Retiring New Hampshire Senator Judd Gregg, one of the Federal Reserve's most stalwart Republican supporters, showed up for a meeting at the central bank in November bearing a surprising gift: a box of End the Fed books. As he handed out the 2009 best seller by Representative Ron Paul, a longtime Fed critic, Gregg told the gathering it would be worth reading to see what the other side is plotting.
It may have taken 34 years, but Ron Paul has arrived, and he doesn't plan to squander the moment. His agenda includes landing the chairmanship of the House Financial Services Committee panel that oversees monetary policy—a job that will give him the power to push legislation reining in the central bank and to haul Fed governors up to Capitol Hill for hearings.
The prospect has Wall Street, Fed officials, and even Republican House leaders worried that Paul's agenda could roil the markets and make a mockery of the U.S. financial system. This is a man, after all, who entered politics because President Richard Nixon bucked the gold standard in 1971, and now wants to make gold and silver legal tender. He is pressing for an audit of the Fort Knox bullion depository and, earlier this year, grilled Fed Chairman Ben Bernanke about the central bank's alleged funding of Watergate and Saddam Hussein's nuclear program. Bernanke called the charges "absolutely bizarre."
Although his book ploy was couched in humor, Gregg laid plain a new Washington reality: Moderate, probusiness lawmakers like him, who consistently protected the central bank's independence and ability to set monetary policy, are mostly gone. In their place are politicians who view the Fed with suspicion, or worse. Their unofficial leader is Paul, the 75-year-old Texan whose quixotic 2008 Presidential run on the twin themes of ending the federal income tax and abolishing the Fed vaulted him to prominence with the nascent Tea Party. Some of those admirers are among the 75-plus new Republicans about to join Congress. For the first time since he was elected to the House in 1976, Paul's followers are formidable.
They include his son Rand, an incoming senator from Kentucky who routinely bashed the Fed on the campaign trail and is now angling for a seat on the Senate Banking Committee where he, too, could train his sights on the central bank. Calls to Rand Paul's staff seeking comment were not returned.
Officials at several major banks have privately raised concerns with Republican leaders that, by allowing Paul to become a chairman, his radical views would gain legitimacy, according to three bank lobbyists. Others are watching with great interest. "Congressman Paul has his own very strong views on things, and you've got to respect that," says Steve Verdier, a lobbyist for the Independent Community Bankers of America, which represents smaller lenders and has fought efforts to weaken the central bank. "I think there is a strong consensus in the country to maintain the independence of the Fed," he adds.
If he gets the subcommittee gavel, Paul says he plans a thorough review of Fed policy. Fear of inflation is what motivates him the most. Next to the doorway in his Washington office are six framed German bank notes dating from the 1920s hyperinflation era. The notes are sequentially dated "to show how quickly the zeroes were added onto the bills" as inflation skyrocketed, Paul says. The notes are arranged around a quote by one of Paul's favorite Austrian School economists, the late Hans F. Sennholz, who Paul once met and calls "a tremendous influence on me." Paul is a devotee of the Austrian School, which teaches that manipulating money supply and interest rates are responsible for history's boom-and-bust cycles. "The Fed creates all of the bubbles and they create the inevitable bursting of all of the bubbles," says Paul.
He believes his oversight role is long overdue. "There has been a politically cozy relationship between Congress and the Federal Reserve," he says. That includes past efforts to keep him from heading the subcommittee. "Republican leadership, with the Fed's influence, has been working to keep me away from this for a long time. That's not going to happen this time."
His prediction may be premature. Five GOP leadership aides, speaking anonymously because a decision isn't final, say incoming House Speaker John Boehner has discussed ways to prevent Paul from becoming chairman or to keep him on a tight leash if he does. If Boehner, who will help determine who gets to chair subcommittees as early as Dec. 8, rejects Paul, he may have to contend with thousands of grassroots supporters and dozens of younger lawmakers who see Paul as a hero. Boehner, through a spokesman, declined to comment. "A lot of the older members probably think Ron is a little bit out of step," says Representative Bill Posey, a Florida Republican and unabashed Paul fan. "The depth of his knowledge on monetary policy, his understanding of it all, is second to none."
Posey nominated Paul's famed audit-the-Fed bill for a "best legislation" award by House Republican freshmen this year. The bill, calling for a government audit of Fed operations, including its monetary policy decisions, won unanimously. Even though a watered-down version was included in the financial regulation law enacted in July, Paul wants to give the audit measure another shot and is counting on a new, high-profile perch to do so. "Traditionally, this subcommittee has been very insignificant," Paul says. "I'm absolutely going to change that."
The bottom line: After waiting decades, Fed critic Ron Paul is in line to chair the House's monetary policy subcommittee.