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Ron Paul, Americ's only libertarian congressman (and the only anti-war Republican running for president), is now ranking member of the House Financial Services Committee's Subcommittee on Domestic and International Monetary Policy, Trade, and Technology. Here are the transcripts of his remarks and questions at the testimony of Fed chairman Ben Bernanke on Wednesday. Remember as you read this that Paul is on record wanting to abolish the Federal Reserve system.

PAUL: Thank you, Mr. Chairman. And welcome, Chairman Bernanke.

I share the concern for the inequality that has developed in our country. I think it's very real. I think it's a source of great resentment. And, unfortunately, I think it's one of those things that puts a lot of pressure on the Congress to increase the amount of government programs and government spending, which I do not think is the answer.

I believe the inequality comes specifically from the type of currency we have. When there is a deliberate debasement of a currency, it is predictable that the middle class is injured, the poor are hurt, and there's a transfer of wealth to the wealthy. And until we understand that, I do not believe we can solve this problem. And if we resort to continued monetary inflation and more government programs, we will only make this inequality worse.

This is exactly opposite of what happens when you have a sound currency and free markets, because it is the sound currency and free markets which creates the middle class and creates prosperity and allows the best distribution of this wealth. Inflation is a monetary phenomenon. It comes from the Federal Reserve system. The Federal Reserve has tremendous pressure put on them because almost everybody wants low interest rates, except if you happen to be a saver. Then you might not like artificially low interest rates. But, of course, that contributes to the lack of savings, which is another problem that we have in this country.

We concentrate on inflation by implying -- and everybody casually accepts that inflation is a price problem. But the prices that go up is one of the consequences of inflation. Inflation causes a malinvestment. It causes excessive debt. And it causes financial bubbles that we have to deal with.

But we have a lot of information today available to us to show that there's a lot of monetary inflation going on. For instance, if you look at MZM, it's growing at almost a 9 percent rate. M3, no longer available to us from the official sources, but private sources tell us it's growing at a 13 percent rate.

Of course we can reassure ourselves and say the CPI is growing at a 2.6 percent rate. But if you go back to the old method of calculating the CPI, closer to what the average person is suffering and one of the reasons why there's an inequality going on, is it's growing at over a 10 percent rate.

The fact that the dollar is weak on the international exchange markets cannot be ignored.

For instance, just in six months, the Canadian dollar increased 11 percent against our dollar. This should stir up some concern.

One concern that I have that I think is causing more problems and keeps us from coming to a solution is the divorce between the exchange value of the dollar on the international exchange markets and the effort to lower the value of the dollar in order to increase exports, which can only be done through inflation, at the same time believing that we can have stability of prices at home, because that is a disconnect that is not possible.

If we strive for a lower dollar in the exchange markets, we will have price increases here at home, at we have to deal with it.

And I yield back.PAUL: Thank you, Mr. Chairman.

I find it rather ironic that the Federal Reserve has complete control of the money supply, and yet it's the Treasury that's supposed to protect the value of the dollar. It seems like you have a little bit of responsibility for the value of the dollar as well.

I have a question about the GDP in the first quarter. Our GDP didn't do so well, with less than 1 percent. Our population growth averages about 1.5 percent. So if we have total wealth divided, you know, by the population, we actually have negative growth.

Could this not be a part of the explanation on why some people feel inequality, that they're not doing as well in the economy? Wouldn't this explain some of the concerns that we have?

BERNANKE: Well, Congressman, that was, of course, a single quarter. And there were a number of temporary factors that held down GDP growth in the first quarter, including the liquidation of the inventory overhang, which I mentioned before, a swing in our trade balance, a temporary swing and a temporary decline in federal defense spending. All of those things have been reversing now. And so I think we'll be seeing in the second quarter something closer to 3 percent growth. Between the two, the first half of the year, overall it would be a more healthy rate of growth. PAUL: We have a savings rate which is negative. And if we had true capitalism, this would be very, very serious. Because we'd have no savings and no capital to invest. Today with our monetary system, we resort to other means. We can create credit and money out of thin air, and it acts as capital by stealing value from the existing currency. And we've been doing that for a long time. So the process can continue, but it -- and it literally is the inflation.

Also, we can resort to borrowing overseas. And we are permitted because we have the reserve currency of the world to export our inflation.

PAUL: And that seems to be a free ride for us, as well.

But how long can we fool the world? How long can we continue with a current account deficit of 6 percent if we're not -- if our productive jobs are going overseas and like the gentleman mentioned earlier about these -- more jobs going overseas, eventually this is going to catch up with us.

Is it conceivable that we could live on capital formation, by creation of money and credit out of thin air? If that's the case, we wouldn't ever have to go to work again, if that's true.

It seems like we really have to go to work. We really have to save. And we really have to invest. And we really have to get these jobs back.

But I see so many of our problems as a consequence of a monetary system that discourages savings, encourages a free ride for us because there is still a lot of trust for the dollar, although that trust is going down every day.

And I think we have to face up to the consequences of what this might mean to us.

BERNANKE: Well, first, our national saving includes corporate savings as well as household savings. You put those together, and you get a positive number, so there is some net saving going on in the United States.

But, Congressman, you're absolutely right that we're also relying pretty heavily on borrowing from abroad, which is our current account deficit. I think that's sustainable for a while, because foreigners seem quite interested in acquiring U.S. assets. We have very deep and liquid financial markets.

However, I also agree with you that that's not a long-term, sustainable situation by any means and we need to be working to try to bring that current account deficit down over time.

And in answer to a previous question, I talked a bit about the importance of structural change, increasing savings here in the United States, increasing attention to domestic demand with our trading partners.

PAUL: You did say in your talk that the predominant policy concern was inflation, which is encouraging that there is a concern. Of course, once again, inflation is a monetary phenomenon and we have to deal with it. War sometimes is not healthy for a currency or for keeping prices down, at least inflation.

It's hard to find throughout all of history when war didn't create price inflation. Because even in ancient times, countries resorted to clipping coins and diluting values or whatever. They inflated the currency because people generally don't like to pay for the war.

And yet, in the '70s, we had consequences of guns and butter. Now we're having guns and butter again, and we're having consequences. And it just looks like we may well come to a '79-'80. Do you anticipate that there's a possibility that we'll face a crisis of the dollar, such as we had in '79 and 1980?

BERNANKE: The Federal Reserve is committed to maintaining low and stable inflation, and I'm very confident we'll be able to do that.

PAUL: You're not answering whether or not you anticipate the problem.

BERNANKE: I'm not anticipating a problem like '79-80. No.

PAUL: With your fingers crossed, I guess.

OK. Thank you.

Thanks to our monetary policy correspondent "Irrational Exuberance" for the transcripts.

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