Financial Stability News

News about financial stability, central banking and theory of money

Ron Paul and the Fed

You may not be familiar with Ron Paul, but since he came in second in the recent Iowa caucus, there has been more focus on the US congressman running for the Republican nomination this year. He is a libertarian with somewhat extreme views (at least seen from Europe), but many find his positions rather refreshing compared to the other rather vague candidates.

He has long spoken out against the Fed, and was instrumental (together with senator Saunders from Vermont) in getting the Fed to release its lending records from the 2008 crisis. He is also in favour of a return to the gold standard, which seems a bit far fethced today. But he has a steady following, and maybecome an influential factor (if not candidate) in the upcoming Republican nomination.

In NYT today, Simon Johnson (Baseline Blogger and former IMF chief economist) gives a pretty balanced assessment of Paul’s policy on the Fed and banking reform. I agree fully with his views and think he presents his arguments in a fair and balanced way.

The key issue, according to Johnson, is not to abolish the Fed but to break up the biggest banks. But even that may be too much to ask in an election year where the big banks are the major contributors to the campaigns of both Mitt Romney and President Obama.

Ending the Fed – even if that were possible or desirable – would not end the problem of too-big-to-fail banks. The only credible way to threaten not to bail them out is to insist that even the largest bank is not big enough to bring down the financial system.



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