Ron Paul, the Federal Reserve and Economic Crashes

By Brent Budowsky, The Hill

12 November 11

ith Newt Gingrich, Rick Perry and almost the entire Republican Party now imitating Ron Paul on the matter of Federal Reserve policy, let me suggest where I think Dr. Paul is brilliantly right, where I think he is disastrously wrong, and why I believe there is now a substantial danger of a recession that could be more severe than 2007 and 2008.

First, America and Europe are now repeating the policy mistakes of 1937 and imposing severe austerity at a time of economic slowdown that could drive Europe and the U.S. into a deep recession. I agree with Dr. Paul that the Fed should disclose far more; that there should be a significant audit of how the Fed has spent money; and that Fed policy has been radically tilted toward banks at the expense of individuals and small business. I also fear that Dr. Paul's idea of ending the Fed would guarantee a global recession and potentially a great depression.

While I agree with Paul that Fed policy has been a disaster that has created huge monetary bubbles on assets ranging from oil and food to stocks and bonds, the solution is not to kill the Fed, or kill Fed assistance to the economy, but to moderate the Fed, and structure the assistance properly.

Specifically, I would like to see the Fed finance the proposed infrastructure bank to create jobs in ways that pay for themselves, rather than pump even more money into the 1 percent at the top through various manipulations of bond markets.

Fed policy under Bernanke has not been remotely Keynesian; it has been pure trickle-down. A multitrillion-dollar bailout that goes exclusively to the top 1 percent of bankers who then hoard the money against consumers and small businesses, and then use to money to fuel speculation and stock buybacks, has nothing to do with John Maynard Keynes. It is pure Herbert Hoover, though it's wasted more money on bad policy than Hoover ever dared dream of.

The Fed should end policies that pump up gold, oil, food commodities, wild speculation and ridiculous bubble moves up and down in stocks and commodities. On this Ron Paul has been brilliant, ahead of his time, and I have long agreed with him.

However, with the executive branches impotent and unable to agree on any coherent policy, Dr. Paul is catastrophically wrong when he wants to remove the Fed and monetary policy itself from supporting the economy.

What the Fed should do is reduce the net size of its monetary policy but target its actions to initiatives that more directly support jobs, housing and growth and not money-center bankers or Wall Street speculators.

The European Commission now says that Europe could well be headed toward a recession that would be deep and severe.

Christine Lagarde, director of the IMF, is now warning of a major slowdown that could affect Europe, the U.S. and Asia.

The radical austerity being imposed in Europe will be disastrous and destabilizing and will drive Europe into a major recession that could well drive the U.S. into a new major recession.

It is a historic disaster that neither the president, Republicans or Democrats in Congress nor the Fed are now advancing policies that could prevent the economic disaster that is now heading for our economy like the iceberg that awaited the Titanic.