Update October 21, 2011: It's old news that Congressman Ron Paul is running for President. I haven't changed my negative view of his economic insights and abilities (see article below I wrote back in February, 2011 in which I explained why I didn't think he was qualified for his new position as Chairman of the House Financial Services Committee. His predecessor Barney Frank certainly wasn't qualified either.)
Paul has added to his department of dumb ideas. During a recent Las Vegas speech, ahead of the most recent Republican Presidential debate, Paul suggested that the President of the United States should be paid less - a lot less than the current pay rate of $400,000 for a job that is among the most important and stressful in the world! Specifically, Paul has called for the President to only be paid $39,336 per year, which is the approximate median earned by American workers.
Congressman Ron Paul (R-TX) has taken over as Chairman of
the House Financial Services Committee. He replaced the often colorful and
financially clueless Barney Frank (D-MA). Based upon the early returns, Paul, a
hard core Libertarian, is going to give Frank a run for his money in the
colorful and clueless departments.
Paul's recent attacks on the Federal Reserve and its
Chairman Ben Bernanke are all over the financial press and a bit unsettling to
some investors. Paul would be happy to abolish the Federal Reserve and has no
use for Bernanke, who Paul has repeatedly called delusional in recent media
interviews. This should be of concern to all investors and Americans because
the Federal Reserve plays an important if not sometimes controversial role on
the U.S.
economy and financial markets. In this article, I summarize some recent interviews
Paul has done with the financial media (on CNBC and Yahoo Finance) and discuss
concerns and likely implications for you and your money.
Recent Paul Financial Interviews
In a CNBC interview with Larry Kudlow, who hosts a conservative
opinion program, Kudlow introduced the segment by asking if Paul could put an
end to the economic damage being done by Ben Bernanke's inflationary policies.
Paul said the following:
There's no need for the Federal Reserve to exist. The
Federal Reserve should butt out of getting involved with the economy since they
are the source of so much of our economic problems (bubbles, recession, etc.)
The Fed gets undeserved credit for good economic times but doesn't deserve any
credit and instead should get blamed for the inflation that's coming.
It's a worldwide concern that we could have a run on the
dollar which would bring down our empire similar to what happened to Russia.
Bernanke is delusional to think that he as one person can
control the economy through the money supply, interest rates, etc.
In an interview with Yahoo Finance, Paul made the following comments:
The Fed's second round of QE has been a total failure. All
it has done has been to maintain jobs on Wall Street and has done nothing for Main Street in
terms of creating jobs or helping the economy.
We have yet to see the inevitable negative affects of QE,
which will be high inflation, because those will emerge further down the road.
Fed Chairman Ben Bernanke is over confident about his
ability to unwind QE and the excess money pumped into the money supply.
The Consumer Price Index (CPI) is "rigged" and ignores food
and energy costs. The CPI numbers are "fudged" by the government so that
Bernanke doesn't have to change what he's doing.
Commodity prices and food prices are skyrocketing but
Bernanke doesn't talk about that.
My Analysis
Like his predecessor, Congressman Barney Frank, Congressman Ron
Paul is, in my humble opinion, unqualified for his position as Chairman of the
House Financial Services Committee. Paul, age 75, is a long-term politician,
whose training and previous career was as a physician! He believes in the Austrian
school of economic thinking which among other things advocates a gold standard
and no government involvement in the economy and banking functions. The
discredited Peter Schiff also believes in this school of thinking.
While I believe in free speech and speaking out, I don't see
much good coming from Paul's extreme statements. Those who are as economically
ignorant as he is believe some of his nonsense and this undermines faith in the
Federal Reserve and the role that it plays. My previous articles on the Federal
Reserve and Ben Bernanke outline the institution's role and Bernanke's
qualifications for his job.
Contrary to Paul's assertions, Bernanke is hardly a one-man
band. The Fed's Board of Governors includes 12 voting members and each of those
Fed districts employs many experts and researchers as support.
As for inflationary concerns, and the Fed only examining the
so-called core CPI which excludes food and energy costs, Paul is again way, way
off base. The Fed examines many inflationary measures. The CPI for all items including
food and energy is up less than 2 percent over the past year. The same is true
for food prices so Paul is wrong there as well (see graphs below).
When Ron Paul ran for President in 2008, he quickly fell by
the wayside in large part due to his extreme views on selected issues. He is a
bit of a crackpot. I support his idea of doing a thorough review of the Federal
Reserve and what they do. Something good could and should come out of that. But
abolishing the Fed and believing in Paul's other nutty assertions won't help
economically. Given his new committee Chair position, Paul needs to get better
educated on the economy and financial markets and should think and edit his thoughts
more before speaking. Otherwise, he could contribute to unsettled financial
markets and investors.
It's becoming more popular and fashionable among politicians
and pundits to bash the Fed. This will likely fade away as the economy and
markets continue improving.