Ron Paul Vs. Ben Bernanke
Ben Bernanke testified before the House Financial Services Committee on Wednesday morning after appearing in front of the Senate on Tuesday. Whenever Chairman Bernanke speaks to the House Committee, the most compelling drama usually comes from his interrogation at the hands of Libertarian Congressman Ron Paul. Wednesday's session was no different as Paul challenged him on monetary policy and preached against the secrecy of the Federal Reserve.
Paul said that under the current system, the Fed operates in secrecy and the central bank's activities should be more transparent. While much of the Fed's activities can be tracked after the fact, Congress has no power to audit the Fed's monetary policy moves. Paul was particularly critical of the trillions of dollars that the Fed lent out to foreign banks and governments during the financial crisis.
The Congressman noted that all money used for overseas bailouts comes from taxpayers. He lambasted massive liquidity injections without any Congressional oversight, arguing that they put the value of the U.S. dollar at risk. Bernanke argued that a weaker dollar hurts the poor and middle class who see their purchasing power decrease. The wealthy, on the other hand, have a much better chance of mitigating the ravages of inflation by investing a large portion of their income.
Paul also repeated his contention that the United States is on the verge of a currency crisis. While he opposes Ben Bernanke's monetary policy, he also expressed frustration towards the Congress that has supported the idea of a completely independent central bank.
Bernanke responded by saying that Congress has the oversight and they have decided that the Fed should be entirely independent. He said that Congress has given its authority to the Fed and that if the Congress wanted to take it back, it could.
Bernanke strongly opposes such a move, arguing that, "It is a well established fact that an independent Central Bank will provide better outcomes."
Paul asked Bernanke if there was ever a time he would re-assess his view on monetary policy. Essentially, Paul wanted to know if Bernanke would ever change course from his current Keynesian outlook on monetary policy. Bernanke responded that he makes evidence-based decisions and that he certainly would be flexible in changing his mind given the circumstances.
Finally, Paul wanted to know if the Fed Chairman views current economic conditions as being different from previous recessions. Bernanke said "yes," citing the lingering effects of the financial crisis as the reason.
The bottom line is that Paul sees the Federal Reserve as an institution whose very existence has destroyed the long-term value of the dollar on the back of the poor and middle class while benefiting the wealthiest Americans. He also is a virulent critic of the Fed because of its ability to finance big government, wars and endless Federal expansion through currency printing.
Ben Bernanke, on the other hand, is an academic whose decisions are driven by rigorous data analysis. Essentially, he cites evidence that a central bank can use monetary policy to manipulate and push the economy towards positive outcomes while mitigating the consequences of the inevitable downturns.
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