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Fear & loathing of Rand Paul's 'bash the Fed' stance

Earlier this week in Politico, I wrote a piece with Katie Glueck on Sen. Rand Paul's attacks on the Fed and how he gets many of his basic arguments about the central bank wrong.

The piece also noted that establishment Wall Street Republicans will likely move to try to block Paul should he come out of the Iowa caucuses with any momentum toward the 2016 GOP presidential nomination, largely because they fear his stance on the Fed.

Well, turns out Paul did not like that story too much.

U.S. Senator Rand Paul
Brian Snyder | Reuters

The Kentucky senator went on the Glenn Beck radio show and blasted the article, egged on by Beck, who referred to it as a "hatchet job" (while also dutifully quoting from it at length). The trouble is, all Paul really did was repeat most of his original errors about how the central bank operates.

Here's Paul: "It kind of makes me laugh, a little bit, Glenn. They don't borrow money, they just create it. So they bought during the last several years, they bought trillions of dollars of assets. … But they didn't borrow money from someone. They didn't go out and work and earn it. They just created a computer entry to pay the banks for these assets. And the point I've been making is, who did they buy these things from, and what did they pay for them? …. The Fed has $4.5 trillion worth of so-called assets. We don't know what they are."

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I'm not sure what Paul thinks the Fed should have done to "go out and earn" the money it created, maybe get a paper route? The point is the Fed did what central banks do by printing money (or more precisely creating it on a spreadsheet) and in this case using it to buy Treasury and agency bonds to try to keep interest rates down and stimulate a staggered economy, with some significant though imperfect success.

Other global central banks are now getting in on the act, though quite a bit late in the game. Opposing central bank stimulus and the idea of fiat money is one thing. But saying the Fed is now leveraged 80-to-1 and in danger of collapsing like Lehman just isn't true. And of course we know what the Fed bought. And it was not any of the subprime auto or home loans Paul keeps bringing up. You can search by individual bond number. Go knock yourself out.

Paul goes on to rant about how perhaps the Fed bought assets at inflated prices from cronies and we can't possibly know if it did or didn't. Again, the Fed will tell you in excruciating detail exactly what it bought and for how much. And it buys only government guaranteed assets and holds no subprime auto loan or mortgage-backed securities that Paul seems so worried about.

If you want to read more problems with Paul's arguments you can do so here. I've challenged the senator to a debate on the issue. Will see if he responds.

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But the larger question is whether Paul can sell his "bash the Fed" routine beyond Iowa and make a serious run at the GOP presidential nomination or whether he will remain the kind of beloved but marginalized political icon his father was. It's hard to imagine it will be the former if he continues to advocate for direct congressional intervention of Fed monetary policymaking under the guise of "auditing" an institution that is already subject to multiple levels of exhaustive audit.

The "audit the Fed" question is likely to come up for other 2016 hopefuls as well.

Sen. Marco Rubio of Florida, for instance, is a co-sponsor of Paul's bill. Perhaps the biggest question is what former Florida Gov. Jeb Bush will have to say. Bush is raising huge sums on Wall Street, where the "audit the Fed" movement is widely despised. But Bush is already sideways with the activist GOP base on immigration and education. Can he afford to alienate them on the Fed as well? Chances are Bush will come up with a middle ground that calls for even greater central bank oversight while stopping short of endorsing Paul's bill.

But it will be another interesting moment to watch as Bush and other establishment-wing Republicans try and navigate an early primary process where the Federal Reserve is widely viewed as a scary, secretive monster that, in Paul's words, is "out to get us."

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—Ben White is Politico's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet Politico Morning Money []. Follow him on Twitter @morningmoneyben.