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09-15-2009, 10:01 PM
Anti-Fed Activists Fuel Push for Audit (http://online.wsj.com/article/SB125305951231914071.html)

By SUDEEP REDDY

At the core of a congressional push to audit the Federal Reserve are activists with a larger purpose: to abolish the central bank.

Thousands of Americans are joining protests and lobbying their lawmakers in pursuit of the ultimate goal of replacing the Fed with a money system backed by gold or other commodities.

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A movement to abolish the Fed was largely inspired by Rep. Ron Paul, [above], addressing an audience about a health-care overhaul on Aug. 12, 2009.

Largely inspired by Rep. Ron Paul, the Texas Republican whose latest book, "End the Fed," will be released Wednesday, the movement draws its strength from people who want a sharp shift away from government dependency and toward a truly free-market economy.

Among the activists backing the cause is Isaiah Matos, the superintendent of a luxury high-rise building in New York City. Mr. Matos was an antiwar protester earlier this decade before he became a libertarian. Through neighborhood groups in Queens organized using Meetup.com, Mr. Matos met other Ron Paul backers who shared his distrust for the central bank and a currency backed only by a government's promise.

"I believe in a commodity-backed currency," said Mr. Matos, 30 years old. "In college, I didn't understand how we could move from gold to paper."

Mr. Paul's entrance into politics was driven by a similar concern. He decided to run for Congress in the early 1970s after President Richard Nixon ended the U.S. dollar's ties to gold. His long-term goal is a return to a commodity-backed dollar, allowing the currency to be redeemed for gold. Through his constant attacks on the central bank, Mr. Paul is drawing backers nationwide who also criticize the Fed for supporting Wall Street and bailing out financial institutions.

Mainstream economists generally credit the Fed for moderating economic cycles and mitigating the fallout from financial shocks. The central bank serves as the nation's lender of last resort, preventing runs on commercial banks by using its ability to create credit. The Fed influences interest rates as part of its mandate to balance inflation and unemployment. Mr. Paul and his followers say all of that should be left to market forces.

After last fall's election, Mr. Matos helped launch what became a series of rallies outside Fed buildings. The first came on Nov. 22 outside the New York Fed, with a crowd he estimated at 500 after picking up people in a march past Wall Street. He said twice as many people attended a larger rally in April, coordinated with protests outside other regional Fed banks nationwide.

By then Mr. Paul had introduced his legislation to audit the central bank, including its monetary-policy operations, which are now outside congressional scrutiny. To draw a wider base of followers, Mr. Matos's group changed the name of its rally from "End the Fed" to "Audit the Fed."

"End the Fed is a little too drastic for the mainstream," Mr. Matos said. "Sometimes it's not what you say. It's how you say it."

Mr. Matos joined other activists Tuesday in delivering petitions supporting the Fed audit to U.S. Senate offices in Washington and around the country. House lawmakers are planning to include an audit in legislation this fall, but the path in the Senate is unclear.

Fed officials say opening their monetary-policy deliberations to congressional review would cast doubt on their independence and ability to raise interest rates when necessary. That could stoke inflation, they say, raising borrowing costs for the government and consumers.

Mr. Paul's backers share the view that the Fed's ability to create money violates the intent of the Constitution. They say fiat currency, which isn't backed by commodities, threatens civilization by helping governments finance wars and laying the groundwork for financial crises. And they expect the vast expansion of the Fed's balance sheet during the financial crisis to spur rampant inflation down the road, even though central-bank officials say they can withdraw the money when needed.

"The Fed will self-destruct," Mr. Paul said in an interview. "This economy is going to get worse and this dollar is going to get a lot worse."

Campaign for Liberty, Mr. Paul's main political group, which claims 200,000 members, says auditing the Fed is its top legislative priority this year. The congressman calls an audit a "stepping stone" that would shed light on the central bank's operations and ultimately lead to a popular backlash. His audit effort has enlisted more than 300 House and Senate backers and a long list of groups, though few want to kill the Fed entirely.

Skip Cook, 63, a roofing salesman in Little Rock, Ark., said he has written to his local newspaper and his lawmakers "incessantly" to cajole his representatives into backing the audit legislation.

Mr. Cook, who spent a decade as a fixed-income broker, said the Fed's actions create long-term risks to the economy instead of preventing them. "What's it going to be like next time when they've put a couple trillion dollars of fiat money into this economy and the chickens come home to roost?" said Mr. Cook.

Abolishing the Fed may be a long-term goal, but Mr. Cook said more and more people are joining the cause. "The environment now because of the outrage is so ripe for people to entertain this information," he said. "Pain brings a lot of people into the auditorium."

Write to Sudeep Reddy at sudeep.reddy@wsj.com