Friday, December 10, 2010

It's Time to Get Off Ron Paul's Back

Following Ron Paul being named Chairman of the Monetary Policy subcommittee, Karl Denninger writes:
Ron Paul Is Now Out Of Excuses

There's something particularly delicious when a politician has to start cashing the checks they've been writing with their mouth for more than a decade.
Such a day is today, with Ron Paul, starting in January...


I've sat through years of watching Mr. Paul during Humprey [sic]-Hawkins "testimony" where he has spent most of his alloted [sic] couple of minutes railing about the gold standard and inflation, never putting forward to Mr. Bernanke - or anyone else - an actual question that can be answered, or allowing the deponent to prattle on with abject nonsense.

The excuse of "limited time" and "mission creep" is now gone.

Here's the problem, as I see it. Mr. Paul has an allegedly-laudable claimed goal - ending The Fed, or at least shackling its excesses and outrages.

But he hasn't done anything with this goal, despite multiple years of attempts, other than filing his "End (or Audit) The Fed" bill every session.

Yes, there was some traction this last legislative session with that, and part of it got into Dodd-Frank. And yes, legislation is the art of making sausage - and it's pretty messy.

But that doesn't change the fact that the most-outrageous acts are not about audits at all, but rather intentional blindness when it comes to supervision and allowing essentially-unlimited leverage to be taken by institutions doing knowingly-unsound things.

Such as, for example, having 80% of your loan production be unsound - which we now have under oath testimony on related to one of the TBTF banks under the Fed's putative "supervision."...

So now we find out - does Mr. Paul have a sack?

And more importantly, is he willing to go where we must if we're going to drain this swamp - to use the "F" word ("Fraud"), to use the "C" word ("Criminal"), to use the "I" word ("Indict") and to use the "P" word ("Prosecute")?

We shall soon see.

Yes, The Fed should lose it's "dual mandate." Yes, The Fed should lose the 13.3 authority it still has (most of which is gone under Dodd-Frank. The Fed should be forced to disgorge all of the instruments it took in and holds that, through any devices, are out of compliance with Section 14, which is all of the MBS and all of the Maiden Lane LLCs. The Fed's "mandate", if we're going to keep something like The Fed, should be zero price inflation over an intermediate (e.g. 5 year) term for core goods and modest deflation in all other goods that reflect advances in technology and decreases in cost. That's what we have in computers and other areas of technology - why is this not part of policy? After all, we have an entire business model in the form of WalMart that is dedicated to the idea of modest deflation and they're "in your face" about it! (What else is "falling prices"?)

Let's cut the crap - if we have sound money - which simply takes an honest accounting and a zero-price-change foundation, then expansion of credit as a means of faking "growth" disappears and so does the ability to run nearly all financial Ponzi schemes. You either actually produce more or you don't - there is no more fake "wealth" produced through asset bubbles (one of which Bernanke publicly claims to be trying to produce right now!), because borrowing becomes relatively expensive - too expensive to do for other than either essential or productive purposes. That is, nobody borrows 100% of a house's price any more, nobody borrows 100% of a car's purchase price over 7 years, and almost nobody borrows except on an emergency basis (e.g. to fix said car) for "retail" purchases. They certainly don't use their house as an ATM machine nor do we have kids borrowing $150,000 for 4-year degrees in Sociology.

Without all that bubble-style credit creation prices contract back to a balance point with actual consumer surplus - that is, extra funds available after the necessities of life are paid for.

I'd love to see Mr. Paul actually do what he claims he wants. For years he and his supporters have been able to hide behind the "I'm only one of 435." That's no longer true - now, with a subcommittee chair seat, he's got a bully pulpit and, assuming the committee chair accedes, subpoena power.

The time for excuses is over, and the time for action has arrived.

You can bet I'll be reporting on whether or not the checks written by Mr. Paul over the previous years actually get cashed, now that he's got the keys to the drawer holding the cash to make 'em good.

I'm skeptical, but willing to be convinced.

Show me.
First of all, for such a detailed demand of Ron Paul by Denninger, it is remarkable as to how little he understands about Ron Paul's positions.

First, there is no chance Ron Paul is going to demand a "zero price inflation" policy from the Fed. Ron Paul knows all too well that money printing even when it doesn't cause price inflation, distorts the capital structure of the economy. It did so in the 1920's before the Great Depression and it did so before the recent Real Estate/financial crisis.

A "zero price inflation" policy would only set up a major downturn down the road. Ron Paul, if you study his comments, is first and foremost for a gold standard, and as a second less preferable option, a money supply that is not inflated at all, never ever.

If Denninger is going to be breathlessly watching C-Span for Ron Paul to steer committee discussions to "zero price inflation" policy, Denninger is going to have a very, very looooong wait.

Second,  Denninger pipes in about "unsound loan production" and how charges of fraud must be brought. Again, Denninger just doesn't understand Paul's position. There may have been fraud, there may have been unsound loan production, but if you read Paul, it's clear that he sees no role for the Fed or Congress supervising these areas. If there are unsound loans being made, then that's something investors, who are shareholders in the banks making such loans, should deal with. If there is fraud, then the victims of the fraud should use the courts to deal with the fraud. It is not the role of the Fed or Congress to deal with such fraud.

Again, Denninger is going to be sitting in front of his television watching  C-Span for a very loooong time, if he thinks Paul is going to take his subcommittee in either of these to directions.

As for what Congressman Ron Paul will be able to do, Ron Paul has done an incredible job already in bringing awareness of the evils of the Fed to the public at large. Denninger should get out once and awhile, if he thinks Paul has done nothing yet. He should attend an event where Paul is speaking and see the young, enthusiastic crowds that Paul attracts, and who know, because of Paul, that the Fed should be ended.

Personalitywise Ron Paul is not Rambo, which is why he probably has gotten as far as he has to a committee chairmanship. He is a reasoned man of principle who wants to be treated with respect and treats others with respect. He is a living, breathing personality that Ayn Rand would have been proud of creating for one of her novels.

In my book, Congress should be filled with men who have the integrity that Ron Paul has.

I highly suspect Congressman Paul's chairmanship of the Monetary Policy Committee will result in more focus and attention on the evil doings of the Federal Reserve than one could have imagined just five years ago. I am tremendously excited to see how Paul handles the Committee chairmanship, because he is not only a man of integrity, but very smart and very shrewd.

Is he going to have a gun duel mano y mano  with Bernanke on the front lawn of the Fed? No.

There's a division of labor in fighting for liberty. Ron Paul is the best you can get for his role. The position of duelist is still, I believe, open, which I would imagine Karl Denninger can attempt to
fill if he so chooses and challenge Bernanke to a duel any day he wants. Of course, he'll end up in the slammer and, at the same time, Ron Paul as chairman of the Monetary Policy committee will create even more focus of the evils of the Fed, and educate the public to things that Denninger doesn't even understand yet, that a "zero inflation policy" is dangerous, that it is not the role of the Fed or Congress to supervise unsound loans and that fraud should be dealt with in the courts and not by the Federal Reserve.


  1. Denninger is great when it comes to analyzing mortgage fraud and also at analyzing the fiscal health of the US.

    Sadly he is a goldhater, and I suspect he dislikes Mr. Paul partly because of this. Also, Mr. Denninger correctly realizes that the US must have presence in the middle east for reasons of oil - but he seems to think that until the US gets a different energy policy, this is a must. I suspect he doesn't very much appreciate Mr. Pauls stance on foreign policy either.

    It's a pity though, because in most other cases I very much like his work. I guess not everyone can be a principled ideologue.

  2. Wenzel,

    Great take down. KD writes a lot of great stuff but unfortunately this isn't one of them. The man is no Austrian and as such he's quite confused about the Fed and what it should or shouldn't be doing and how a person like RP should or shouldn't be treating it.

    I think KD is of the same school as Rickards in some ways-- there is a role for CBs, but they should be "responsible" and governed by sensible men of restraint.

    I am of the Austrian viewpoint that there is simply no role for CBs, whatsoever, in a free market economy.

  3. I saw Denninger's post yesterday and could not believe what I was reading. NO ONE has done more than Ron Paul to shine a light on the Fed, and for 30 years to boot. Ron Paul has asked the hard questions, but when the Chairman of the Fed is under no obligation to answer or disclose, all such questions are unsatisfying for all of us. Moreover, Denninger is ignorant of the way the congress works. Does anyone really believe that they will give Ron Paul a free hand to go after the Fed? Republicans have denied him chairmanships at least three times when he had the seniority, not to mention the expertise. It's almost like Denninger does not understand any of this...

  4. I appreciate this response to Denninger's rant, which I was surprised to read earlier today. But one thing I don't understand: could you explain the difference between "zero price inflation" and "a money supply that is not inflated at all"?

  5. A zero price inflation policy means just that a policy that attempts to keep prices stable.

    A zero money supply growth policy means just that a polciy where the money supply stays constant even if prices go up or down. (They would mostly likely go down)