Bloomberg News

Paul Capturing Delegates Could Force Fed Changes on Republicans

February 14, 2012

(For 2012 campaign news, see ELECT.)

Feb. 6 (Bloomberg) -- Ron Paul, trailing in delegates needed for the 2012 Republican presidential nomination, could be positioning himself to force his party to accept changes in the way the Federal Reserve operates.

The Texas congressman is attracting an expanding base of supporters passionate about his plainspoken message of sapping government power in favor of individual freedom. It’s not enough to make him his party’s standard bearer, say Republican strategists, yet if he follows through on a promise to remain in the race and collect delegates until the party’s convention in August, he could gain the clout needed to highlight his signature goal of curtailing the power of the central bank.

“He’s going to ask for a speaking role at the convention and try to have some influence in the party platform,” Republican strategist John Feehery said of Paul.

That would likely mean adding some tough anti-Fed language to the party’s formal agenda, such as mandating an audit of its monetary policy or sharply curtailing its power by eliminating its task of promoting employment so it focuses exclusively on price stability.

“The main things you could get Republicans to sign off on are removal of the dual mandate or an audit of monetary policy,” said Mark Calabria, a former senior Republican staff member of the Senate Banking Committee who is now director of financial-regulation studies at the libertarian Cato Institute in Washington. “Those are the sort of things Ron Paul could look at trying to get in the Republican platform.”

Delegate Power

Paul, 76, has improved his percentages in the first five nominating contests, most recently with his performance Feb. 4, when he won 19 percent in Nevada’s caucuses -- 5 points better than the 14 percent he drew there in 2008.

His 23 percent, second-place showing in New Hampshire Jan. 10 and 13 percent, fourth-place finish in South Carolina Jan. 21 both amounted to about triple the share of votes he received in those states in 2008. His third-place finish in Iowa with 21 percent on Jan. 3 and fourth place in Florida Jan. 31 with 7 percent reflected a doubling of his support since 2008.

Those improvements suggest that Paul could garner 200 delegates or more for the Aug. 27 convention, sending him in with a strong negotiating hand.

Some of Paul’s rivals have praised his focus on the Fed while stopping short of endorsing his proposal to scrap it. Front-runner Mitt Romney, a former governor of Massachusetts, has spoken little about the central bank during his campaign, even as he acknowledges the power of Paul’s supporters.

Igniting Enthusiasm

“He ignites an enthusiasm with a number of people that’s very exciting to watch,” Romney said of Paul at a Dec. 10 debate in Des Moines, Iowa.

Former U.S. House Speaker Newt Gingrich called for a gold commission and said Jan. 23 that Paul was “right” about the Fed and “the importance of monetary policy.”

Paul is likely to have only limited backing from the Republican Party in incorporating his central campaign proposals into the platform. There’s a good chance the party will go along with his call for substantial cuts in federal spending -- though not his specific goal of slashing $1 trillion in the first year. And most Republican leaders and presidential candidates disagree with Paul’s non-interventionst military stance, which calls for withdrawing U.S. troops from most places overseas.

It remains to be seen how warmly the party may embrace Paul’s anti-Fed proposals, which are regarded with alarm by some of Romney’s Wall Street supporters whose firms benefited from bailouts from the central bank.

‘Dire Consequences’

Meddling with the Fed’s independence could have dire consequences for financial markets, said Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago.

“The more influence politicians have on central bank behavior, the worse off we are,” said Swonk, who helps oversee $59.2 billion in assets under management as of Dec. 31. “When you try to hamstring the Fed, you risk undermining long-term growth.”

Paul already has had some success with efforts to force an audit of the Fed’s monetary policy. He introduced legislation to do so that drew more than 300 cosponsors and passed the House in 2010 as part of a broader overhaul of financial regulation. It died in the Senate and was omitted from the Dodd-Frank Act that ultimately was signed into law.

Instead, Congress directed the Government Accountability Office to audit the Fed’s emergency-aid programs from the financial crisis and review the system of directors of regional Fed banks for possible conflicts of interest. The Fed also was required to identify borrowers in crisis-lending programs.

Fed Resistance

Fed Chairman Ben S. Bernanke opposed Paul’s bill, saying it would infringe on the central bank’s independence in setting interest rates.

There’s little chance Republicans will endorse Paul’s central goal -- as he advocated in his book, “End the Fed.”

Still, some Republicans are proposing legislation to limit the bank’s role, taking away its power to promote job growth and leaving it with a single mandate of curbing inflation.

Representative Kevin Brady of Texas, the top Republican on the Joint Economic Committee, has drafted legislation that would accomplish that goal -- the “Sound Dollar Act.”

Paul has criticized this approach, telling the American Prospect in 2010 that it amounted to “grandstanding” on the issue compared with his own call to abolish the Fed. Still, he said he would probably support this to lessen the bank’s power.

Bernanke a Casualty

It’s unclear whether such legislation could make it through Congress even under a Republican president, said Andrew Laperriere, senior managing director at International Strategy & Investment Group Inc. in Washington.

“Democrats would be very likely to oppose and it’d be something you’d probably need 60 votes in the Senate for,” Laperriere said in an interview.

One casualty already of Paul’s anti-Fed thrust and its growing appeal within the Republican Party is any chance that Bernanke could be reappointed if a Republican won the White House. Even Romney has said he wouldn’t name Bernanke for another term as Fed chairman.

--With assistance from Greg Giroux in Washington. Editors: Mark Silva, Justin Blum

To contact the reporters on this story: Julie Hirschfeld Davis in Washington at Jdavis159@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva@bloomberg.net


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