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End the Fed Review: The Morality Hazard of the Fed

By Michael Nystrom | August 18, 2009

Ron Paul's new book, End the Fed (out next month) illuminates the real reasons behind America's recent stunning economic collapse. The Federal Reserve would just as soon you not read it, and instead believe the standard refrains from the standard economists (including those at the Fed): "No one saw it coming! How could anyone have predicted it?"

One school of economic thought - the Austrian School - predicted it, and the world's most famous practitioner of that school, Dr. Ron Paul, has been warning of it for over 30 years. In fact, Ron Paul's vision of our current slow motion decline is what got Dr. Paul into politics in the first place. A primary catalyst behind his decision to seek office was Richard Nixon's decision to "temporarily" remove the dollar's gold backing in 1971. This set the table for the mess we're now in.

That "temporary" disconnect between gold and the dollar remains in effect today.

After being mostly ignored for the bulk of his career, then being shunned and ridiculed during his 2008 presidential bid, Dr. Paul has since been redeemed as a prescient thinker. His fundraising ability has made him a rock star among his fellow Congressmen, and his proposed bill to audit the Federal Reserve (HR 1207) is riding a wave of bi-partisan support in the House of Representatives. Given the current political climate and Ron Paul's swelling influence, End the Fed is destined not only to be a blockbuster of a book, but one that makes a significant impact on the conversation about who we are where we are headed as a nation.

Money from Thin Air
The Fed -- unlike the rest of us who have to work for our money -- creates money from thin air. This has long been an open secret among those in the know. As Henry Ford is purported to have put it:

It is well enough that the people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.

People are starting to understand, and revolution, friends, is visible on the distant horizon.

The Morality Hazard of the Fed
By now, we are all familiar with the narrow definition of "moral hazard" with regard to our nation's banker of last resort. Since the Fed stands at the ready to bail out our financial system, banks and brokers are free to take excessive risks, secure in the knowledge that the responsibility of their poor decisions will be borne not by them, but by the Fed itself, and ultimately by the taxpayers. The bankers feel no moral responsibility for their investment decisions.

But Dr. Paul's argument goes further than that. Throughout his career, he has warned of a deeper meaning of moral hazard. Anyone who has followed Dr. Paul closely has seen this thread throughout his speeches and writings, but he hammers it home in one of the most powerful chapters in End the Fed. He states bluntly that the entire operation of the Fed is based on an immoral principle. Beyond just a moral hazard that encourages speculation in financial markets, the true hazard is all encompassing for society.

The very existence of the Fed creates a morality hazard for all of society by setting a standard of immorality at the highest levels of business and government.

In its simplest definition, morality is the ability to know the difference between right and wrong. The Fed has a power granted to no one else in society - except counterfeiters. It has the ability to create money from thin air. In fact, the Fed is essentially the largest, most revered, officially sanctioned counterfeiter in the world. It creates money from nothing, which is distributed via Congress to the politically most well-connected individuals and institutions. Bankers, defense contractors, and the medical industrial complex come to mind offhand, but they're not the only members of this old-boy network.

As more money is created to fund bailouts, stimulus measures and just about everything else under the sun, the currency in existence is devalued. Savings are eroded. Wealth is redistributed from the poor to the rich. And all the while, the government and the Fed say the measures taken are necessary, and for the benefit of all.

The Fed is a master of deception in its actions and vocabulary. Few people completely understand the myriad complex machinations by which it creates money and simultaneously devalues the existing stock of currency. But people are not stupid; they understand it on an intuitive level, and the result is the morality hazard: When citizens realize that their leaders are cheating them, they get angry. The implicit message sent from on high is that cheating is okay. Meanwhile every financial transaction is corrupted by the Fed's counterfeit money, weakening the very moral fabric of society.

In the book, Dr. Paul recounts that his first job, at the age of 5 (!), was to help his father, who ran a small dairy line from their basement. He tells of how his father was concerned about the quality of the milk -- primarily that the farmers might dilute their milk with water. This lesson obviously made an impression on the young Ron Paul.

Some forty years later, an older Dr. Paul had the opportunity to ask a Federal Reserve official about the morality of diluting the money supply and how it differs from a farmer diluting the milk he sells:

By what moral right do we have to create purchasing power out of thin air? Whether it is done by the creation of credit or Federal Reserve notes or whether it's the creation of SDRs and international in scope, by what right do they do this? Is it any more moral to dilute the purchasing power of the money you hold in your wallet than it is for the farmer to dilute the milk supply with water?

Let's think about this for a moment: Suppose you find that your local farmer is diluting his milk with water. You'd distrust him immediately - not just with the milk, but in any dealings you have with him. This is the first consequence. If he lies about his milk, you can assume he'd lie about anything.

You might think, "I'd just buy my milk from an honest farmer instead." And if it were a free market, you could do just that. But when it comes to our money, the Federal Reserve is the only show in town -it has a state sponsored monopoly. It is the worst example of a "public-private partnership." (In the old days, we called it fascism.)

So if you're stuck buying from a dishonest monopoly farmer who waters down his milk, you might find that since he is cheating you, it is only "right" that you cheat him in return. Thus begins the perverse cycle of lies and distrust. It is the same with our money. We're all stuck in a dishonest system, forced to deal with diluted dollars, running whatever scam necessary to get as many as possible (after all, if the Fed can create them for free, why should I have to work for them?) then getting rid of them as fast as we can before they lose their value.

Dr. Paul goes on to explain:

I happen to believe that because it [the creation of fiat money] is a moral issue more than an economic issue, it is for this reason that the people have lost trust in their government, trust in the banks, trust in business, trust in themselves, and that we are a nation of distrust.

This is the ultimate moral consequence of the Federal Reserve System: We have become a nation of distrust. Until we regain that trust, the future looks bleak.

The first step in that direction is a full audit of the Fed, and the next step is to end it.

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Saw your article on Safehaven

Pretty cool to see your article with the big dogs.

I know what it's going to say and

I still can't wait to read it.

That was a great article. I'm going to send this link far and wide.

Michael Nystrom's picture

Thank you!

Thank you!

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

I especially like the embedded videos.

Those will get people off to a great start.

Ron Paul's Convention Speech


by Tom LaMar: It looks to me like 1207/604 are getting nowhere; the
impromptu meeting of an interviewer with Barney Frank told it all recently, as he acted like he knew nothing of the bill's existence ! Should not someone in the legal community who understands the inner workings of the Constitution try another venue in dealing with the Fed? Just who that might be is unclear to me, as a few like Napolitano are interested enough to speak of it.

Tom LaMar

CIGARETTES better than MONEY!!!

The above are both EXCELLENT videos! Watch & forward far & wide. Dr. Paul kicking ass in 1983. What a hunk - He's Legend.

Thanks for this awesome post Michael.

Obama = O.ne B.ig A.ss M.istake A.merica

Obama = O.ne B.ig A.ss M.istake A.merica

Thanks, Michael

For the review. I can't wait to read the book myself. (Also, I love the Nixon clip!)

I've been thinking for some time now that the Federal Reserve is a sort of "linchpin" issue that could be parlayed in such a way that would get both socially conservative sorts and eco-leftie sorts on the same page. All we would have to do is talk about the many damaging effects of the Fed (and fiat currency in general).

What I mean is the social conservatives might be ready to listen to the ways that paper money foster, as you say, distrust, dishonesty, and other socially damaging phenomena (the list is huge, really). The eco-leftie types might be ready to hear how paper money fosters the destruction of the earth, not only by promoting housing and strip mall bubbles that tear up the landscape, but also by enabling wars, which consume vast amounts of resources and release pollutants all over the place. (As I always say, when the U.S. government stops littering countries with depleted uranium, that's when I'll consider taking its concern for the earth seriously.)

Does Dr. Paul get into this sort of dialogue that appeal to these audiences?

Freelance copywriter/editor who gets the "freedom message"!
Visit: http://www.DavidBardallis.com

Well done!

Blessings )o(

Blessings )o(

Can't wait to read it.

Great work Mr. Nystrom.

Many of our Congressional

Many of our Congressional representatives publicly blame our financial meltdown on the recent housing bubble. They totally ignore the fact that it was their responsibility to prevent such a bubble in the first place. They act as if they had nothing to do with it.

Barney Frank, Nancy Pelosi, and a host of other operatives (sarcasim) in the Congress are stonewalling the transparency legislation by not allowing it to come up for a vote. Many of those folks are mired up to their necks in corruption along with Bernanke, Chairman of the Federal Reserve. Hopefully someone will investigate their involvement -- especially Barney Frank and nancy Polosi, report it to "We the People", and let the chips fall where they may.

Has Plastic Pelosi had any Town Hall meetings? She's probably

too afraid to show her plastic face in her district! I saw the clip on Fat Frank's town hall meeting, what a piece of SCUM! These Congress critters are acting so indignant when any citizen brings up a valid point that they can't answer, so they belittle them in public! What a DIGRACE they are to this country, and now the people know and will undoubtedly vote their sorry bums out of office! It will be interesting to see how many Dems get thrown out next year!

"If virtue and knowledge are diffused among the People, they will never be enslaved. This will be their great security."
-Samuel Adams-

"If virtue and knowledge are diffused among the People, they will never be enslaved. This will be their great security."
-Samuel Adams-

Pelosi was just re elected

When is Frank on the block again? It will be hard to get anything good done with those 2 in the way.


The House of Representatives is up for grabs every 2 years.

Sam Marsh

That's the rub

Expecting the folks you mention to investigate themselves seems unlikely at best. This is why grassroots activism is so important. The audit resolution will need to pass over the objections of the congressional leadership and the executive branch. We need the rank and file representatives to understand if they don't do it they'll get tossed out in the next election. No way can we expect an epiphany of conscience from the Pelosi/Bawney Fwank crowd.

great review

as I was reading it one thought entered my head ~ Michael should write a book...

"Beer is living proof that God loves us and wants us to be happy."

--Benjamin Franklin

LL on Twitter: http://twitter.com/LibertyPoet
sometimes LL can suck & sometimes LL rocks!
Love won! Deliverance from Tyranny is on the way! Col. 2:13-15

Michael Nystrom's picture

Thanks for the

Thanks for the encouragement, legalize - I'm working on it!

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

I've noticed this article

over at goldseek! http://news.goldseek.com/bullnotbull/1250689578.php Nice job on it.

"Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other.", www.mises.org

"Endless money forms the sinews of war." - Cicero, www.freedomshift.blogspot.com

Michael Nystrom's picture


And at Safehaven, Financial Sense Online and 24h gold (though they really screwed up the formatting, and left out the videos!)


I'm trying to spread the word as wide as possible with the skills I have.

- - - - -

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.


We need more of your writting

Without honest people running it ...

any system will become a scam. Right now, the guys who print the money also control most of the gold (and they're experts at manipulating it). As they're not above lying to us, they'll have the scam figured out the minute a new system is hatched.

As mentioned above, dishonesty breeds dishonesty. We are, for the most part, a nation of dishonest, godless people. Until we return to God and the Ten Commandments ... and elect only God-fearing men to political office ... we are doomed to get people just like ourselves to rule over us.

If men were honest, a fiat system would work ... and it did work in the past. On the other hand, their was plenty of inflation and a depression with the past gold-backed systems. Why? Corrupt men were running them. AND YOU ALWAYS HAVE TO HAVE SOME PEOPLE RUNNING ANY SYSTEM! So, any system is only as good as the people running it ... be they politicians, bureaucrats or Federal Reserve bankers.

Michael Nystrom's picture

Exactly. The Founders knew


The Founders knew that the Constitution would only work if the people implementing it were moral. Like you said, any system can be gamed. Since those in charge -- our leaders -- are now gaming the system to their own benefit, it has a corrupting effect on all of society. They don't call it "leadership" for nothing. People see what is going on at the top and they emulate it. Cheating and deception is going on at the top, and so it becomes rampant in society.

Ultimately, the real problem we're dealing with isn't just economic, it is one of moral decay. That decay is being exploited to its full potential by those who have the power to do it.

Are there enough moral people to pull the system back into check? We need all hands on deck.

To be mean is never excusable, but there is some merit in knowing that one is; the most irreparable of vices is to do evil out of stupidity. - C.B.

The first 50 copies were released in Texas at the BBQ

We have signed copy #16. Copy #1 sold for about $3000 at auction with a stack of other books autographed by the good Doctor!

God bless Ron Paul! Don't forget to register for the upcoming C4L Northeast Regional Conference. USE PROMOTIONAL CODE "LEE" to receive your free gift. hint hint...


www.Libertyis.org ~ what does Liberty mean to you?

End The Fed

Thank you Ron Paul for keeping up the good work for our Country and writing this new book. I only wish I could buy hundreds of them and pass them out. I will though pass out the link to Amazon for all my friends and family. Now is the time to bring this to the American people while they are prime for real Change! Change from the Money Changers is our right and need to save our Country now.

Preordered on Amazon

They haven't given a release date yet afaik.

very nice review

Can't wait for that book !

We know when it will be out now ?


The moral argument is profound. We are all like hamsters on a wheel. Trying to keep up but going nowhere. This puts people in a terrible position and hence creates a society of scoundrels and thieves.



Can't wait for the next book.

I'm sure that End the Fed won't be Dr. Paul's last book. I'd love to see him write an economics primer, to explain in very simple terms what money is, what investment is, what the difference is between money and capital, how a free market for savings and credit should work, and how fiat money distorts the flow of information in the market.

Ludwig Von Mises explained all of this in a comprehensive manner, and Henry Hazlitt did a fine job with Economics in one lesson, but I think that Dr. Paul could also lay out exactly what mistakes the government and the Fed have made in the last decade.


"The problem with trying to child-proof the world, is that it makes people neglect the far more important task of world-proofing the child." -- Hugh Daniel

GREAT review

Love the use of embedded videos to drive home the point