Even before Hurricane Irene hit the U.S. East Coast, the Federal Emergency Management Agency was preparing to mitigate its devastating impact, spending from its $800 million relief fund to assist communities.

But the real disaster may just be the agency itself, Rep. Ron Paul said Sunday.

The Republican presidential candidate, who represents the 14th Congressional District that runs partly along the Gulf of Mexico in Texas, argued that the temporary aid provided by FEMA has helped ruin the economy by creating a false dependency.

"FEMA has been around since 1978, it has one of the worst reputations for a bureaucracy ever," Paul said. "It's a system of bureaucratic central economic planning, which is a policy that is deeply flawed."

Paul spoke to "Fox News Sunday" shortly after FEMA Administrator Craig Fugate reviewed a series of actions in response to Hurricane Irene taken on the orders of President Obama. Combined with other recent natural disasters, Fugate said the agency has enough in its immediate bank account to respond to communities seeking help, but how much will be needed afterward is unknown.

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"How much damages and recovery and building costs will determine how much funds we're going to need, and we won't know that until we actually get out and see some of the damages, and get some of the damage assessment," Fugate said. "But for the response piece, we do have the funds there to go and we are committing those resources even as Irene continues to move up the coast."

North Carolina and Virginia were hardest hit during the weekend storm, with 11 deaths up and down the coast, more than 4 million people without power, devastation to coastal cities and countless floods in homes and businesses. According to Gov. Chris Christie, damage to New Jersey alone could be in the billions, if not tens of billions of dollars.

Paul said with FEMA on the brink of going broke, it's time to bury the agency.

"We've conditioned our people that FEMA will take care of us and everything will be okay, but you try to make these programs work the best you can, but you can't just keep saying,

'Oh, they need money,' ... Well, we're out of money, this country is bankrupt."

Paul added that FEMA is a gross distortion of the U.S. insurance system because it rewards bad behavior.

"FEMA creates many of our problems because they sell the insurance because you can't buy it from a private company, which means there's a lot of danger, so we pay people to build on beaches, and then we have to go and rescue them," he said.

"It's so far removed from the market and the understanding of what insurance should be about. Insurance should measure risk, it shouldn't be a a bailout program endlessly."

The 12-term congressman suggested that the U.S. could recover $2 billion by pulling troops out of the conflict in Libya and applying the money at home.

"I propose that we could save a billion dollars from the overseas war mongering, bring half that home, put it against the deficit, and yes, tide people over until we come to our senses."