Bernanke’s worst nightmare Ron Paul
Breaking News
November 12, 2010
Ron
Paul grills Bernanke during the Congressional Joint Economic Committee hearing
into the state of the U.S. economy.
http://money.cnn.com/2010/11/12/news/economy/Bernanke_Paul/index.htm
NEW YORK (CNNMoney.com) -- Ben
Bernanke has had his hands full since his first day on the job as Federal Reserve
chairman nearly five years ago. It's about to get even tougher.
His harshest critic on Capitol Hill,
Rep. Ron Paul of Texas, is about to become one of his overseers.
With the
Republicans coming to power, Paul, who would like to abolish the Fed and the
nation's current monetary system, will become the chairman of the House
Subcommittee on Domestic Monetary Policy.
If you've never heard of the
committee before, you're not alone. But Paul promises you'll be hearing a lot
more from it.
"It's basically been a
committee that's dealt with commemorative coins. I'm going to deal with
monetary policy," he said.
Paul doesn't think he'll be able to
move his proposal to eliminate the Fed, or to allow Americans to use gold
instead of paper money as currency. But he said he does intend to use his new
position as "a mini-bully pulpit" to criticize Fed policy and call
more attention to what he sees as its negative consequences. And he's confident
that American voters are ready to delve into those monetary policy questions.
"Five years ago they wouldn't
have listened. Now they will," he said. "We've gained a lot of
credibility in making the Federal Reserve an issue since the market
collapse."
And Paul vows to try again to
authorize Congressional audits of the Fed's decisions on the economy, a
proposal that passed the House last year but was essentially gutted from the
final version of the financial regulatory overhaul legislation.
"It will never be easy; the Fed
has a lot of influence," he said of the audit legislation. "But
there's a lot of life to it. We got further along than I ever expected."
One way that Paul will bring
pressure on Bernanke and his Fed allies is to hold hearings to give greater
voice to Fed members -- like Kansas
City Fed President Thomas Hoenig -- who disagree
with the current monetary policy.
"Just getting someone there
willing to discuss their viewpoint and why they might dissent, I think that
would be interesting," Paul said.
A Fed spokesman did not respond to a
request for comment for this story.
Some economists
worry that Paul having that kind of pulpit will hurt the Fed, and diminish its
ability to fix an economy that still needs help.
"From Ron Paul's standpoint,
the Fed can't do anything right," said Lyle Gramley,
a former Fed governor who is now senior economic advisor to the Potomac
Research Group. "He can cause the Fed to lose a lot of public support. But
it needs public support to do what it needs to do."
While the Fed policymakers will try
to resist pressure from Paul, they won't be able to ignore it, said John
Silvia, chief economist for Wells Fargo Securities. And he said there's a
potential for that pressure to influence Fed policy.
"The Fed has a more balanced,
nuanced position on its dual mandate to promote growth and keep prices
stable," he said. "Ron Paul probably doesn't."
But other Fed watchers say Bernanke already
faces plenty of criticism and doesn't have too much to worry about from
Paul having control of an oversight committee.
"I think that Bernanke has been
pretty cool under fire up to now. I can't imagine Ron Paul being someone who
could shake him up," said Michael Bordo, a
professor of economics at Rutgers University.
Paul also rejects the idea that he's
Bernanke's greatest concern.
"He probably just thinks I'm a
nuisance rather than a nightmare," he said.
And Paul doesn't think he'll be able
to reverse Fed policy or force Bernanke to resign, as much as he would like to.
"I think psychologically,
Bernanke is incapable of changing his mind," he said. "It's probably
unlikely [Bernanke will resign] under today's circumstances. But you don't know
what it will be like a year or two from now."
Paul argues the Fed is making a
serious mistake by pumping
more money into the economy to try to spur more spending and growth. He
predicts it will only lead to further declines in value of the dollar,
inflation and higher interest rates rather than the lower rates the Fed is
shooting for.
Paul thinks that will bring about
another economic crisis that will eventually force Bernanke to resign from
office.
"That's more likely to happen than for Bernanke to think, 'Well, I guess I
made a mistake for 35 years. I've misunderstood the Depression, and I'm going
to change my policy.'"
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