Representative Ron Paul has hit upon a remarkably creative way to deal with the impasse over the debt ceiling: have the Federal Reserve Board destroy the $1.6 trillion in government bonds it now holds. While at first blush this idea may seem crazy, on more careful thought it is actually a very reasonable way to deal with the crisis. Furthermore, it provides a way to have lasting savings to the budget.
Remarkably creative? Wait a second.... .Ron Paul has told us time and time again that he's for "sound money." That is, money that doesn't change in value. Monetary policy that abides the actual statements in The Federal Reserve Act of 1913 (which, incidentally, The Fed has wantonly violated ever since with their so-called "inflation target", whether explicit or otherwise.)
In fact, Ron Paul has consistently railed against that very inflation in essentially every case where he's had Bernanke in front of him in a committee.
So let's think through Mr. Paul's "creative" solution. Destroying the bonds The Fed holds while leaving the "excess reserves" that are on deposit, which The Fed creates with a push of a button to pay for those bonds, is in fact exactly identical to unbacked emission of currency.
That is, raw printing of money.
(Incidentally, that's illegal under The Federal Reserve Act as well, but heh, who cares about the law, right?)
I have repeatedly and very publicly held that Mr. Paul has no clue what the hell he's talking about when it comes to these matters. That gold-backed currency does nothing to address the problems we face, and the empirical evidence backs my position (panics and wild bouts of both inflation and deflation under a metallic monetary standard.) I further have charged repeatedly that Mr. Paul, despite multiple opportunities to grill Bernanke on the simple and easily-understood violation of the standard of stable prices in the Federal Reserve Act, has utterly failed to do so.
Now you know why: He doesn't believe in stable prices and a stable and strong currency as he in fact is now suggesting intentional monetary inflation in an outrageous amount through this so-called "solution." This is exactly the sort of crap FDR ran in the 1930s - in fact, it's functionally identical to FDR's "executive order" gold devaluation!
To those who have supported Mr. Paul all these years, you've now seen his true colors. Will you be man (or woman) enough to admit that he never actually understood what the hell he was screaming about, nor did he ever have an actual intent of restoring "sound money" to America?
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.
Leads on stories of current economic and political interest are always welcome. Our fax tip line is 850-897-9364; please include contact information with your transmission.