Congressman Ron Paul doesn't think we're going to get real reform at the Fed until there's a crisis that forces change in U.S. monetary policy.

"I think we'll end up with a real crisis and then they'll have to stop, think about it, and have a reform," of Fed policy, he said.

As new Chairman of the House Subcommittee on Monetary Policy, Congressman Paul sees informing the public of the Fed's actions as priority number one. He's being doing that for sometime, but now has a more substantial platform to speak from.

One of Congressman Paul's immediate aims is to challenge what he believes is a gross misunderstanding of Fed policy when it comes to unemployment. He intends to interview Former Fed board governors on the topic at the subcommittees first meeting on February 9th.

"This will give us a chance to make the point that just giving the Federal Reserve a mandate of high employment is not quite so simple and they're the culprits in creating the unemployment and they do nothing to prevent the unemployment," he said.

In the full interview, the Congressman's full thoughts on Fed Chairman Bernanke, on how inflation is being misrepresented in U.S. statistics, and what he expects to find if his audit the Fed bill is passed.

Full transcript follows, key points bolded for your convenience:

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Q: In your new position as monetary policy subcommittee chair, what is going to be your first step to reign in the Fed's more recent actions, notably QE2 and the potential QE3 that might be coming in future months.



A: Well first off is that, my first step is that the expectations can't be that in weeks or a month or a year I can change monetary policy. My first step is to continue doing what I've been doing and that is exposing the Fed for the policies that I consider completely flawed. Which means pursuing the audit and getting as many people related to the Fed before the committee to talk about monetary policy. Will we have our first hearing on Feb. 9th, and we'll deal with the relationship of monetary policy and unemployment. And this will give us a chance to make the point that just giving the Federal Reserve a mandate of high employment is not quite so simple and they're the culprits in creating the unemployment and they do nothing to prevent the unemployment. So we'll continue that so I would say that it's exposure of the Fed and educational opportunity to let the people in the Congress and the people in this country know actually how significant monetary policy is. And in time and shortly we'll be working on reforms we'll suggest and see what kind of legislation we can get passed.



Q: The first hearing is focusing on the dual mandate of the Fed and whether or not that should be curtailed. I know these policy suggestions will come in the future, but do you think that's one of the first things that would be approachable for you and something that the Congress would potentially get behind.



A: Yes, but I want to talk about the relationship. Just talking about the relationship is only allowing us an opportunity. Whether the mandate is on there or not they have a mandate but they didn't do a very good job. You take away the mandate, I don't know how it would change policy. But it's important to use that as an opportunity to talk about it. So this to me is a good opportunity to get this subject out on the table. Politically, it's an opportunity for us too. And like I said in the committee yesterday we had some former members of the Federal Reserve board there. And I don't know of anybody in the Congress that isn't against these high unemployment problems that we have. The problem is nobody asks the question of how it came about, where the bubbles come from, and why the corrections are necessary, and how it's related to monetary policy. So, politically it's very important for us to talk about jobs and everybody is talking about. Some talk about increasing spending and printing more money, my effort is to try to show how unemployment comes about and how it's related to the bad policies of the Federal Reserve.



Q: And considering that jobs is topic number one in Washington right now, do you think that bringing this issue of the Fed's mandate on unemployment, do you think that's a really good way of approaching this and trying to get it built in to a lot of the same rhetoric your Republican colleagues are doing about trying to go for more jobs growth?



A: Yes, I think it's a necessity and an opportunity because most people haven't thought of it this way. You know a Keynesian says, well, we have recessions because the people quit spending money but it's not quite so simple. But their answer is simple, just give people more money. Pass out more welfare and print more money and everything is going to be ok. So this to me offers the opportunity to key in on the real issue and that of course is monetary policy. And if we don't do that we can't solve the problem. All these other things will be treating symptoms rather than treating the real cause.



Q: You mentioned before the audit the Fed bill that is back on the table. What is the first thing you expect to find?



A: Well, we've already found some surprises, with these even token type audits we put in the bill last year. The first revelation that they released rather recently is how big it is. I mean we estimate now that it could have been $15 or $16 trillion worth of transitions and a third of it went to foreign banks. It's that kind of information that really gets the attention of the American people. And is getting the attention of our banking committee too because people are saying hey we need to know more about it. I've even thrown out the suggestion that why shouldn't we think about requiring the Fed to tell the Congress what they're doing before they do it rather than spending $15 or $16 trillion and then us begging for the information. I mean they can spend more money in a couple of weeks than we can in a year and they do it all off the books, we don't even know about it. I think this is the type of information, the more we know about the Fed, the more annoyed that people are going to get.



Q: Building consensus around this audit bill doesn't seem like it is going to be difficult. It seems like the support was there before and that it was just axed during the Dodd-Frank situation. Do you think it will be difficult this time, do you think you'll get broad bases support, particularly with there being a Republican Congress now?



A: I think it's always going to be difficult. I think one of the things that helped us last time is that every Republican endorsed it mainly because we were challenging the Democrats at the time. But Spencer Bachus who's the Chairman of the Financial Services Committee is a very early co-sponsor of this so he's with us on this. So it will still take some work. We didn't do a whole lot of lobbying to get names on it, but I think we can just get fifty names by sending out a notice and seeing who wants to get back on it. But I'll do some work and people around the country will have to do some work if they want to make sure their members get on it. And we have 80 some new members, maybe 90 new members total, so there are a lot of new people we need to get on this bill, so we have to build the momentum. But the Federal Reserve will not give up easily. They've hired a lobbyist and they have PR and they're writing a lot of editorials and they're working very hard. I know that just yesterday some of the routine defenders of the Fed in the committee were very, very aggressive in condemning what we're doing and what we're trying to do and how important the Federal Reserve is. So the battle has yet to be fought.



Q: I want to switch topics now to the topic of inflation. There were some comments this morning from a big time investor, Jim Rogers, who said that the U.S. and the UK are lying to themselves and to their public about the inflation situation. Do you think that is something that is happening in the U.S. right now? Do you think that we're being misled about what the real inflation situation is within the country?



A: Oh absolutely, and they've done it for a long time. Government's aren't known for leveling with the people whether it's something like monetary policy or foreign policy. Last year, the commodity index, I think the S&P commodity index, went up something like 24%; that's a lot of inflation. They keep saying that they only thing that measures inflation is the CPI, and that's a government statistic that has been changed in recent years. John Williams measures that. And he says that that's like 6%, 5 or 6%, so that's a lot higher. When you look at individual items like medical care and the cost of education those prices go up a lot. And they keep arguing there is pretty good price stability, but you can hardly argue that the price of houses has been very stable. First they skyrocket then they collapse and we have a skyrocketing price, a bond bubble, I consider it a bubble in the bonds, so there's a lot of inflation. The one thing that they want to continue to do which I try to avoid is get away from saying that inflation is the prices going up. That's one of the consequences of inflation. Inflation is when they increase the money supply. And that's where the big inflation is. All the ramifications and the consequences of the inflation of the money supply is just starting. The first increased the monetary base by $1.5 trillion, now it's up another $600 billion, and I think that will start to go into the economy. I think it's going to be impossible for them to unwind that. They talk about it, but they can't do it. If they did it they would have to sell back to the public worthless assets, these mortgage assets. That's what they bought up with it and no one's going to take it back, so they can't unwind that.



Q: One of the things people are talking about now is that because there are no more dissenting members on the Fed board there is the potential for further asset purchases in a couple months time. Quantitative easing 3. Is there anything you think that you can do in your position to really stand up against that and make actions quick enough to prevent that from happening?



A: No, not quickly. Some day it will happen, there will be some reforms. Public opinion still is important even for the Federal Reserve and sometimes for the courts. That with the public reaction against QE2, that put the Federal Reserve on the defensive. And a lot of conventional, mainstream economists came out and said enough is enough this is too much you know, and a lot of names were put on those advertisements and that is important, that's our greatest tool right now is getting public opinion against it. Eventually we'll have to have monetary reform and maybe Congress would pass something that would restrain him on how much money they could pump in without getting permission from the Congress. But that would make the Federal Reserve hysterical if something like that happened.



Q: You're saying that actions might not be able to be taken for some time, would you put a two-year time frame on that? This becomes a huge topic of debate for the next Presidential election, do you think that's something that would be the case?



A: The timing is very difficult. My assumption is that probably we're not going to gradually legislate this back to order, just like we won't gradually get the budget in order. I think we'll end up with a real crisis and then they'll have to stop, think about it, and have a reform. I'm not optimistic that all of a sudden the Fed's going to be restrained, but when this inflation hits us and we see prices going up and interest rates going up I think then they're going have to put a halt to it or they'll have such a problem on their hands. But they have to have, I think we'll have to go through their chance to test their theories that all problems can be solved with inflating the currency. And that's Bernanke's thesis. He's written about it and lived that and now he's in a position to do it. And the only thing I think is going to change that position is the total failure of his policy. He's not going to back down and it's conceivable that if things get bad, but not a total collapse, they'll get rid of Bernanke, but that in itself isn't going to be the full answer. Bernanke is going to go all the way, the only thing that will stop him is the total collapse of the currency.



Q: Do you think that there is still space for investment (like those mentioned by the President in his State of the Union address), do you think that we need to do that? And then cut from other places to grow the domestic economy? Or do you think that we need to just full stop on spending?



A: What, you mean the so called investments that Obama talked about in his speech, to put more money into the economy? No, that's only going to make the problem worse. It's hardly an investment. It's only more wealth transfer and decision-making by politicians it will be the worst thing in the world. What we need to do is significant cuts, cuts to taxes put more money into the hands and pockets of the American people and let them decide whether to pay down their debt or save it or invest it. But the decisions have to be made by the people and not by the government. That's how we got there and it's the worst thing in the world he could do.



