the new money.

Who are
the largest debtors in this country? The federal government, of
course, with a national debt quickly approaching $11 trillion, but
also large finance companies and corporations such as General Motors,
General Electric, and Lehman Brothers, because of the preferential
tax treatment afforded to debt financing over equity financing.

Who receives
newly inflated money first? The federal government, the Federal
Reserve, major national banks, and government contractors. It is
no surprise then that those who benefit the most from inflation
are those who collude to continue the cycle of inflation, weakening
the dollar and raising prices. The rich get richer, and the middle
class and the poor grow poorer.

The Fed’s
manipulation of interest rates creates the boom-and-bust business
cycle that we have become all too accustomed to in this country.
At present we find ourselves moving toward the bottom of a particularly
destructive business cycle. Our policymakers unfortunately do not
understand the role of the Fed in the creation of business cycles.
Instead of ending the Fed’s manipulation of interest rates, the
Fed is encouraged to embed itself ever deeper in the economy, involving
itself in bailouts, creating new lending facilities, and acting
as the guarantor of financial market stability. Until the Fed ceases
its loose monetary policy, there will be no economic correction.
There may be short-term improvements in the economy, but once the
Fed’s policy tools are shown to be ineffective, the end result will
be a cataclysmic economic depression.

Recently
the Fed has been heavily involved with the actions surrounding the
Wall Street bailout, injecting trillions of dollars of credit into
the financial system. Reserve bank credit is up almost 150% over
the past two months, while the monetary base has increased 75% in
that same time frame. If the people across the street don’t get
their act in gear, this country could face a hyperinflationary crisis
the likes of which has not been seen in the First World since Germany
in the 1920s. You all have undoubtedly seen photographs of people
filling their wheelbarrows with paper bills in order to go grocery
shopping. Well, I have two wheelbarrows already, so I’m ahead of
the curve.

Since we
know what the problem is, how do we fix it? To address the Fed’s
shortcomings, Dr. Paul has introduced a number of legislative proposals.

HR 2754,
the Sunshine in Monetary Policy Act, would force the Fed to republish
M3, the broadest measure of money supply, which would allow a more
accurate gauge of potential price inflation. Reporting of M3 was
suspended in early 2006, as M3 was beginning to increase at an ever-faster
rate. How convenient that the broadest measure of money supply was
dropped as the housing boom began to bust, and not long before the
turmoil in financial markets began.

HR 2756,
the Honest Money Act, would repeal federal legal tender laws. Why
should worthless, unbacked paper issued by a private banking monopoly
have legal tender status? With legal tender laws in place, bad money
forces out good. Our Founding Fathers intended for gold and silver
to act as money, not unbacked paper.

In the
next Congress, Dr. Paul will be introducing a bill to audit the
Federal Reserve. The Fed currently is audited by GAO, but there
are certain areas of Fed activity that GAO is forbidden from auditing.
These include, and I quote here from US Code:

  • transactions
    for or with a foreign central bank, government of a foreign country,
    or nonprivate international financing organization;
  • deliberations,
    decisions, or actions on monetary policy matters, including discount
    window operations, reserves of member banks, securities credit,
    interest on deposits, and open market operations; and
  • transactions
    made under the direction of the Federal Open Market Committee

Well, if
you can’t audit any of those areas, what is left to audit? These
unauditable areas comprise the core methods through which the Fed
distorts the proper functioning of the market. Why should transactions
with foreign governments or foreign central banks be free from legal
scrutiny and oversight? What is to keep the Federal Open Market
Committee, a majority of whose members are presidential appointees,
from siphoning funds to politically connected firms? What other
agency of government receives such carte blanche to operate completely
independently, spending money willy-nilly and entering into agreements
with foreign governments, without any oversight? Were this the Department
of Defense or Department of State, we would rightly categorize it
as a rogue agency. To fully reign in the Fed there is only one solution.

That brings
us to the last, but not least, piece of legislation, HR 2755, the
Federal Reserve Board Abolition Act. This bill would repeal the
Federal Reserve Act and abolish the Federal Reserve Board of Governors
and the entire Federal Reserve System. Everything I have just described
shows that Fed is unaccountable, unconstitutional, and contrary
to every principle upon which this country was founded. Until the
Federal Reserve System is abolished, true freedom and prosperity
will elude us.

It is incumbent
upon us to educate ourselves and to spearhead educational efforts,
to speak to family, friends, and coworkers, to get the word out
about the Fed, what it is, what it does, and its detrimental effect
on the financial standing of this country and its people. I’ve managed
to convince my parents of the Fed’s destructiveness, and it never
ceases to amaze me how many people we talk to who have at least
some knowledge of the Fed’s destructive power. We are not alone,
and we need to ensure that our Congressmen know that. Educational
websites, Meetup groups, and rallies need to result in a flood of
letters, phone calls, and emails to Congressional offices, lobbyists,
and think tanks. Congressmen and their staffers need to know that
the Fed should be reined in and abolished, and that the legislation
to accomplish that already exists. Official Washington needs to
understand that we know what the Fed does, and we’re fed up. Freedom
is not easy, and it requires an educated, active, and aware populace.
It won’t happen quickly, it won’t happen easily, but once it does,
the groundswell of opposition will ensure a real change. The Fed
must go. End the Fed.

November
28, 2008

Paul-Martin Foss
[send him mail]
works on Capitol Hill in monetary affairs.

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