There are many legitimate opinions surrounding the Fed’s scope of action. Ron Paul’s position to abolish the Fed won’t win the endorsement of many economists, including those that lean right.
But Ron Paul’s basic complaint is entirely justified – that the Fed is responsible for excess inflation and the long-term decline the US dollar.
It is my opinion, Federal Reserve policy is largely responsible for Golden Age that ran from 1983 to 2008 which morphed into serial booms and the subsequent massive financial crisis.
Note that those Fed policies were extremely popular among rich and poor, borrowers and lenders, right and left, public entities and private citizens, Americans and foreigners Then. Now people feel differently.
There is some serious talk of returning to a partial gold standard. That would reduce the Fed’s currently unlimited ability to manipulate the money supply. See Robert Zoellick, former US Trade Representative and current head of the World Bank.
Though nominally independent, the Fed must bend to political winds. The real problem is politicians and citizens endless appetite for cheap money.
Moving to a gold standard, or simply fixing the supply of money at some arbitrary level would end the debauching of the currency, but conventional thought (which could certainly be wrong) holds that it also would result in more frequent and deeper recessions.
Personally, in retrospect it seems to me that regular recessions are a necessary part of an optimally healthy long-term economy. Recessions may be an inoculation against depressions. See this post for more.
In short, Ron Paul is on to something. He brings up a real issue that deserves a real debate. I applaud him for that.
(To leave a comment: click on the ‘Leave a Reply’ link nearby, or the balloon in the upper right corner. Thanks much.)