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There's probably no more dogged critic of the Federal Reserve than Ron Paul, the Texas Republican congressman who's also running — and running, and running — for President. Paul had a halfway decent showing in the most recent primaries and caucuses. And there's a school of political thought that figures his staunch base and need to spend very little money to stay in the race will keep him hanging around long after more legitimate contenders had dropped out. Plus, he has an heir in his son Rand Paul, a Kentucky Senator.

Ron Paul is the most economic of the current crop of Republican presidential candiates. There are times when his entire campaign seems based not on solving domestic problems, nor pursuing America's foreign policy, but on getting rid of the twin evils of paper money and the Federal Reserve. A lot of people find Paul sort of daffy. See the video I've embedded above, in which he meanders through a host of very Ron Paulist conspiracy theories, laconically foiled by the Fed Chairman, Ben Bernanke.

It doesn't matter. Paul's supporters know in their hearts that he's right.

Except that, on the facts, he isn't. Nor are many of the other Fed critics, who've been arguing for years now that the central bank's policies — flooding the struggling financial system with money, keeping interest rates at an effective zero rate — are inflationary. Why, it will only be a few more months until we're buying our milk with wheelbarrows full of mostly worthless dollars, just like those poor Germans after the World War I!

But the data doesn't say "inflation." It says the opposite. This is from Bloomberg, focusing on inflationary threats from the Fed's second round of so-called "quantitative easing," or QE2:

More than a year after Republicans from House Speaker John Boehner of Ohio to presidential candidate Ron Paul of Texas warned that the Fed’s second round of asset purchases risked a sharp acceleration in prices, the surge has failed to materialize. The personal-consumption- expenditures price index rose 2.4 percent for the 12 months ending in December, near the central bank’s 2 percent target.



“The statements were politically motivated,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York. With unemployment stalled above 8 percent for three years, “I don’t see how anybody in their right mind could form a strong argument for persistent, rapid inflation in the United States without the participation of the labor market.”



Even though the economy is showing signs of strengthening and inflation appears in check, Republicans Mitt Romney and Newt Gingrich, who also are running for president, have said they wouldn’t keep Bernanke, 58, when his second four-year term as Fed chairman expires on Jan. 31, 2014. Gingrich said in September that Bernanke was “the most inflationary, dangerous and power-centered chairman” in the central bank’s history.

You have to contrast this view of the Fed chairman with what politicans thought when Alan Greenspan was pulling the country's central-banking levers. It didn't seem to matter what your party affiliation was. Greenspan was the Master. No one wanted to get rid of him.

Bernanke, however, has been slowly and skillfully transforming himself into an anti-Greenspan. The financial crisis he's been dealing with is miles and miles worse than anything Greenspan ever confronted. And unlike Greenspan, who kept interest rates low for too long to sustain a series of asset bubbles, Bernanke has kept rates low to give the economy time to heal. At first sight of "irrational exuberance" — Greenspan's infamous term for an overheated market — Bernanke's Fed will push rates higher.

Bernanke has also been pursuing of late a policy of radical openness, going against decades of perceived Fed secrecy. The man gives wonky press conference after Fed meetings, in which he answers any and all questions. Unlike Greenspan, who revelled in being incomprehensible, Bernake is rather plainspoken.

If he has a failing, it's that as the Fed has successfully held inflation to the bank's target (around 2 percent, which isn't much inflation at all ) and avoided deflation, in which prices collapse, he's seriously missed the mark on maximum employment, the other leg of the Fed's dual mandate. The unemployment rate is coming down, but it still stands at a daunting 8.3 percent.

In his defense, getting the economy going again while controlling inflation AND dodging deflation has set the stage for employment recovery and reasonable, if slow, GDP growth. We're beginning to see that now. Unfortunately, for most of 2011, the U.S. economy endured what I call "stuckflation," which Bernanke can be blamed for.

But inflation? No way. Ron Paul is wrong. Very wrong.

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