Ron Paul on the Fed Again

I have to admit that I like listening to the little guy speak. My view of Ron Paul (and yes, I have read End the Fed, though I haven't had time to comment on it yet) is that he is a smart guy with good instincts and a good understanding of the events that have shaped monetary history in the U.S. and elsewhere. (This is unlike PK who, while also very smart, appears to have shaped his macroeconomic theory entirely on the apparent failure of a local babysitting cooperative).

Here is Ron Paul's attack on the Fed today: Fed Will Self-Destruct. I don't necessarily disagree with any of the points made in the written article (apart from the fact that Bernanke has never advocated 4% inflation). Some of the things he says in the video interview, however, seem rather strange.

With respect to our "deeply flawed monetary system" he appears to be concerned that one person (Bernanke) has the power to create $600B with the stroke of pen (out of thin air) and then spend it (foolishly).

Note: while the Fed is indeed able to create cash (or reserve balances) "out of thin air," under normal circumstances, the Fed is effectively prevented from spending this cash on anything other than U.S. government bonds. These bonds are also created "out of thin air" (they exist almost exclusively in book entry form). When the Fed purchases government bonds, it is really just swapping one form of air for another.

When phrased in this way, it becomes a little harder to see why a swap of Fed air for Treasury air should be inflationary (though note, his definition of inflation is money creation -- so of course he sees inflation everywhere, even though price-level inflation remains anemic).