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How Ron Paul got Ben Bernanke to crack a smile

Fed Chairman Ben Bernanke

Win McNamee/2010 Getty Images

Texas congressman Ron Paul, the author of End the Fed and vocal disciple of the Austrian school of economics, rarely draws a smile from Federal Reserve Chairman Ben Bernanke. But he did Wednesday - by confirming his retirement from Congress at the end of his current term.

Mr. Paul actually made the announcement on his website Tuesday. Mr. Paul's colleagues on the House Financial Services Committee made note of the news before commencing a hearing with Mr. Bernanke on Wednesday.

"I'm sure that that came as quite a disappointment to the Federal Reserve," said Alabama Republican Spencer Bachus, the committee's chairman.

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The video cameras fixed on Mr. Bernanke showed him smiling broadly after the remark.

Noting Mr. Bernanke's grin, and those of his staff, Mr. Paul indicated that had he known his departure would bring the Fed such pleasure he might have reconsidered.

Instead, for perhaps the last time, Mr. Paul took advantage of his position as inquisitor to rail on the Federal Reserve as the central problem for everything that is wrong with the U.S. economy.

"The country is bankrupt and we aren't quite willing to admit that," Mr. Paul said. He went on to say that "spending wouldn't have gotten out of hand if we didn't have a system that provided the funds." The provider of those funds, in Mr. Paul's view, is the central bank, which is the "facilitator of special interests" and "takes the pressure off" lawmakers to get the budget under control.

And that was simply Mr. Paul's preamble. When it was finally his turn to ask a question, he ensured that if this was indeed his last chance to grill Mr. Bernanke, he would go out in a blaze of rhetorical glory. The subject for his last stand will come as no surprise to anyone familiar with Mr. Paul: gold.

Here's an edited version of the exchange for your reading pleasure:

(Watch the exchange on YouTube here: Ron Paul grills Fed's Ben Bernanke)

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MR. PAUL: But very quickly, if you could answer another question, because I'm curious about this - you know, the price of gold today is $1,580 [U.S.] The dollar during these last three years was devalued almost 50 per cent. When you wake up in the morning, do you care about the price of gold?

MR. BERNANKE: Well, I pay attention to the price of gold, but I think it reflects a lot of things. It reflects global uncertainties. I think people are - the reason people hold gold is as a protection against what we call tail risk, really, really bad outcomes. And to the extent that the last few years have made people more worried about potential of a major crisis, then they have gold as a protection.

MR. PAUL: Do you think gold is money?


MR. BERNANKE: No. It's not money, it's a precious metal…

MR. PAUL: Even if it has been money for 6,000 years, somebody reversed that and eliminated that economic law?

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MR. BERNANKE: Well, it's - you know, it's an asset. I mean, it's the same - would you say Treasury bills are money? I don't think they're money either, but they're a financial asset.

MR. PAUL: Well, why do - why do - why do central banks hold it if it's not -

MR. BERNANKE: Well, it's a form of reserves. It's a form -

MR. PAUL: Why don't they hold diamonds?

MR. BERNANKE: Well, it's tradition, long-term tradition.

MR. PAUL: (Chuckles.) Well, some people still think it's money. I yield back. My time is up.

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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