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The Federal Reserve, no doubt at the suggestion of one of the high priced PR agents they maintain, has fired a shot at Ron Paul in his own backyard.

The Houston Chronicle carries an op-ed by Paul Hobby, who is chairman of the Houston branch of the Dallas Fed.

Let’s take a look at this commentary that is boldly titled, "Hands off the Fed"

Hobby makes clear right at the start this is about Ron Paul:

Defense of our central bank is imperative just now because the House Financial Services Subcommittee, which provides congressional oversight of the Federal Reserve System, has a new chair  U.S. Rep. Ron Paul, R-Lake Jackson. Paul is a frequent critic who has published a book titled End the Fed. Almost certainly, Paul will seek to make a fundamental inquiry into whether the United States will retain the ability to conduct monetary policy at all.

Then he says:

No one who studies the global economic issues today would forfeit this nation’s ability to conduct monetary policy through a central bank.

This statement is simply factually wrong. Congressman Paul has certainly studied the issue and has not reached that conclusion, as have many economists, mostly from the Austrian school of economics.

I’m hoping Hobby isn’t trying to be serious when he writes:

Part of the problem in this public debate is that few of us have much personal experience with, or perspective on, monetary policy. It is simply not a visible part of most people’s daily lives.

The problem is that most Americans have too much experience with the Federal Reserve through Federal Reserve notes that buy less and less food, clothing and gasoline every year.

A hint to Hobby, they don’t riot in Third World countries over central bank created inflation because they don’t have personal experience with inflation. It’s very personal.

Hobby then tells us that the financial system went through a "near death experience" without once discussing the role of Austrian economists, before the fact, warning that such a crisis would come about because of Federal Reserve policies.

Ignoring the forecasters of the crisis, Hobby then tells us how the Fed "saved" the country despite millions losing jobs, millions losing homes and some losing jobs and homes. One has to ask what was left standing that the Fed saved? The answer is, of course, Goldman Sachs. To Hobby apparently the saving of Goldman Sachs was the saving of the economy. The Fed did just a wonderful job:

History will judge these events in the fullness of time. With the benefit of some hindsight, however, it seems the strategies employed by then Secretary of the Treasury Henry Paulson and Chairman of the Federal Reserve Ben Bernanke were successful, and the extraordinary measures taken by the Fed are now expected to earn a profit for U.S. taxpayers

A profit for the taxpayers? Hobby writes this from of all places Houston, which is where the former headquarters of Enron was located, during the same week the Fed makes a desperate Enron-type move to prepare and hide huge losses on its books by a new accounting scam called "negative liabilities". Ken Lay would have been envious.

As for the "profits" to date, put me in charge of the Fed with its money printing powers and I’ll quickly make the former Edsel manufacturing plant profitable.

Hobby continues:

To imagine this series of events retrospectively without the existence of a central bank is quite difficult. Only the Fed could have waved a wand and calmed the water in roiled, interconnected markets that swooned towards a full-on contagion.

Maybe it is difficult for Hobby to imagine but not me. Goldman Sachs would have collapsed, as would have Morgan Stanley and JPMorgan Chase, left standing would only have been the prudent banks that did not partake in the mad financial escapades of those the Fed saved.

Then things become interesting because for a minute Hobby reveals the Fed is simply a confidence game:

Because the dollar is a fiat currency, confidence is the only backstop, and aggressive monetary policy provided that confidence at a decisive moment.

It’s another con to say that aggressive money printing provided the confidence. Huh. This part of the con isn’t over. When the Fed-printed money comes flying out of excess reserves, causing a trillion plus more dollars floating around on the planet, confidence is the last thing the global financial community will have in the dollar.

Hobby then gives us another laugher about Fed at transparency:

"Secrecy" is, of course, the match that lights the fires of populist dissent, and the Fed is trying many new strategies that increase transparency without exposing sober, deliberate long-term decisions to the daily vicissitudes of politics.

Oh yeah, the Fed is really reaching out and doing that transparency thing. This is how the Reuters explained the Fed’s "transparency" when it set up its Enron-like "negative liability program":

The significant shift was tucked quietly into the Fed’s weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on Jan. 6.

Some transparency!

Read the rest of the article

2011 Economic Policy Journal

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