The Fed Fighter: DealBook’s Ron Paul Interview

by Cyrus Sanati

Recently by Ron Paul: The Real Reasons Behind Fed Secrecy

The fallout from the credit crisis has put the United States’ financial system under a microscope. Banker pay, lending practices and regulatory oversight are now topics of mainstream interest for the first time since the Great Depression.

As Congress debates whether or not to give more power to the Federal Reserve to watch over the financial system, Ron Paul, the Republican congressman from Texas, is arguing, as he has for years, for the government to go in the opposite direction and actually cut the Fed’s powers.

In an interview with DealBook on Thursday, Mr. Paul discussed his new book, End the Fed, as well as his views on Wall Street.

The outspoken lawmaker contends that the government is essentially controlled by the Fed and in collusion with Wall Street, and has created an unsustainable economic system through the excess printing of money. He predicts that that system will eventually break down and the dollar will collapse, creating economic chaos.

Here are edited and condensed excerpts from DealBook’s talk with Mr. Paul.

Q. You’ve said you believe that Wall Street banks — what you’ve called a “secretive cartel of powerful money managers” — are able to manipulate interest rates under the current Federal Reserve system. What would Wall Street look like without the Fed?

A: The interest rate would be set by savers. Capital would come from savings, which is what happens in a free market. So if there were a lot of savings then interest rates would go down. This would give information to the marketplace, which is the most important thing that has to be corrected without a central bank: sending the right information out to borrowers, investors and savers.

Right now we don’t have a free market in interest rates, so it is basically price controls.

Q: In your book, you argue that ending the Fed would put the American banking system on solid financial footing. With the banks still far from clearing their toxic assets, how is that possible?

A: Well, to get rid of the toxic assets, the Fed said we need to step in because the assets were illiquid. Illiquid means that they are worthless, and if they are worthless, we should take care of that problem like we did in 1921 and eliminate them and get it over with and get back to work again.

But to take these illiquid, worthless assets and dump them on the American taxpayers and not really get rid of them it just prolongs the agony.

Q: It’s widely believed that the Fed is independent, made up mostly of academics, not politicians or business leaders. What specific powers do you believe the Wall Street banks have over the Fed that would allow them to influence it?

A: Well, we don’t have a full answer on that, but that’s obviously the reason the Fed doesn’t want a full audit. What we do know is that they do have influence over the Fed; I mean Wall Street was bailed out, and it wasn’t the first time.

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