Ron Paul's Power Play?

He campaigned to abolish the Fed. Now, this House veteran has oversight of the Central Bank. Will he turn our financial system upside down?

Retiring New Hampshire Sen Judd Gregg, one of the Federal Reserve's most stalwart Republican supporters, showed up for a meeting at the central bank late last year bearing an odd gift: a box of End the Fed books. As he handed out Rep. Ron Paul's 2009 best-seller, Gregg told the gathering it would be worth reading to see what the other side is plotting.

It may have taken 34 years, but longtime Fed critic Paul has arrived -- and he doesn't plan to squander the moment. His agenda included landing the chairmanship of the House Financial Services Committee panel that oversees monetary policy -- a job that gives him the power to push legislation reining in the central bank and to haul Fed governors up to Capitol Hill for hearings.

That has Wall Street, Fed officials, and even some Republican House leaders worried that Paul's agenda could roil the markets and make a mockery of the U.S. financial system. This is a man, after all, who entered politics because President Richard Nixon bucked the gold standard in 1971, and now Paul wants to make gold and silver legal tender.

He not only pressed for an audit of the Fort Knox bullion depository but also grilled Fed Chairman Ben Bernanke last year about the central bank's alleged funding of Watergate and Saddam Hussein's nuclear program. Bernanke called the charges "absolutely bizarre." Although Gregg's book ploy was couched in humor, it bared a new Washington reality: Moderate, pro-business lawmakers like him, who protected the central bank's independence and ability to set monetary policy, are mostly gone.

In their place are politicians who view the Fed with suspicion. Their unofficial leader is Paul, the 75-year-old Texan whose quixotic 2008 presidential run on the twin themes of ending the federal income tax and abolishing the Fed vaulted him to prominence with the tea party movement. Some of those admirers are among the 75-plus new Republicans in Congress. Paul's followers are formidable for the first time since he was elected to the House in 1976.

They include his son Rand, the new senator from Kentucky who routinely bashed the Fed on the campaign trail and now is angling for a seat on the Senate Banking Committee where he, too, could target the central bank.

Officials at some major banks have raised concerns privately with Republican leaders that making Ron Paul a chairman would grant his radical views legitimacy, according to three bank lobbyists. Others are watching with interest.

"Congressman Paul has his own very strong views on things, and you've got to respect that," says Steve Verdier, a lobbyist for the Independent Community Bankers of America, which represents smaller lenders and has fought efforts to weaken the central bank. "I think there is a strong consensus in the country to maintain the independence of the Fed."

With his subcommittee gavel, Paul has said he plans a thorough review of Fed policy. Fear of inflation motivates him the most. Next to the doorway in his Washington office are six framed German bank notes dating from the 1920s hyperinflation era. The notes are dated sequentially "to show how quickly the zeroes were added onto the bills," as inflation skyrocketed, Paul says.

The notes are arranged around a quote by one of Paul's favorite Austrian School economists, the late Hans F. Sennholz, whom Paul once met and calls "a tremendous influence on me."

Paul is a devotee of the Austrian School, which teaches that manipulating money supply and interest rates is responsible for history's boom-and-bust cycles. "The Fed creates all of the bubbles, and they create the inevitable bursting of all of the bubbles," Paul says.

He believes his oversight role is long overdue. "There has been a politically cozy relationship between Congress and the Federal Reserve," he says. That includes past efforts to keep him from heading the subcommittee. "Republican leadership, with the Fed's influence, has been working to keep me away from this for a long time."

For a while, the appointment seemed far from a done deal. Five GOP leadership aides, speaking anonymously, said new House Speaker John Boehner had discussed ways to prevent Paul from becoming chairman. But it became clear that if Boehner rejected Paul, he would have to contend with supporters and dozens of younger lawmakers who esteem Paul as a hero. Boehner declined to comment.

"A lot of the older members probably think Ron is a little out of step," says Rep. Bill Posey, a Florida Republican and unabashed Paul fan. "The depth of his knowledge on monetary policy, his understanding of it all, is second to none."

Posey nominated Paul's famed audit-the-Fed bill for a "best legislation" award from House Republican freshmen this year. The bill, calling for a government audit of Fed operations, including its monetary policy decisions, won unanimously. Even though a watered-down version was in the financial regulation law enacted in July, Paul wants to give the audit measure another shot.

"Traditionally, this subcommittee has been very insignificant," Paul says. "I'm going to change that."


--Newsmax, February 2011, pp. 14 - 15; www.newsmax.com