(CNSNews.com) – Rep. Ron Paul (R- Texas) has launched a campaign to eliminate the Federal Reserve System and return the nation to a gold or silver standard.
The former Republican presidential candidate, who has introduced legislation to abolish the Federal Reserve Board, claims the Fed is unconstitutional.
His bill, H.R. 2755, would also require that U.S. currency be backed by gold or silver.
“They (the Federal Reserve Banks) are the official counterfeiters,” Paul told CNSNews.com. “The Constitution says only gold and silver can be used as legal tender. Printing paper money or creating money with a computer is not permissible, and economically it’s a disaster.”
Several thousand demonstrators rallied in 45 cities around the country on the Saturday before Thanksgiving trying to draw attention to Paul's "End the Fed Campaign" and to collect 1 million signatures by Jan. 22, 2009 to present to the new Congress in support of his proposed legislation.
The bill, which was first introduced last summer, has not even been heard in committee at a preliminary level.
Paul blames the Fed -- America’s central bank -- for causing our current economic turmoil by adopting a monetary policy of artificially lowering interest rates and inflating the money supply.
“Low interest rates cause people to make mistakes; they over-invest, they mal-invest and they build up more debt than they ordinarily would. This causes the financial bubble, and it always ends disastrously,” Paul said.
While most economists have praised Fed Chairman Ben Bernanke for lowering interest rates in an effort to stimulate the economy, Paul said it’s the worst thing he could have done.
Lower interest rates lead to inflation, which the congressman said is a “hidden tax” that devalues the savings of the middle class – and transfers wealth from the poor and working classes to the wealthy.
“Money has more value when it first comes into circulation than it has after it’s been circulating for two or three years. This is because it takes a while for people to realize there is more money in circulation, but as soon as they realize it, prices go up. When prices go up, your savings are devalued, and you’ve been taxed,” Paul said.
Paul’s alternative to the Federal Reserve System would be to allow the financial markets to control money supply. He said it wouldn’t matter whether the nation used paper bills, electronic money or any other kind of currency, as long as it was backed by gold and silver.
The Treasury could issue the money or private banks could issue the money, he told CNSNews.com. There could also be competing domestic currencies. The important thing, he said, is that the Treasury must ensure that the money is backed by something of value.
Paul’s attempt to end the Fed is neither practical nor likely to succeed said David John, a senior fellow at The Heritage Foundation specializing in financial institutions.
“This bill has been introduced many times in the past,” John told CNSNews.com. “The record of this type of legislation has been much less than successful. Given the makeup of this Congress I don’t see anything that’s likely to change that,” John said.
John said actions by the Fed may have contributed to the downturn in the economy, but we should not hold the Federal Reserve solely responsible. Rather than trying to abolish the Fed, John suggested we re-examine its role.
“The Fed has become involved in a number of new activities in the last several months, activities that even people who work at the Fed never imagined they’d be involved in,” he said.
“There needs to be a serious discussion about what the role of the Federal Reserve is,” he added. “If the role is different from the activities it’s engaging in today, we need to move it toward the optimal role with the least possible disruption in the economy.”
Paul, meanwhile, said he is also concerned about upsetting a vulnerable economy. He said the transition to a Fed-less economy would be gradual, but that it may also have to be dramatic.
“The business cycle would be abruptly halted. It might cause even more panic and more disruption,” he said. “But our monetary system has almost quit functioning. If it quits completely we’ll have a dramatic transition, no matter what.”
The Federal Reserve Board, meanwhile, had little comment on Paul’s proposal.
“Congress established the Federal Reserve as America’s central bank to provide the nation with a safe, flexible and stable monetary and financial system,” said Fed Public Affairs Officer Susan Stawick. “The actions the Fed has taken in recent months have been directed toward that goal.”