Congress could not possibly handle the duties of the FOMC, regional banks, or other duties the Fed handles. Interest rates would rise quickly as investors abandoned US Treasuries. Inflation would ensue. Banks would not trust each other on interbank loans as no reserves would be held at a central bank and no supervision from a regulator enforced credit standards.
Congress would bicker about the Fed funds rate and whether or not to pursue a “strong dollar” policy. There would be no lender of last resort so credit would tighten. It would be total disaster. Congress would then fight the President on executive orders intended to restore sanity. There would be large swings in policy as Congress turned over after elections. Disaster all around.
Pretty much as you describe - some crazy-ass spending for short-term gain as elections approach, so the incumbents can stay in office, and otherwise utter chaos. It’d be like the 19th-century cycles of boom and bust, only with computers making it a thousand times faster.
I seriously doubt he COULD do that. The president isn’t a king or God Emperor. Assuming he could do it though, it would pretty much be an unmitigated disaster and would probably drag down not only our economy but pretty much the whole worlds economy. Having caused economic Armageddon, however, the folks who would have put him in office would be well prepared for the aftermath, if that show Doomsday Preppers is any indication.
Yes, it would take an act of Congress to do such. Since the Fed Board of Governors each serve 14-yr terms a President Paul could not usurp power from them by replacing enough Governors to control the Board that way.
In a larger sense: If Paul is elected, he’d not only be a one-term wonder, he’d be the only such to be a lame duck for all four years. He’d be a longer-lived William Henry Harrison.
It wouldn’t be a complete disaster. The United States has functioned without a Federal Reserve before. But before the Federal Reserve existed we had serious financial crises on a regular basis - I once listed them in a post and I don’t think there was a five year period without one. The economy is now a lot steadier because of the Reserve’s control.
Here’s the list: the Panic of 1796-1799, the Recession of 1802-1804, the Depression of 1807-1810, the Recession of 1812, the Depression of 1815-1821, the Recession of 1822-1823, the Recession of 1825-1826, the Recession of 1828-1829, the Recession of 1833-1834, the Recession of 1836-1838, the Recession of 1839-1843, the Recession of 1845-1846, the Recession of 1847-1848, the Recession of 1853-1854, the Panic of 1857-1858, the Recession of 1860-1861, the Recession of 1865-1867, the Recession of 1869-1870, the Panic of 1873, the Depression of 1873-1879, the Recession of 1882-1885, the Recession of 1887-1888, the Recession of 1890-1891, the Panic of 1893-1894, the Panic of 1896-1897, the Recession of 1899-1900, the Recession of 1902-1904, the Panic of 1907-1908, the Panic of 1910-1911, the Recession of 1913-1914, the Recession of 1918-1919, the Depression of 1920-1921, the Recession of 1923-1924, and the Recession of 1925-1927, and the Great Depression.
I made an error (so before another points it out) I will own up to it.
Without a Fed there would be no “Fed funds rate” of course. This is simply a target rate for uncollateralized loans between banks. The market would replace this rate based on credit worthiness and probably accelerate the demise of weak banks.
So that begs the question of whether or not depositors are protected by an FDIC (which Ron Paul opposes as well).
[QUOTE=Little Nemo]
It wouldn’t be a complete disaster. The United States has functioned without a Federal Reserve before. But before the Federal Reserve existed we had serious financial crises on a regular basis - I once listed them in a post and I don’t think there was a five year period without one. The economy is now a lot steadier because of the Reserve’s control.
[/QUOTE]
It’s true that in the past we didn’t have a Federal Reserve, but I don’t think we could stuff the genie back into the bottle now and not have the whole thing fly apart. Think about it just from the basics. What would our currency be? Presumably gold. Trying to stuff our economy back onto the gold standard would implode the whole system. How would you fit trillions of dollars in capital and assets back into a few hundred billion dollars worth of gold, or whatever we could lay our hands on? Just from that perspective I don’t see how it would be possible, and that leaves out a ton of other problems and issues that would arise…such as the fact that our currency would go from being traded on a global market to being backed by some fixed asset. What would happen to all of that investment flowing into the US from other countries? How would we value our treasury bills and bonds and other such instruments with such a radical departure from our current system? Why would other countries continue to value our bond and treasure instruments at anything like the current rates, and why would they continue to shelter their assets here??
What if Marvin the Martian were the head of the Federal Reserve? Then what? Ron Paul couldn’t end the Federal Reserve because Marvin the Martian would use his disintegrator ray on him. Duh.
Marvin would not be able to run for and be President because he is not a natural born citizen of the US. However, if there were a Newt Gingrinch Moon Base, and then a Mars Base, both made States, then Marvin could potentially run for President.
Orly Taitz could be US Attorney General under a President Ron Paul.
The problem wouldn’t be the lack of a Fed to react to a crisis, it would be the creation of a crisis as the markets reacted to the lack of stability not having a Fed would cause. They’d probably go down the minute this was seriously considered and crash if it passed. Unlike Paul and his friends, people on Wall Street live in the real world.
