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Ron Paul Warns Bernanke: The Financial Crisis Is Far From Over

WASHINGTON - MARCH 25:  Committee Chairman Rep...

Ron Paul and Barney Frank were among the members of Congress that grilled Bernanke - Image credit: Getty Images North America via @daylife

In what Congressman Bacchus called “a double dose,” Texas Representative Ron Paul grilled Fed Chairman Ben Bernanke on two occasions on Tuesday at the House Financial Services Committee.  Congressman Paul scolded the Fed Chairman for being “secretive” while claiming that the financial crisis is “far from over.”

Bernanke’s visits to Capitol Hill have recently been marked by his exchanges with Ron Paul, a staunch Fed basher who believes in the merits of the gold standard.  After facing a relatively tamer Senate Banking Committee, the Fed Chairman’s feet were held to the fire by Ron Paul & Co.

While the exchange was rather one-sided, Ron Paul made his points heard.  He first criticized the Fed for equivocating independence with secrecy, noting that about $15 trillion had been used for overseas bailouts during the crisis, via currency swaps, which the Congress could not monitor.

Ron Paul then noted that when Bernanke claims the Fed stands ready to support Europe and other geographies during times of financial and economic crisis, it’s actually the American tax payer that is shouldering the burden.  The Fed Chairman responded by noting that it is Congress which delegated the responsibility to manage monetary policy to the Federal Reserve.

While the Fed Chairman tried to avoid engaging Ron Paul, he did show his ideological bent when he told Ron Paul that while Congress could eliminate the statue the makes the Fed an independent body, it would result in a more inefficient central bank and ultimately a worse outcome.

The Congressman from Texas also warned that the financial crisis is in the early stages, “it’s far from over,” he added.  Ron Paul was suggesting that the Fed, via the expansion of the monetary base, has created an imbalance that demands a correction which will be bigger than the recent financial crisis.  Ron Paul has been a very public supporter of a return to the gold standard, coupled with a disbanding of the Fed.

Gold prices were relatively flat on Wednesday’s session, trading down 0.6% to $1,580 an ounce.  The yield on 10-year Treasuries stood at 1.48%, down two basis points.  Shares in major banks like Morgan Stanley, Wells Fargo, Citigroup, and Goldman Sachs were all in the red.

While Bernanke’s testimony before the Senate dealt mainly with the future path of monetary policy, the House  focused on the structure of the monetary system and the Fed.  Bernanke was once again tight-lipped about possibly unleashing a new round of quantitative easing.  On Tuesday, Bernanke suggested that the economic slump would continue, and could possibly be exacerbated by the nefarious effects of the looming fiscal cliff, and the European sovereign debt crisis.  Economists suggest the Fed will ultimatley unleash a new round of monetary stimulus to support the economic recovery.

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  • rekamlias rekamlias 2 years ago

    What is wrong with a gold standard for money?
    I have asked this question at 5 different places and but no one seems to have an answer.
    I know a lot of people here know more about money than I do.
    Thanks in advance for your reply.

  • Agustino Fontevecchia Agustino Fontevecchia, Forbes Staff 2 years ago

    The gold standard worked for a while, but it became unsustainable and wouldn’t be practical today. The best explanation I can find is here, written by the FT’s Martin Wolf.


  • wolf85 wolf85 2 years ago

    Augustino, you are completely wrong, and so is Martin Wolf!!! The idea of the gold standard is to prevent entities like the FED from printing money at their whim. If we had a gold standard, prices and wages would fall drastically because there would only be so much money in circulation. Smaller denominations of our currency would then become worth more, i.e the penny. We may even have to make smaller denominations of the penny. There would ALWAYS be enough money to go around. Its the prices and wages that would be the costs on the move, not the amount of money in circulation. Now, our currency is based on debt, if all debt were paid, there wouldn’t be any more money in circuation.

  • Ben Ben 2 years ago

    Currency IS debt; that’s what a medium of exchange is: debt owed to the person holding the most bills. The problem is that the currency itself doesn’t represent debt proportionate to the amount of goods and services that debt is accounting for, so debt’s value lessons over time. Hence inflation due to expansion of the monetary supply.

    We were technically on a gold standard temporarily; the problem is that there’s no mechanism for recovering from a strict gold standard. Even the bimetallist standard we were on was ridiculously unstable. A far better solution is one which includes competing currencies backed by multiple commodities for ultimate stability. A system could then be achieved where currencies attempt to increase their worth and stability in order to maintain dominance in the currency market.

  • Adam Lazer Adam Lazer 2 years ago

    there is nothing wrong with the gold standard. the fact that it is based on a tangible asset protects everybody from the abuse of credit expansion because creditors can demand the delivery of gold if they so choose, thus purchasing power is maintained. this of course is anathema to socialists and communists i.e. the ruling elite. fiat currency has no value when trust in the issuer is lost. this is where we are headed, that is toward a”confederate” currency that will buy you nothing, not even sympathy.

  • rekamlias rekamlias 2 years ago

    I am sorry to be late in reading the above articular, but i had a stroke last week. I have read this Martin Wolf piece. I think he is wrong on a few things. Milton Friedman is wrong, it is gold does create stability in the dollar (or silver something else) and that what defines what a dollar it is forced upon the market . NEXT. A “giant increase in credit to the gross nation product” would be fool hearty at best and credit should be more reserved, creating better risk per capital ventured and would limit the size and of scope of investment for a period of time but reduce Bubbles to manageable fluctuations. The loss and gain would be felt evenly across the board. NEXT. The mistaken belief that the Federal Reserve holds the money it would the Country that holds the gold which gold notes would be bought BY the FEDERAL Reserve NOT From. That control of money would belong to the people the interest would be the other way. All intensives for banks would be due well or bankruptcy. The last 100 years have not fared so well for the USA. $100 of labor in 1780 cost $432.00 in 1913 a 4.32% increase. IN 1913 $100 dollars of labor cost $30,800 Today a 308% increase. How could a gold standard possible do worst then Fiat money of the last 100 years? Thanks again for your time and patients.

  • marc mckee marc mckee 2 years ago

    Read Currency Wars. We’ve tried the gold standard and it was successful…….for awhile. Nothing has worked and the direction we are going now will result in crisis….as it has throughout history. Our currency is not based on debt solely.

  • rekamlias rekamlias 2 years ago

    Crisis could be averted if it could be planned. What it all boils down to is Balance the Checkbook. Take our lumps, go to gold standard, you just can’t print your troubles a way.

  • rekamlias rekamlias 2 years ago

    Thanks Ben for the reply. Would each currency be backed by all the Multiple Commodities at once, like hedging a bet? That seems practical for stability. To Leave the fiat system does a currency need to be backed by a finite objects (gold, silver) or could it include wheat or corn or oil or some other commodity?

  • Mario8282 Mario8282 2 years ago

    Monetarism is the system where a private entity issues public currency as a debt. If all this debt would be paid back, the money would be fased out the economy, leaving it without any currency. And there would be no other money to pay the interest because the currency quantity for interest coverage has never been created. This is the design of the current money system. It is called monetarism, is the actual money system of the West and is mathematically impossible to sustain.

    The system itself cannot survive the very numbers is generating.

    The (private) Federal Reserve issues the US Dollar as loans only.

    Solution: Sovereign Currency
    The state has the monopoly of issuing the currency.
    2 conditions:
    * all money mass MUST have coverage in the physical assets of the economy..
    * Controlled Exchange-Rates with other currencies in order to block speculation.

    The First National Bank of The United States, started under the leadership of Alexander Hamilton, was a central bank of Sovereign Currency. It failed because the Americans at that time were not able to defend their currency from the massive sabotage by the banksters of London. Massive quantities of counterfeit papermoney were shipped and released into the country. The currency at that time was called the Continental Dollar. That massive sabotage left also the expression “it’s not worth a Continental”.

    The history proves that the Fed is the result of hundreds of years of crime.

  • Agustino Fontevecchia Agustino Fontevecchia, Forbes Staff 2 years ago

    Why is it that the system is “unsustainable”? Hypothetically, if the US managed to decide on a plan of fiscal sustainability, it could slowly pay off its debt load and keep inflation under control. It seems like the problem isn’t the monetary system per se, but the perverse incentive to increase the monetary base more than is necessary.

  • Well said Mario. This is cash created out of thin air and loaned to the banks and government at 0 interest rates. The banks then turnaround and create debt through loans, credit etc at higher interest rates to the public.

    This is also known as theft.