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A lonely voice against the Fed now leads a chorus
Rep. Ron Paul's attempt to rein in central bank is finally close to passing -- just don't expect him to vote for it

By Tomoeh Murakami Tse
Washington Post Staff Writer
Tuesday, December 8, 2009

Ron Paul is used to going it alone. During 20 years in Washington, the libertarian Republican congressman from Texas has proposed doing away with personal income taxes, federal antitrust laws and the minimum wage. He's advocated pulling the United States out of the United Nations, NATO and the International Monetary Fund.

Those efforts have mostly been legislative non-starters. Many of his bills fail to attract a single co-sponsor.

But one of his perennial causes is headed to the House floor Wednesday with widespread support: to audit the Federal Reserve. That measure, which he first introduced in 1983, has the backing of more than 300 legislators and last month won bipartisan approval in the House Financial Services Committee.

The proposal would subject the Fed to unprecedented scrutiny by allowing the Government Accountability Office to audit all central bank operations, including its decisions on interest rates, lending to individual banks and transactions with foreign central banks. Fed officials and many private economists have argued strenuously against the measure, saying it would threaten economic stability by undermining the central bank's independence from political pressure.

"I'd like to know who they bail out and why," said Paul, who brought together a small cult following across the political spectrum in the last presidential election. "I'd like to know how much they pay for securities that they buy. Did they overpay? Why did Goldman Sachs come out well and Lehman Brothers go bankrupt?"

Author of 'End the Fed'

That Paul's proposal has garnered so much support despite opposition from the Obama administration is not so much a testament to his political prowess. Rather, it reflects populist discontent over an institution increasingly blamed for its failure to head off the financial crisis and for its role in rescuing large financial firms that helped cause it.

"He's been dogged about it and stayed with it," said Steve H. Hanke, an economics professor at Johns Hopkins University. "The lesson in salesmanship is illustrated by Paul's actions. However, the consuming public is obviously ready to buy now. . . . There's just a great deal of skepticism out there. And in that environment, a bill that would require more transparency and less secrecy gets some traction."

But Paul's critique of the Fed goes well beyond the lessons of the financial bailout. He believes market forces alone, not the Fed, should set interest rates. His best-selling book is called "End the Fed." He has a separate bill to abolish the Fed altogether. (He is the lone sponsor.)

Paul said in an interview that his measure is strictly about transparency at the "all-powerful" Federal Reserve.

"What they're talking about when they say they want no political influence, what they're talking about is they just want secrecy," Paul said. "Why would they be so nervous about us finding this out? It tells you there's something big going on."

Leaders at the Fed have repeatedly stressed to Congress their increased efforts at transparency. Fed officials have noted that the central bank is disclosing more information than ever about its operations and balance sheet, which has expanded by more than $1 trillion as the Fed has carried out unprecedented actions to stabilize the financial system. Fed officials have also said they would work with Congress to provide additional information about how taxpayer funds are being used.

First elected to Congress in 1976, Paul has earned the nickname Dr. No from colleagues for his record of voting against almost anything he sees as intruding on free markets or amounting to government overreach.

He was one of only a few Republicans to vote against the war in Iraq. He opposed federal aid to Hurricane Katrina victims. He has called for abolishing the Internal Revenue Service, and during his career as an obstetrician-gynecologist in Texas, Paul saw some patients for free rather than accept Medicare or Medicaid, he recalled. None of his five grown children took out federal student loans.

Paul's principled, outside-the-mainstream stance has left him with few legislative victories. Of the nearly 200 bills Paul has proposed in the latest three congressional sessions, only two have made it to the House floor. His Fed audit bill, now part of broader legislation overhauling the regulation of financial markets, is by far the most popular.

Driven by beliefs

His bill's opponents do not suggest that Paul is driven by anything other than his beliefs.

"Ron has his views, it's very strongly felt, and he's been pounding on this one 30-some-odd years," said Sen. Judd Gregg (R-N.H.). "This is a very bad idea that's very foolish and incredibly destructive to our nation if it were to pass."

Paul said his views on government, the economy and monetary policy developed gradually. He enrolled in his first economics class at Gettysburg College, where he graduated in 1957 with a degree in biology. While in medical school, he continued to read Ludwig von Mises and F.A. Hayek, Austrian economists who opposed central economic planning.

In the 1970s, the Nixon administration suspended the dollar's convertibility into gold and made the decision to impose import surcharges and wage and price controls. Then came the collapse of the Bretton Woods system of fixed exchange rates, which had defined the global economy since the aftermath of World War II.

"It was a very bad decade in the 1970s. That was a big influence on me," Paul said. "It just energized me to start speaking out."

Paul views support for his Fed audit proposal as recognition of "the failure of the current system, the failure of Keynesian economics."

Back in Washington, the outlook for Paul's bill is bright, with leaders on both sides of the aisle supporting some version of it.

"I agree with much of what he's doing," Rep. Barney Frank, chairman of the House Financial Services Committee, said in an interview. "I find him very reasonable and amiable."

Despite his unusual success in advancing the proposal, however, Paul is unlikely to cast a rare "yes" vote for it. That's because it is part of the bill proposing broad new financial regulation, something Paul simply cannot approve.

"That's my tradition," he said. "I won't vote for a bill that's a disaster because 1 or 2 or 5 percent of it is an improvement."

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