End the Fed


By Ron Paul

Read by Bob Craig

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In the post-meltdown world, it is irresponsible, ineffective, and ultimately useless to have a serious economic debate without considering and challenging the role of the Federal Reserve.

Most people think of the Fed as an indispensable institution without which the country’s economy could not properly function. But in End the Fed, Ron Paul draws on American history, economics, and fascinating stories from his own long political life to argue that the Fed is both corrupt and unconstitutional. It is inflating currency today at nearly a Weimar or Zimbabwe level, a practice that threatens to put us into an inflationary depression where $100 bills are worthless. What most people don’t realize is that the Fed — created by the Morgans and Rockefellers at a private club off the coast of Georgia — is actually working against their own personal interests. Congressman Paul’s urgent appeal to all citizens and officials tells us where we went wrong and what we need to do fix America’s economic policy for future generations.



Copyright © 2009 by The Foundation for Rational Economics and Education, Inc. (FREE)

All rights reserved. Except as permitted under the U.S. Copyright Act of 1976, no part of this publication may be reproduced, distributed, or transmitted in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

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ISBN: 978-0-446-56818-0


My first thanks go to my wife, Carol, whose love and support make possible everything I do. And without my great teachers in Austrian economics—Ludwig von Mises, Murray N. Rothbard, F. A. Hayek, Henry Hazlitt, and Hans F. Sennholz—this book would not exist.

Thanks also to my editor Ben Greenberg, for his most effective help.



Everybody thinks about money and almost everybody wants more. We use money without thinking much about its nature and function. Few of us ask where it comes from, who controls it, why it has value, or why it loses value from time to time.

In the same way, most people accept the Federal Reserve—the manager of the nation's money stock—as an indispensable institution that the United States cannot function without, and so they don't question it. But I assure you, especially in this post-meltdown world, that it is irresponsible, ineffective, and ultimately useless to have a serious economic debate without considering fundamental issues about money and its quality, as well as the Fed's massive role in manipulating money to our economic ruin.

What is the Fed and what does it do? To answer these questions, you can read books, study pamphlets issued by the Fed, or attend economics lectures at your local college. You can even consult the Fed's comic books on its own Web site. 1 You will be told how the Fed serves to stabilize the business cycle, control inflation, maintain a solvent banking system, regulate the financial system, and more. Certainly, the Fed's spokes-men claim that they do all this and do it well.

I disagree on each point.

After all is said and done, the Fed has one power that is unique to it alone: it enables the creation of money out of thin air. Sometimes it makes vast new amounts. Sometimes it makes lesser amounts. The money takes a variety of forms and enters the system in various ways. And the Fed does this through techniques such as open-market operations, changing reserve ratios, and manipulating interest rates, operations that all result in money creation.

Given that money is one half of every commercial transaction and that whole civilizations literally rise and fall based on the quality of their money, we are talking about an awesome power, one that flies under cover of night. It is the power to weave illusions that appear real as long as they last. That is the very core of the Fed's power.

As President Barack Obama said of the economic boom that went bust: "I think it's important to understand that some of that wealth was illusory in the first place." 2


But let's also understand the source of the illusion and what to do about it.

Of course, not everyone is instinctively against this illusion-weaving power, and many even welcome it. They just want to get back to the times when "everything was good" even though it was all just a mirage—a creation of the appearance of wealth by the Fed.

It is frequently thought that relieving an alleged shortage of money will solve all social problems. Even today, with an economic crisis raging, the response by our government and the Federal Reserve has been characteristic. Interest rates are driven to zero and trillions of dollars are pushed into the economy with no evidence that any problems will be solved. The authorities remain oblivious to the fact that they are only making our problems worse in the long run.

Economic booms and busts have been around for a long time. Tragically, the innocent who understand little about the complexity of the monetary system suffer the most, while those who are in the know reap great profits whether the market is going up or down. Only an understanding of how the monetary system works can correct this problem and protect the victims caught in a vicious economic downturn.

Everyone should have an intense interest in what money is and how it's manipulated by the few at the expense of the many. Money is crucial for survival. It is necessary for maintaining a free society. A healthy economy depends on it. Limiting political power is impossible without it. Sound money is essential for preventing unnecessary wars. Prosperity and peace in the long run are impossible without it.

To understand money, one absolutely must understand what a central bank is all about. In the United States, the central bank is the Federal Reserve, the instrument by which our money and credit are constantly manipulated for the benefit of a privileged class.

I've written this book to explain why I think the system of Fed domination must come to an end. I've been speaking and writing on this subject for more than thirty years, but there was a time when hardly anyone cared what I had to say about this subject. The economic crisis has changed everything. Today there is a growing social movement, even a political movement, dedicated to ending the Fed.

In fact, the title of this book is not my own but rather comes from a slogan that can be heard at rallies all around the country. I first heard it at the University of Michigan in October 2007, after the Republican primary debate in Dearborn. It was a frustrating evening; all my opponents denied there was anything at all wrong with the economy or Bush administration policies. But afterward, I was able to speak to more than 4,000 students in the quad at Ann Arbor.

I'm told that was a big turnout for a candidate. And it was a very friendly crowd, applauding my comments on government spending and deficits and on wars and foreign policy. But when I mentioned monetary policy, the kids started cheering. Then a small group chanted, "End the Fed! End the Fed!" The whole crowd took up the call. Many held up burning dollar bills, as if to say to the central bank, you have done enough damage to the American people, our future, and to the world: your time is up.

Then, in September 2008, at my counterconvention in Minneapolis, 12,000 people started the chant long before I even mentioned the issue of the Fed. I laughed and said, "Wait a minute!" But they did not, for money, its quality and future, is surely the issue of our times.

I've always been an optimist about the cause of sound money, but even I never imagined that the anti-Fed cause would become material for popular protests in my lifetime. All around the country, people are gathering outside Federal Reserve buildings to protest against the power, secrecy, and operations of the Fed, and chanting this great slogan. Their goal is not reform but revolution: an end to the Fed.

I'm thrilled. You should be, too, since ending the Fed would be the single greatest step we could take to restoring American prosperity and freedom and guaranteeing that they both have a future.

I have no doubt that some people consider such protests to be shocking, radical, even dangerous, but the truth is that they arise from an impulse deeply rooted in our nation's history. The nineteenth century saw many similar protests against the national bank system and the attempt to centralize money and credit in a government-sponsored, government-backed institution that operates in complete secrecy.

One might say that this is a populist cause. It is also a libertarian cause, one that would be cheered by Thomas Jefferson, a dedicated opponent of the Fed's predecessor, the Bank of the United States, and by Thomas Paine, who saw paper money as the enemy of individual liberty on grounds that it always gives rise to despotism.

Paine, the same writer who inspired the American Revolution with his pamphlet Common Sense, also said this: "As to the assumed authority of any assembly in making paper money, or paper of any kind, a legal tender, or in other language, a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom—and property no security—where this practice can be acted." 3

In the same way, there were great opponents of central banking despotism in the nineteenth century, and entire presidential elections turned on the question of whether there should be a national bank of note issue.

Indeed, opposition to a money monopoly has roots all the way back to the fourteenth century in the work of the earliest economists who thought about the dangers of inflation. 4

This cause is also justified in the work of the finest economists and philosophers of the twentieth century. Nobel laureate F. A. Hayek, for example, wrote of central banking: "I doubt whether it has ever done any good except to the rulers and their favorites," and he concluded that "money is certainly too dangerous an instrument to leave to the fortuitous expediency of politicians." 5

It is and should be a mainstream cause to end the power and secrecy of the Fed. It's my own view that ending the Fed would address the most vexing problems of politics of our time. It would bring an end to dollar depreciation. It would take away from the government the means to fund its endless wars. It would curb the government's attacks on the civil liberties of Americans, stop its vast debt accumulation that will be paid by future generations, and arrest its massive expansions of the welfare state that has turned us into a nation of dependents.

If you solve the money monopoly problem by ending the Fed, you solve many other problems, too. Essentially you take away from the government the capacity to use financial trickery to expand without limit. It is the first step to restoring constitutional government. Without the Fed, the federal government would have to live within its means. It would still be too big and too intrusive, just like all state governments are today, but the outrageous empire at home and abroad would have to come to an end.

There are other benefits as well, such as stopping the business cycle, ending inflation, building prosperity for all Americans, and putting an end to the corrupt collaboration between government and banks that virtually defines the operations of public policy in the post-meltdown era.

Ending the Fed would put the American banking system on solid financial footing. The industry would thrive without the moral hazard of banks that are "too big to fail." Its loan operations would take a more realistic account of risks, and the bank's capital would not be put at risk in the service of politically driven priorities.

Customers' deposits would be safer than they are today, as banks would compete with one another in their most important function of providing a secure means of preserving wealth.

Ending the Fed would also end the way in which our election cycles have been corrupted by monetary manipulation. No longer would presidents be in a position to lean on the central bank to artificially boost the economy before elections, only to have a recession hit after the party in power is sworn in again.

The national wealth would no longer be hostage to the whims of a handful of appointed bureaucrats whose interests are equally divided between serving the banking cartel and serving the most powerful politicians in Washington.

Ending the Fed is the one sure way to restore sanity to economic and political life in this country. It doesn't mean that our political disagreements and fights in Congress will go away. Ending the Fed is not a magic pill to usher in Utopia. But it does mean that our disagreements and discussions will occur within the context of reality, not in the illusory world created by the unlimited printing of money.

The time to do it is now. The Fed's activities since the market meltdown of 2008 have been dangerous in the extreme. The Fed is using all its power to drive the monetary base to unprecedented heights, creating trillions in new money out of thin air. From April 2008 to April 2009, the adjusted monetary base shot up from $856 billion to an unbelievable $1.749 trillion. Was there any new wealth created? New production? No, this was the Ben Bernanke printing press at work. If you and I did anything similar, we would be called counterfeiters and be sent away for a lifetime in prison. We would be scorned and hated by everyone as scam artists and racketeers. But when the Fed does it—complete with a scientific gloss—it is seen as the perfectly legal and responsible conduct of monetary policy.

This new money now sits as reserves in bank vaults awaiting a safe environment for lending and borrowing. Should that safe environment arrive, we could see a level of price increases none of us have experienced in our lifetime.

St. Louis Adjusted Monetary Base (BASE)

Source: Federal Reserve Bank of St. Louis: 2009 research.stlouisfed.org

Some people think the experience of the Weimar Republic in Germany in the interwar years, when paper money was made so worthless by the central bank that the bills were literally used as fuel to heat homes, is entirely impossible in the United States.

We think we are immune from such a calamity, but we are not.

Bad economic policy can destroy a civilization—no policy is more dangerous than bad monetary policy. After decades of experience in grappling with Fed officials in committee meetings and of lunches and private discussions with Fed chairmen, a lifetime of reading serious economic literature, and a profound awareness of the dangers to liberty in our time, I know there is absolutely no hope for the Fed to conduct responsible monetary policy.

We need to take away the government's money power. The banking industry needs its welfare check ended. The dollar's soundness depends on its being untied from the machine that can make an infinite number of copies of dollars and reduce their value to zero.

The fact that the Fed can create trillions of dollars and distribute them to its cronies without congressional oversight should shock us all. I thought I was immune to being shocked by what our government does, but the actions of the Fed in 2008–2009 went beyond the pale. Not only did the Fed create many trillions of dollars and pass them out, it refused to explain its actions. This shows the arrogance of the members of the Fed and the complete apathy of the Congress in assuming its responsibility to protect the people and follow the law.

Back on November 21, 2002, Ben Bernanke explained precisely what his views are, so perhaps there should have been no surprise. 6

The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

I'm not sure that the Fed governor has ever been so frank about the Fed's power. To be sure, he was not condemning it. He was explaining it. He believes in it. Like the eighteenth-century money crank, John Law, whose antics fueled the Mississippi Bubble, Bernanke believes he has discovered the magic means to generate prosperity. 7

Rarely does an opportunity present itself to interest the average person in the monetary system enough to demand reform, but one is now upon us. Although we face a crisis, we have an excellent opportunity to strike a blow for freedom, which cannot exist without sound money.

The Federal Reserve System must be challenged. Ultimately, it needs to be eliminated. The government cannot and should not be trusted with a monopoly on money. No single institution in society should have power this immense. In fact, I believe that freedom itself is at stake in this struggle.



Most Americans haven't thought much about the strange entity that controls the nation's money. They simply accept it as though it has always been there, which is far from the case. Visitors to Washington can see the Fed's palatial headquarters in Washington, D.C., which opened its doors in 1937. Tourists observe its intimidating appearance and for-bidding structure, the monetary parallel to the Supreme Court of the capital of the United States.

People know that this institution has an important job to do in managing the nation's money supply, and they hear the head of the Fed testify to Congress, citing complex data, making predictions, and attempting to intimidate anyone who would take issue with them. One would never suspect from their words that there is any mismanagement taking place. The head of the Fed always postures as a master of the universe, someone completely knowledgeable and completely in control.

But how much do we really know about what goes on inside the Fed? With the newest round of bailouts, even journalists have a difficult time running down precisely where the money is coming from and where it is headed. From its founding in 1913, secrecy and inside deals have been part of the way the Fed works.

Part of the public relations game played by the chairman of the Fed is designed to suggest that the Fed is an essential part of our system, one we cannot do without. In fact, the Fed came about during a period of our nation's history called the Progressive Era, when the income tax and many new government institutions were created. It was a time in which business in general became infatuated with the idea of forming cartels as a way of protecting profits and socializing losses.

The largest banks were no exception. They were very unhappy that there was no national lender of last resort that they could depend on to bail them out in times of crisis. With no bailout mechanism in place, they had to sink or swim on their own merits. What was more, following the Civil War, American presidents worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had no-where to turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out. This agenda fit well with a growing political movement at the turn of the twentieth century that favored inflation (sometimes summed up in the slogan "Free Silver") as a means of relieving the debt burden of farmers. The cause took on certain populist overtones, and many people began to believe that an elastic money supply would help the common man. They identified the gold standard as a system favored by large banks to keep credit tight. Even today, many writers on the Fed mistakenly believe that the central bank and the largest banks are working to keep credit tight in their own interest.

Even the Fed itself claims that part of its job is to keep inflation in check. This is something like the tobacco industry claiming that it is trying to stop smoking or the automobile industry claiming that it is trying to control road congestion. The Fed is in the business of generating inflation. It might attempt to stop the effects of inflation, namely, rising prices. But under the old definition of inflation—an artificial increase in the supply of money and credit—the entire reason for the Fed's existence is to generate more, not less, of it.

What the largest banks desire is precisely what we might expect any large corporation to desire: privatized profits and socialized losses. The privatized profits come from successful loan activities, sometimes during economic booms. But when the boom turns to bust, the losses are absorbed by third parties and do not affect the bottom line. To cover losses requires a supply of money that stretches to meet bankers' demands. This is something that every industry would like if they could get it. But it is something that the free market denies them, and rightly so.

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history toward the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit.

If we look at banking history, we see that the drive for centralization of power dates back centuries. Whenever instability turns up, so do efforts to socialize the losses. Rarely do people ask what the fundamental source of instability really is. For an answer we can turn to a monumental study published in 2006 by Spanish economist Jesús Huerta de Soto. 1 He places the blame on the very institution of fractional-reserve banking, the notion that depositors' money currently in use as cash may also be loaned out for speculative projects and then redeposited. The system works so long as people do not attempt to withdraw all their money at once, as permitted to them in the banking contract. Once they do attempt this, the bank faces a choice to go bankrupt or suspend payment. In the face of such a demand, a bank turns to other banks to provide liquidity. But when the failure becomes systemwide, it turns to the government.

The core of the problem is the conglomeration of two distinct functions of a bank. The first is the warehousing function, the most traditional function of a bank. The bank keeps your money safe and provides services such as checking, ATM access, record keeping, and online payment methods. These are all part of the warehousing services of the bank, and they are services for which the consumer is traditionally asked to pay (unless costs can be recouped through some other means). The second service the bank provides is a loan service. It seeks out investments such as commercial ventures and real estate and puts money at risk in search of a rate of return. People who want their money put into such ventures are choosing to accept risk and hoping for a return, understanding that if the investments do not work out, they lose money in the process.

The institution of fractional reserves mixes these two functions, such that warehousing becomes a source for lending. The bank loans out money that has been warehoused and stands ready to use in checking accounts or other forms of checkable deposits, and that newly loaned money is deposited yet again in checkable deposits. It is loaned out again and deposited, with each depositor treating the loan money as an asset on the books. In this way, fractional reserves create new money, pyramiding it on top of a fraction of old deposits. Depending on reserve ratios and banking practices, an initial deposit of $1,000, thanks to this "money multiplier," turns into deposits of $10,000. 2


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On Sale
Sep 16, 2009
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Ron Paul

About the Author

Ron Paul is a former twelve-term congressman from Texas and a #1 New York Times bestselling author. He has devoted his political career to the defense of individual liberty, sound money, and a non-interventionist foreign policy. Judge Andrew Napolitano once called him “the Thomas Jefferson of our day.”

After serving as a flight surgeon in the U.S. Air Force in the 1960s, Dr. Paul moved to Texas to begin a civilian medical practice, delivering over four thousand babies in his career as an obstetrician. He served in Congress from 1976 to 1984, and again from 1996 to 2012. He and Carol Paul, his wife of fifty-one years, have five children, eighteen grandchildren, and one great-grandchild.

Ron Paul, the
New York Post once wrote, is a politician who “cannot be bought by special interests.”

Learn more about this author