Bernanke's worst nightmare: Ron Paul

NEW YORK (CNNMoney.com) -- Ben Bernanke has had his hands full since his first day on the job as Federal Reserve chairman nearly five years ago. It's about to get even tougher.

His harshest critic on Capitol Hill, Rep. Ron Paul of Texas, is about to become one of his overseers.

With the Republicans coming to power, Paul, who would like to abolish the Fed and the nation's current monetary system, will become the chairman of the House Subcommittee on Domestic Monetary Policy.

If you've never heard of the committee before, you're not alone. But Paul promises you'll be hearing a lot more from it.

"It's basically been a committee that's dealt with commemorative coins. I'm going to deal with monetary policy," he said.

Paul doesn't think he'll be able to move his proposal to eliminate the Fed, or to allow Americans to use gold instead of paper money as currency. But he said he does intend to use his new position as "a mini-bully pulpit" to criticize Fed policy and call more attention to what he sees as its negative consequences. And he's confident that American voters are ready to delve into those monetary policy questions.

"Five years ago they wouldn't have listened. Now they will," he said. "We've gained a lot of credibility in making the Federal Reserve an issue since the market collapse."

And Paul vows to try again to authorize Congressional audits of the Fed's decisions on the economy, a proposal that passed the House last year but was essentially gutted from the final version of the financial regulatory overhaul legislation.

"It will never be easy; the Fed has a lot of influence," he said of the audit legislation. "But there's a lot of life to it. We got further along than I ever expected."

One way that Paul will bring pressure on Bernanke and his Fed allies is to hold hearings to give greater voice to Fed members -- like Kansas City Fed President Thomas Hoenig -- who disagree with the current monetary policy.

"Just getting someone there willing to discuss their viewpoint and why they might dissent, I think that would be interesting," Paul said.

A Fed spokesman did not respond to a request for comment for this story.

Some economists worry that Paul having that kind of pulpit will hurt the Fed, and diminish its ability to fix an economy that still needs help.

"From Ron Paul's standpoint, the Fed can't do anything right," said Lyle Gramley, a former Fed governor who is now senior economic advisor to the Potomac Research Group. "He can cause the Fed to lose a lot of public support. But it needs public support to do what it needs to do."

While the Fed policymakers will try to resist pressure from Paul, they won't be able to ignore it, said John Silvia, chief economist for Wells Fargo Securities. And he said there's a potential for that pressure to influence Fed policy.

"The Fed has a more balanced, nuanced position on its dual mandate to promote growth and keep prices stable," he said. "Ron Paul probably doesn't."

But other Fed watchers say Bernanke already faces plenty of criticism and doesn't have too much to worry about from Paul having control of an oversight committee.

"I think that Bernanke has been pretty cool under fire up to now. I can't imagine Ron Paul being someone who could shake him up," said Michael Bordo, a professor of economics at Rutgers University.

Paul also rejects the idea that he's Bernanke's greatest concern.

"He probably just thinks I'm a nuisance rather than a nightmare," he said.

And Paul doesn't think he'll be able to reverse Fed policy or force Bernanke to resign, as much as he would like to.

"I think psychologically, Bernanke is incapable of changing his mind," he said. "It's probably unlikely [Bernanke will resign] under today's circumstances. But you don't know what it will be like a year or two from now."

Paul argues the Fed is making a serious mistake by pumping more money into the economy to try to spur more spending and growth. He predicts it will only lead to further declines in value of the dollar, inflation and higher interest rates rather than the lower rates the Fed is shooting for.

Paul thinks that will bring about another economic crisis that will eventually force Bernanke to resign from office.

"That's more likely to happen than for Bernanke to think, 'Well, I guess I made a mistake for 35 years. I've misunderstood the Depression, and I'm going to change my policy.'"