Ron Paul to Bernanke: 'Do You Think Gold is Money?'

Longtiem federal reserve antagonist U.S. Rep. Ron Paul, R-Texas,was at it again on Wednesday, criticizing Federal Reserve Chairman Ben Bernanke, the head of the world's most powerful central bank, for a faltering economic recovery and suggested the country would be better off investing in gold.

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Paul has been a consistent critic of the Fed's monetary policy, charging that the central bank should be eliminated and that the U.S. should stop printing money and revert to the gold standard. He pointed out to Bernanke that the price of gold has reached an all time high while the dollar has depreciated, then questioned a somewhat perplexed Bernanke about the economic meaning of gold.

Do you think gold is money? Paul asked. Bernanke paused for a long moment before replying No, it's a precious metal, then described gold as an asset, comparing it to a treasury bill. Paul continued to press Bernanke, asking why banks central banks hold gold.

It's a form of reserves, Bernanke replied.

Why don't they hold diamonds? Paul shot back.

Tradition, Bernanke said. Long-term tradition.

Some people still think it's money, Paul countered.

The exchange came after Paul dismissed money printed by the Fed as money out of thin air used to artificially move the economy. Paul sharply questioned the effectiveness of the Fed's policies, pointing to an unemployment level that has worsened in one sense -- the amount of time people spend looking for work -- sluggish GDP growth and an exploding national debt. He underscored repeatedly the value of consumer spending and asked why money had gone to buying bad assets and bailing out companies rather than to consumers.

Bernanke replied that the Fed does not spend money but lends money and buys securities. He also argued that the bank has been a major profit center for the U.S. Government, generating $125 billion in repaid money over the last two years.