Chapter One: “End The Fed”

End The Fed

by Dr. Ron Paul

CHAPTER 1

WHY YOU SHOULD CARE

Everybody thinks about money and almost everybody wants

more. We use money without thinking much about its nature

and function. Few of us ask where it comes from, who con-

trols it, why it has value, or why it loses value from time to

time.

In the same way, most people accept the Federal Reserve—

the manager of the nation’s money stock—as an indispensable

institution that the United States cannot function without, and

so they don’t question it. But I assure you, especially in this

post-meltdown world, that it is irresponsible, ineffective, and

ultimately useless to have a serious economic debate without

considering fundamental issues about money and its quality, as

well as the Fed’s massive role in manipulating money to our

economic ruin.

What is the Fed and what does it do? To answer these ques-

tions, you can read books, study pamphlets issued by the Fed,

or attend economics lectures at your local college. You can even

consult the Fed’s comic books on its own Web site.1 You will

be told how the Fed serves to stabilize the business cycle, con-

trol inflation, maintain a solvent banking system, regulate the

financial system, and more. Certainly, the Fed’s spokesmen

claim that they do all this and do it well.

I disagree on each point.

After all is said and done, the Fed has one power that is

unique to it alone: it enables the creation of money out of thin

air. Sometimes it makes vast new amounts. Sometimes it

makes lesser amounts. The money takes a -variety of forms and

enters the system in various ways. And the Fed does this

through techniques such as open-market operations, changing

reserve ratios, and manipulating interest rates, operations that

all result in money creation.

Given that money is one half of every commercial transac-

tion and that whole civilizations literally rise and fall based on

the quality of their money, we are talking about an awesome

power, one that flies under cover of night. It is the power to

weave illusions that appear real as long as they last. That is the

very core of the Fed’s power.

As President Barack Obama said of the economic boom that

went bust: “I think it’s important to understand that some of

that wealth was illusory in the first place.”

Exactly.

But let’s also understand the source of the illusion and what

to do about it.

Of course, not everyone is instinctively against this illusion-

weaving power, and many even welcome it. They just want to

get back to the times when “everything was good”

even though it was all just a mirage—a creation of the appear-

ance of wealth by the Fed.

It is frequently thought that relieving an alleged shortage of

money will solve all social problems. Even today, with an eco-

nomic crisis raging, the response by our government and the

Federal Reserve has been characteristic. Interest rates are

driven to zero and trillions of dollars are pushed into the econ-

omy with no evidence that any problems will be solved. The

authorities remain oblivious to the fact that they are only mak-

ing our problems worse in the long run.

Economic booms and busts have been around for a long

time. Tragically, the innocent who understand little about the

complexity of the monetary system suffer the most, while those

who are in the know reap great profits whether the market is

going up or down. Only an understanding of how the mone-

tary system works can correct this problem and protect the vic-

tims caught in a vicious economic downturn.

Everyone should have an intense interest in what money is

and how it’s manipulated by the few at the expense of the

many. Money is crucial for survival. It is necessary for main-

taining a free society. A healthy economy depends on it. Limit-

ing political power is impossible without it. Sound money is

essential for preventing unnecessary wars. Prosperity and peace

in the long run are impossible without it.

To understand money, one absolutely must understand what

a central bank is all about. In the United States, the central

bank is the Federal Reserve, the instrument by which our

money and credit are constantly manipulated for the benefit of

a privileged class.

I’ve written this book to explain why I think the system of

Fed domination must come to an end. I’ve been speaking and

writing on this subject for more than thirty years, but there was

a time when hardly anyone cared what I had to say about this

subject. The economic crisis has changed everything. Today

there is a growing social movement, even a political movement,

dedicated to ending the Fed.

In fact, the title of this book is not my own but rather comes

from a slogan that can be heard at rallies all around the coun-

try. I first heard it at the University of Michigan in October

2007, after the Republican primary debate in Dearborn. It was

a frustrating evening; all my opponents denied there was any-

thing at all wrong with the economy or Bush administration

policies. But afterward, I was able to speak to more than 4,000

students in the quad at Ann Arbor.

I’m told that was a big turnout for a candidate. And it was a

very friendly crowd, applauding my comments on government

spending and deficits and on wars and foreign policy. But when

I mentioned monetary policy, the kids started cheering. Then a

small group chanted, “End the Fed! End the Fed!” The whole

crowd took up the call. Many held up burning dollar bills, as if

to say to the central bank, you have done enough damage to

the American people, our future, and to the world: your time is

up.

Then, in September 2008, at my counterconvention in Min-

neapolis, 12,000 people started the chant long before I even

mentioned the issue of the Fed. I laughed and said, “Wait a

minute!” But they did not, for money, its quality and future, is

surely the issue of our times.

I’ve always been an optimist about the cause of sound

money, but even I never imagined that the anti-Fed cause

would become material for popular protests in my lifetime. All

around the country, people are gathering outside Federal Re-

serve buildings to protest against the power, secrecy, and op-

erations of the Fed, and chanting this great slogan. Their goal

is not reform but revolution: an end to the Fed.

I’m thrilled. You should be, too, since ending the Fed would

be the single greatest step we could take to restoring American

prosperity and freedom and guaranteeing that they both have a

future.

I have no doubt that some people consider such protests to

be shocking, radical, even dangerous, but the truth is that they

arise from an impulse deeply rooted in our nation’s history.

The nineteenth century saw many similar protests against the

national bank system and the attempt to centralize money and

credit in a government-sponsored, -government-backed insti-

tution that operates in complete secrecy.

One might say that this is a populist cause. It is also a liber-

tarian cause, one that would be cheered by Thomas Jefferson, a

dedicated opponent of the Fed’s predecessor, the Bank of the

United States, and by Thomas Paine, who saw paper money as

the enemy of individual liberty on grounds that it always gives

rise to despotism.

Paine, the same writer who inspired the American Revolu-

tion with his pamphlet Common Sense, also said this: “As to

the assumed authority of any assembly in making paper money,

or paper of any kind, a legal tender, or in other language, a

compulsive payment, it is a most presumptuous attempt at ar-

bitrary power. There can be no such power in a republican gov-

ernment: the people have no freedom—and property no secu-

rity—where this practice can be acted.”

In the same way, there were great opponents of central

banking despotism in the nineteenth century, and entire presi-

dential elections turned on the question of whether there

should be a national bank of note issue.

Indeed, opposition to a money monopoly has roots all the

way back to the fourteenth century in the work of the earliest

economists who thought about the dangers of inflation.

This cause is also justified in the work of the finest econo-

mists and philosophers of the twentieth century. Nobel laureate

F. A. Hayek, for example, wrote of central banking: “I doubt

whether it has ever done any good except to the rulers and their

favorites,” and he concluded that “money is certainly too dan-

gerous an instrument to leave to the fortuitous expediency of

politicians.”

It is and should be a mainstream cause to end the power and

secrecy of the Fed. It’s my own view that ending the Fed would

address the most vexing problems of politics of our time. It

would bring an end to dollar depreciation. It would take away

from the government the means to fund its endless wars. It

would curb the government’s attacks on the civil liberties of

Americans, stop its vast debt accumulation that will be paid by

future generations, and arrest its massive expansions of the wel-

fare state that has turned us into a nation of dependents.

If you solve the money monopoly problem by ending the

Fed, you solve many other problems, too. Essentially you take

away from the government the capacity to use financial trickery

to expand without limit. It is the first step to restoring consti-

tutional government. Without the Fed, the federal government

would have to live within its means. It would still be too big

and too intrusive, just like all state governments are today, but

the outrageous empire at home and abroad would have to come

to an end.

There are other benefits as well, such as stopping the busi-

ness cycle, ending inflation, building prosperity for all Ameri-

cans, and putting an end to the corrupt collaboration between

government and banks that virtually defines the operations of

public policy in the post-meltdown era.

Ending the Fed would put the American banking system on

solid financial footing. The industry would thrive without the

moral hazard of banks that are “too big to fail.” Its loan opera-

tions would take a more realistic account of risks, and the

bank’s capital would not be put at risk in the service of politi-

cally driven priorities.

Customers’ deposits would be safer than they are today, as

banks would compete with one another in their most impor-

tant function of providing a secure means of preserving wealth.

Ending the Fed would also end the way in which our elec-

tion cycles have been corrupted by monetary manipulation. No

longer would presidents be in a position to lean on the central

bank to artificially boost the economy before elections, only to

have a recession hit after the party in power is sworn in again.

The national wealth would no longer be hostage to the

whims of a handful of appointed bureaucrats whose interests

are equally divided between serving the banking cartel and

serving the most powerful politicians in Washington.

Ending the Fed is the one sure way to restore sanity to eco-

nomic and political life in this country. It doesn’t mean that

our political disagreements and fights in Congress will go

away. Ending the Fed is not a magic pill to usher in Utopia.

But it does mean that our disagreements and discussions will

occur within the context of reality, not in the illusory world

created by the unlimited printing of money.

The time to do it is now. The Fed’s activities since the mar-

ket meltdown of 2008 have been dangerous in the extreme.

The Fed is using all its power to drive the monetary base to

unprecedented heights, creating trillions in new money out of

thin air. From April 2008 to April 2009, the adjusted monetary

base shot up from $856 billion to an unbelievable $1.749 tril-

lion. Was there any new wealth created? New production? No,

this was the Ben Bernanke printing press at work. If you and I

did anything similar, we would be called counterfeiters and be

sent away for a lifetime in prison. We would be scorned and

hated by everyone as scam artists and racketeers. But when the

Fed does it—complete with a scientific gloss—it is seen as the

perfectly legal and responsible conduct of monetary policy.

This new money now sits as reserves in bank vaults awaiting

a safe environment for lending and borrowing. Should that safe

environment arrive, we could see a level of price increases none

of us have experienced in our lifetime.

Some people think the experience of the Weimar Republic

in Germany in the interwar years, when paper money was

made so worthless by the central bank that the bills were liter-

ally used as fuel to heat homes, is entirely impossible in the

United States.

We think we are immune from such a calamity, but we are

not.

Bad economic policy can destroy a civilization—no policy is

more dangerous than bad monetary policy. After decades of

experience in grappling with Fed officials in committee meet-

ings and of lunches and private discussions with Fed chairmen,

a lifetime of reading serious economic literature, and a pro-

found awareness of the dangers to liberty in our time, I know

there is absolutely no hope for the Fed to conduct responsible

monetary policy.

We need to take away the government’s money power. The

banking industry needs its welfare check ended. The dollar’s

soundness depends on its being untied from the machine that

can make an infinite number of copies of dollars and reduce

their value to zero.

The fact that the Fed can create trillions of dollars and dis-

tribute them to its cronies without congressional oversight

should shock us all. I thought I was immune to being shocked

by what our government does, but the actions of the Fed in

2008–2009 went beyond the pale. Not only did the Fed create

many trillions of dollars and pass them out, it refused to explain

its actions. This shows the arrogance of the members of the

Fed and the complete apathy of the Congress in assuming its

responsibility to protect the people and follow the law.

Back on November 21, 2002, Ben Bernanke explained pre-

cisely what his views are, so perhaps there should have been no

surprise.

The U.S. government has a technology, called a printing

press (or, today, its electronic equivalent), that allows it to

produce as many U.S. dollars as it wishes at essentially no

cost. By increasing the number of U.S. dollars in circula-

tion, or even by credibly threatening to do so, the U.S.

government can also reduce the value of a dollar in terms

of goods and services, which is equivalent to raising the

prices in dollars of those goods and services. We conclude


that, under a paper-money system, a determined govern-

ment can always generate higher spending and hence

positive inflation.

I’m not sure that the Fed governor has ever been so frank

about the Fed’s power. To be sure, he was not condemning it.

He was explaining it. He believes in it. Like the eighteenth-

century money crank, John Law, whose antics fueled the Mis-

sissippi Bubble, Bernanke believes he has discovered the magic

means to generate prosperity.

Rarely does an opportunity present itself to interest the aver-

age person in the monetary system enough to demand reform,

but one is now upon us. Although we face a crisis, we have an

excellent opportunity to strike a blow for freedom, which can-

not exist without sound money.

The Federal Reserve System must be challenged. Ultimately,

it needs to be eliminated. The government cannot and should

not be trusted with a monopoly on money. No single institu-

tion in society should have power this immense. In fact, I be-

lieve that freedom itself is at stake in this struggle.