Congressman Paul told me Thursday that Greenspan is used to these out-of-the-box questions from him that cast doubt on the very legitimacy of the Federal Reserve. "My questions are always on the same subject. If I don't bring up the issue of hard money vs. fiat money, Greenspan himself does."

But at the same time, Paul says that he wasn't satisfied with Greenspan's answer. "I got what I expected: a nonanswer. He never gets into anything of substance, but, he does have a lingering doubt - he's not sure the system will work. He's a gold-standard person, but he's talked himself into believing he's the best manager in the world, and I just disagree with that."

Paul is a die-hard libertarian, who won't vote for any bill before the House - no matter how worthy it may seem - if he can't find a specific provision in the U.S. Constitution that empowers Congress to do what the bill proposes. And in that spirit, he thinks that the Federal Reserve has no right to exist in the first place. Paul told me, "All we'd have to do is support the Constitution and we'd abolish the Fed. The Federal Reserve Act is unconstitutional - nowhere in the Constitution does it say that Congress can create a central bank."

What would we do for money? Paul says, "Get the government out of money. Let the market determine it. Let American Express extend credit and decide what they want to back it with. But that's sort of idealism...so if the government is going to be involved, then government should just maintain the integrity of the monetary unit. Government should define the dollar as a weight in gold and maintain it. If I'm the secretary of treasury, I shouldn't issue the currency unless I've got the gold."

Paul puts his legislation where his mouth is. Following a bill to abolish the federal income tax, his latest effort is a law that would forbid the president, the Treasury or the Federal Reserve from engaging in any transactions in gold without specific authorization from Congress. Paul believes that the world's central banks, including the Federal Reserve, manipulate the price of gold to keep it deliberately low, to mask the inevitable inflation of their paper money.

He says, "They readily admit that foreign governments have loaned tons of gold, and Britain is outright selling gold. Our government denies it, and I don't know the answer. Right now they are sticking with the story that they do not deal in gold. I received a letter from [Treasury Secretary] Paul O'Neill stating clearly that they are not dealing in gold. This legislation is merely an attempt to open up the debate, make certain they aren't dealing in gold, or if they are that Congress knows about it."

It's hard to get radical ideas like this listened to - even if you're a congressman. I asked Paul whether he was taken seriously by his colleagues. "I think at times I'm a nuisance to them. They are so entrenched in the system. Those who do understand it would not like to rock the boat. It's no coincidence that we have a paper money system when we have a Congress that likes to spend a lot of money."

But Paul continues to fight his fight, and suspects that somewhere in Greenspan's heart of hearts, the Fed chairman may secretly be on his side. "There was a very special article he wrote in 1966 in The Objectivist Newsletter," he told me, referring to "Gold and Economic Freedom," a powerful plea for the gold standard published by radical capitalist Ayn Rand, then a close friend of Greenspan's. "I have an original copy and Greenspan signed it for me. I asked him if he still believes it, and he said he 'wouldn't change a single word.' Maybe deep down inside he's having a few doubts."

He began by making reference to Greenspan's flip comments a few weeks ago about how if fiat money fails, we can always go back to seashells and oxen. That the discount window would stand ready with an adequete supply of oxen.

Following is a transcript of the exchange:

"Chairman, if we get to this point (of the collapse of the dollar), which I suspect we will someday, I ask that we have hearings to debate the issue of what medium exhange we will have before the Fed starts using oxen as a medium of exchange...

"I feel that it is an important point, and I want to relate that to the Enron issue. In many ways I feel that the system you have been asked to manage is similar to being asked to manage an Enron system. Because Congress is notoriously in favor of deficit spending. We are currently expanding the national debt at $250 billion per year, and we have nearly a $6 trillion debt*. Now we create that debt by buying votes. We spend alot of money.

"Now, the Federal Reserve comes in and they buy that debt in order to maintain the interest rate that they think is the right interest rate. And they take that and use it as an asset. You put it in the bank, you call this debt that we created an asset, and you use it as collateral for our Federal Reserve Notes.

"So that's a pretty good scheme, and I think in the moral terms, as well as the economic terms, it is very similar to how Enron operates. I'm not convinced that this system works very well because alot of people here praise you for the adequate amount of liqidity, and that's what inflation is - you create more money, lower interest rates. Every time you ask for liquidity, every time you ask for lower interest rates, you're asking for inflation of the money supply. And I think what we fail to ever do is ask about the cost.

"Do we ever concern ourselves about the people who have had 2/3 of their income removed because they happen to be savers, and living off interest? We gouge them with interest, inflation, a loss of purchasing power, as well as taxing that. And a lot of people in this country have suffered from that particular system.

"Now the analogy that I would like to draw is something that you said in your testimony on page 13. And you have mentioned several times now that Enron may be a good lesson. And I think it is. And I'm not for more of this regulation by the SEC. I think you're correct that derivatives provide a market tool that is worthwhile. But you said the Enron decline is the effective illustration of the vulnerability of a firm who's market value largely rests on capitalized reputation, with very little if no physical assets.

"That's exactly what our monetary system is all about. And that's why I believe that the dollar is vulnerable. We in Congress do not have a responsibility to run Enron. Some other government has the responsibility to deal with fraud. We have a responsibility to the dollar. And I think that's what we fail so often to address around here.

"And you said that Enron provides the encouragement that the force of market discipline can be counted on over time to foster a much greater transparency. That's exactly what the market does with money. If you look at the rapid and sudden devaluations of the fiat currencies around the world, if you look at what happened to us in '79 and '80, that was the market coming in and enforcing vulnerability & transparency on us.

"Now, gold gives you a hint as to what's happening. Gold has sent a mild message in this past year, in spite of the fact that central banks and other continually sell and loan out gold to push the price of gold down. But there is a message there.

"So I would ask you, can you see any correlation between what you're asked to do in running our monetary system to that which Enron was involved in?"

Greenspan's response:

"I hope there are fundamental differences.....er...ar...I mean there are… ...it's ....ah,.. first, dealing with a fiat currency, what it essentially is that we are doing is that the currency is granted value by fiat of the sovereign, as it is said in the text books. The issue there is that..uh...in years past..uh..there have been, there's been considerable evidence.. that fiat currencies have been mismanaged in general and that inflation has been too often the result.

"What I was mentioning in the speech that you were referring to was the fact that there is some evidence that we're learning that lesson…learning how to manage fiat currency..ah...ah...I've always had some considerable skepticism about whether that in a long run can succeed, but I must say to you the evidence..errr...of recent decades is that it has been succeeding. Whether that continues is a forecast which I can't really ...er....project on.

"The Enron situation is essentially one in which..ah..there was an endeavor to imply that earnings were much greater than they really were. That increasing debt was hidden. I can think of no reason to have done what they did with their off-balance sheet transactions, other than to obscure the extent of the debt that they had, and what was essentially squandered in that process was the reputational capital, which they had succeeded in achieving over a period of time...and I don't perceive that …er….that anything that we are doing as a central bank..ah.. involves anything related to that..I hope that ….uh…where we need to be transparent and indicate what we are doing, we do so and we do so except in those areas where it - as I mentioned to you previously- ah…inhibits the ability to actually function as a central bank. But as I say in summary I hope your analogy is inappropriate."

Paul's last word:

"I'll keep hoping."

Watch the video: C-SPAN House Financial Services Committee Testimony - 2/27/2002. The Ron Paul Rumble comes at 1:20:48

More news you won't hear on CNN: This is well over the statutory debt ceiling set by Congress at $5.95 trillion. The government is operating outside the bounds of the law. But what else is new?

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