Secretive System

"Few Americans give much thought to the Federal Reserve System or monetary policy in general," Ron Paul wrote in his column this week.

"But even as they strive to earn a living, and hopefully save or invest for the future, Congress and the Federal Reserve Bank are working insidiously against them. Day by day, every dollar you have is being devalued.

"The greatest threat facing America today is not terrorism, or foreign economic competition, or illegal immigration.

"The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation."

Ron Paul is one of the few politicians of the world who understands the intricacies of fiat money. He is on the House Committee on Financial Services.

Deficits

Since the gold standard which was set at 35 dollars an ounce was broken amidst heavy money printing in 1973 leading to the collapse of the Bretton Woods system, the Federal Reserve has debauched the dollar to around 1,000 dollars an ounce in 2008.

US rate cuts (money printing) to save the domestic financial system from collapse has fired another round of inflation around the world, as the dollar plunged and excess liquidity found a home in commodity speculation, leading to food riots in some poor countries.

The International Monetary Fund said in its World Economic Outlook report this week that the current commodity bubble may also burst as it had in earlier cycles, now that the housing and financial bubbles have collapsed.

"Just today the dollar went down 1.2 percent in one day," Paul told the Congress on April 12.

"It comes from the fact of deficits. Why does it hurt the dollar? Because we don't have enough money. People are overtaxed. We can't borrow anymore because interest rates will go up.

"So we print the money. The more money you print the further the dollar goes down and everything will go up in price."

Since the August slashing of rate cuts, US inflation measured by an index that has earned Paul's criticism for understating inflation has almost doubled to over 4 percent by end 2007 from just over 2 percent earlier in the year.

The housing bubble, the collapse of which caused the sub-prime meltdown itself was fired by earlier US loose monetary policy.

Scamming the elderly

"The Fed’s inflationary policies hurt older people the most. Older people generally rely on fixed incomes from pensions and Social Security, along with their savings," Paul wrote.

"Inflation destroys the buying power of their fixed incomes, while low interest rates reduce any income from savings.

"So while Fed policies encourage younger people to over borrow because interest rates are so low, they also punish thrifty older people who saved for retirement.

"The financial press sometimes criticizes Federal Reserve policy, but the validity of the fiat system itself is never challenged."

Paul is echoing the words of an earlier generation of elected representatives who tried to stop the Federal Reserve bill being passed into law in 1913.

"The worst legislative crime of the ages is perpetrated by this banking bill," Charles Lindberg said of the proposed Fed bill almost a century ago.

"This is the strangest, most dangerous advantage ever placed in the hands of a special privileged class by any Government that ever existed."