"Our spending habits, in combination with our flawed monetary system, if not changed will
bring us a financial whirlwind that will make Katrina look like a minor storm."
- Dr. Ron Paul, November 14 2005 in the House of Representatives
This page consists of excerpts from a selection of Ron Paul's speeches and columns on economic matters, and a few highlights are bolded below. Throughout his time in Congress (1976-1977, 1979-1985, 1996-present), Dr. Paul tirelessly forewarned of the dire consequences of the Federal Reserve system, fiat currency, deficit spending, corporate statism, and central planning -- consequences that are now besetting the American people.
Dr. Paul primarily attributes the prescience of his work to the scholarship of the 'Austrian School', and he humbly insists that he's 'just the messenger.' While his acknowledgment of intellectual influences is certainly commendable, Dr. Paul himself deserves great credit for his patient, persistent, and often thankless efforts to inform others over the years. This page is intended as a testament to his farsightedness and perseverance, and as a convenient resource for anyone working on projects to advance the cause of liberty and the 'Ron Paul Revolution.'
Thank you, Dr. Paul -- those familiar with your work will never forget.
"[O]ur central bankers and our politicians express no fear that the course on
which we are set is fraught with great danger to our economy and our political system ...
[O]ur addiction to deficit spending, debt, and inflation guarantees the collapse of our economy."
- Dr. Ron Paul, April 25 2006 in the House of Representatives
which we are set is fraught with great danger to our economy and our political system ...
[O]ur addiction to deficit spending, debt, and inflation guarantees the collapse of our economy."
- Dr. Ron Paul, April 25 2006 in the House of Representatives
The Austrians Were Right, November 20 2008
The Austrian School and the Meltdown, September 26 2008
The Crisis is Upon Us, July 19 2008
The Importance of Fiscal Responsibility in Government, December 18 2007
What the Fed Has Done to Us, September 20 2007
High-Risk Credit, August 21 2007
Arguments Against the Iran Sanctions Enabling Act, July 30 2007
Opening Statement to Committee on Financial Services World Bank Hearing, May 22 2007
Executive Compensation, April 18 2007
The Coming Entitlement Meltdown, March 6 2007
Monetary Policy and the State of the Economy, February 15 2007
What Congress Can Do About Soaring Gas Prices, May 2 2006
What the Price of Gold is Telling Us, April 25 2006
The Perils of Economic Ignorance, March 27 2006
The End of Dollar Hegemony, February 15 2006
The GSE Crisis - Reforming the Government Sponsored Enterprises (Fannie Mae and Freddie Mac), October 27 2005
The Coming Category 5 Financial Hurricane, September 15 2005
The Republican Congress Wastes Billions Overseas, July 20 2005
Reject Taxpayer Bank Bailouts, May 4 2005
Government Spending - A Tax on the Middle Class, July 8 2004
Fannie Mae and Freddie Mac Subsidies Distort the Housing Market, September 10 2003
Paper Money and Tyranny, September 5 2003
The False Tax Cut Debate, May 6 2003
Has Capitalism Failed? July 9 2002
Economic Concerns, February 7 2002
The Collapse of Enron, February 4 2002
The Foolishness of Fiat, October 31 2001
The US Dollar and the World Economy, September 6 2001
Uncontrolled Spending Threatens Our Liberty, April 2 2001
Challenge to America: A Current Assessment of Our Republic, February 7 2001
Economic Update, December 4 2000
Economic Problems Ahead, November 13 2000
Warning about Foreign Policy and Monetary Policy, October 12 2000
Congress Ignores its Constitutional Responsibility Regarding Monetary Policy, October 11 2000
The Dollar and Our Current Account Deficit, May 16 2000
International Economic Turmoil, September 15 1998
The Bubble, April 28 1998
Conduct of Monetary Policy, July 22 1997
Federal Reserve has Monopoly over Money and Credit in the United States, April 28 1997
Our Soaring Trade Deficit Cannot Be Ignored, April 9 1997
Current Political Philosophies' Errors to Result in Political and Economic Crisis, September 20 1984
Gold versus Paper, July 1, 1980
Debasement, December 12 1979
The Chrysler Bailout, November 21 1979
Inflation is Caused by Government, November 16 1979
The Austrians Were Right, Dr. Ron Paul, November 8 2008
"Except for a rare few, Members of Congress are unaware of Austrian Free Market economics. For the last 80 years, the legislative, judiciary and executive branches of our government have been totally influenced by Keynesian economics. If they had had any understanding of the Austrian economic explanation of the business cycle, they would have never permitted the dangerous bubbles that always lead to painful corrections."The Austrian School and the Meltdown, Dr. Ron Paul, September 26 2008
"Today, a major economic crisis is unfolding. New government programs are started daily, and future plans are being made for even more. All are based on the belief that we’re in this mess because free-market capitalism and sound money failed. The obsession is with more spending, bailouts of bad investments, more debt, and further dollar debasement. Many are saying we need an international answer to our problems with the establishment of a world central bank and a single fiat reserve currency. These suggestions are merely more of the same policies that created our mess and are doomed to fail."
"Who’s being ignored? The Austrian free-market economists – the very ones who predicted not only the Great Depression, but the calamity we’re dealing with today. If the crisis was predictable and is explainable, why did no one listen? It’s because too many politicians believed that a free lunch was possible and a new economic paradigm had arrived. But we’ve heard that one before – like the philosopher’s stone that could turn lead into gold. Prosperity without work is a dream of the ages."
"The basic problem is that proponents of big government require a central bank in order to surreptitiously pay bills without direct taxation. Printing needed money delays the payment. Raising taxes would reveal the true cost of big government, and the people would revolt. But the piper will be paid, and that’s what this crisis is all about."
"The financial meltdown the economists of the Austrian School predicted has arrived. We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market's attempt to re-establish rational pricing of houses and other assets."The Crisis is Upon Us, Dr. Ron Paul, July 19 2008
"Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over – not just for the past several days, but for years and even decades."
"We are told that 'low interest rates' led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve."
"Speaking about Fannie Mae and Freddie Mac, the president said: 'Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.' Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the 'many' who 'believed they were guaranteed by the federal government' were in fact correct?"
"The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity. Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?"
"I have, for the past 35 years, expressed my grave concern for the future of America. The course we have taken over the past century has threatened our liberties, security and prosperity. In spite of these long-held concerns, I have days – growing more frequent all the time – when I'm convinced the time is now upon us that some Big Events are about to occur. These fast-approaching events will not go unnoticed. They will affect all of us. They will not be limited to just some areas of our country. The world economy and political system will share in the chaos about to be unleashed."2007
"[T]he wealth and freedom we now enjoy are shrinking and rest upon a fragile philosophic infrastructure. It is not unlike the levies and bridges in our own country that our system of war and welfare has caused us to ignore.
I'm fearful that my concerns have been legitimate and things may even be worse than I first thought. They are now at our doorstep. Time is short for making a course correction before this grand experiment in liberty goes into deep hibernation.
There are reasons to believe this coming crisis is different and bigger than any the world has ever experienced. Instead of using globalism in a positive fashion, it's been used to globalize all of the mistakes of the politicians, bureaucrats and central bankers ... We cannot understand what we're facing without understanding fiat money and the long-developing dollar bubble."
The Importance of Fiscal Responsibility in Government, Dr. Ron Paul, December 18 2007
"We are at a crucial point in history right now. We must think very carefully about our next moves. There is coming a time, if we continue on this path, when all that our tax dollars and government revenues will be able to do is pay interest on the mountain of debt we have compiled in the past few decades. That will mean no government programs or services of any kind will be funded, yet future generations of Americans will still struggle under a crushing tax burden with nothing to show for it. That is why fiscal restraint and common sense with the budget are so vitally important in government."What the Fed Has Done to Us - Mortgage Industry Has Its Roots in the Federal Reserve's Inflationary Monetary Policy, Dr. Ron Paul, September 20 2007
"The truth is, our enemies won't need a nuclear weapon to harm us if we keep spending phantom dollars at the current rate. In fact, they won't need to do anything but sit back and watch as we spend ourselves into oblivion. Historically, empires fail because they run out of money, or more accurately, run out of the ability to spend or inflate. Unfortunately, that is exactly the direction we are headed. We need to control spending, immediately, before it is too late."
"Reduction in the interest rate has two major effects: it encourages consumption over saving; and it makes long-term, capital-intensive projects cheaper to undertake. Under Chairman Greenspan's tenure, the federal funds rate was so low that the real interest rate (that is the nominal interest rate minus inflation) was negative. With a negative real interest rate, someone who saves money will literally lose the value of that money."High-Risk Credit, Dr. Ron Paul, August 21 2007
"Further regulation of the banking sector, of mortgage brokers, mortgage lenders, or credit-rating agencies will fail to improve the current situation, and will do nothing to prevent future real estate bubbles. Any proposed solutions which fail to take into account the economic intervention that laid the ground for the bubble are merely window dressing, and will not ease the suffering of millions of American homeowners. I urge my colleagues to strike at the root of the problem and address the Federal Reserve's inflationary monetary policy."
"As markets went on a rollercoaster ride last week, our economy is coming close to a day of reckoning for loose credit policies being followed by the Federal Reserve Bank. Simply, foreign banks we have been relying on to buy our debt are waking up to the reality of much higher default rates than predicted, and many mortgage-backed securities have been reduced to 'junk' ratings. Wall Street fears the possibility of tightening credit and the tightening of America’s belts. Why, they say, 'if Americans spend only what they can afford, think of the ripple effects throughout the economy!' This is the cry, as the call comes for the fed to cut rates and bail out companies in trouble.Arguments Against the Iran Sanctions Enabling Act, Dr. Ron Paul, July 30 2007
More inflation is, however, never the answer to inflation."
"We’ve been headed in the wrong direction since 1971. This week marks the 36th anniversary of Nixon’s decision to close the gold window, which convinced me to seek public office to call attention to the runaway money train that would come in the aftermath of that decision. The temptation to print and spend money with impunity, like the temptation to max out lines of credit, is too strong for government to resist. While Nixon brokered exclusivity deals with OPEC to prop up demand for the tidal wave of green pieces of paper the Fed pumped into the markets, the world is tiring of marching to the beat of our drum in order to secure their energy needs. The house of cards Nixon built is now on the verge of collapsing on our heads, and on our children’s heads.
As the dollar weakens, it becomes ever clearer that we need a return to sound, commodity-based money for a secure future. Money based on real value, not empty promises and secretive backroom machinations, is the way to get out of the current calamity without causing even bigger problems."
"I oppose economic sanctions for two very simple reasons. First, they don't work as effective foreign policy. Time after time, from Cuba to China to Iraq, we have failed to unseat despotic leaders or change their policies by refusing to trade with the people of those nations. If anything, the anti-American sentiment aroused by sanctions often strengthens the popularity of such leaders, who use America as a convenient scapegoat to divert attention from their own tyranny. History clearly shows that free and open trade does far more to liberalize oppressive governments than trade wars. Economic freedom and political freedom are inextricably linked--when people get a taste of goods and information from abroad, they are less likely to tolerate a closed society at home. So sanctions mostly harm innocent citizens and do nothing to displace the governments we claim as enemies. Second, sanctions simply hurt American industries, particularly agriculture."Opening Statement to Committee on Financial Services World Bank Hearing, Dr. Ron Paul, May 22 2007
"We must keep in mind that Iran has still not been found in violation of the Non-Proliferation Treaty. Furthermore, much of the information regarding Iran's nuclear program is coming to us via thoroughly discredited sources like the MeK, a fanatical cult that is on our State Department's terror list. Additionally, the same discredited neo-conservatives who pushed us into the Iraq war are making similarly exaggerated claims against Iran. How often do these 'experts' have to be proven wrong before we start to question their credibility?"
"Established and managed by a multitude of national governments, the World Bank promotes managed trade, by which politically connected individuals and corporations enrich themselves at the expense of the poor and middle class. Western governments tax their citizens to fund the World Bank, lend this money to corrupt Third World dictators who abscond with the funds, and then demand repayment which is extracted through taxation from poor Third World citizens, rather than from the government officials responsible for the embezzlement. It is in essence a global transfer of wealth from the poor to the rich. Taxpayers around the world are forced to subsidize the lavish lifestyles of Third World dictators and highly-paid World Bank bureaucrats who don’t even pay income tax."Executive Compensation, Dr. Ron Paul, April 18 2007
"Explosions in CEO salaries can be a sign of a federal credit bubble, which occurs when Federal Reserve Board-created credit flows into certain sectors such as the stock market or the housing market. Far from being a sign of the health of capitalism, excessive CEO salaries in these areas often signal that a bubble is about to burst. When a bubble bursts, people at the bottom of the economic ladder bear the brunt of the bust."The Coming Entitlement Meltdown, Dr. Ron Paul, March 6 2007
"When it comes to Social Security and Medicare, the federal government simply won’t be able to keep its promises in the future. That is the reality every American should get used to, despite the grand promises of Washington reformers. Our entitlement system can’t be reformed – it’s too late."Monetary Policy and the State of the Economy, Dr. Ron Paul, February 15 2007
"The politicians who get reelected by passing such incredibly shortsighted legislation will never have to answer to future generations saddled with huge federal deficits. Those generations are the real victims, as they cannot object to the debts being incurred today in their names."
"The official national debt figure, now approaching $9 trillion, reflects only what the federal government owes in current debts on money already borrowed. It does not reflect what the federal government has promised to pay millions of Americans in entitlement benefits down the road. Those future obligations put our real debt figure at roughly fifty trillion dollars – a staggering sum that is about as large as the total household net worth of the entire United States. Your share of this fifty trillion amounts to about $175,000."
"Congress, although not by law, essentially has given up all its oversight responsibility over the Federal Reserve. There are no true audits, and Congress knows nothing of the conversations, plans, and actions taken in concert with other central banks. We get less and less information regarding the money supply each year, especially now that M3 is no longer reported.2006
The role the Fed plays in the President’s secretive Working Group on Financial Markets goes unnoticed by members of Congress. The Federal Reserve shows no willingness to inform Congress voluntarily about how often the Working Group meets, what actions it takes that affect the financial markets, or why it takes those actions.
But these actions, directed by the Federal Reserve, alter the purchasing power of our money. And that purchasing power is always reduced. The dollar today is worth only four cents compared to the dollar in 1913, when the Federal Reserve started. This has profound consequences for our economy and our political stability. All paper currencies are vulnerable to collapse, and history is replete with examples of great suffering caused by such collapses, especially to a nation’s poor and middle class. This leads to political turmoil."
"Even before a currency collapse occurs, the damage done by a fiat system is significant. Our monetary system insidiously transfers wealth from the poor and middle class to the privileged rich. Wages never keep up with the profits of Wall Street and the banks, thus sowing the seeds of class discontent. When economic trouble hits, free markets and free trade often are blamed, while the harmful effects of a fiat monetary system are ignored."
"We must address the important consequences of Fed manipulation of interest rates. When interests rates are artificially low, below market rates, insidious mal-investment and excessive indebtedness inevitably bring about the economic downturn that everyone dreads."
"Few understand that our consumption and apparent wealth is dependent on a current account deficit of $800 billion per year. This deficit shows that much of our prosperity is based on borrowing rather than a true increase in production. Statistics show year after year that our productive manufacturing jobs continue to go overseas."
"How can a policy of steadily debasing our currency be defended morally, knowing what harm it causes to those who still believe in saving money and assuming responsibility for themselves in their retirement years? Is it any wonder we are a nation of debtors rather than savers?"
What Congress Can Do About Soaring Gas Prices, Dr. Ron Paul, May 2 2006
"We must end our obsession for a military confrontation with Iran. Iran does not have a nuclear weapon, and according to our own CIA is not on the verge of obtaining one for years. Iran is not in violation of the Nuclear Nonproliferation Treaty, and has a guaranteed right to enrich uranium for energy—in spite of the incessant government and media propaganda to the contrary. Iran has never been sanctioned by the UN Security Council. Yet the drumbeat grows louder for attacking certain sites in Iran, either by conventional or even nuclear means."What the Price of Gold is Telling Us, Dr. Ron Paul, April 25 2006
"The point is that most who buy gold do so to protect against a depreciating currency rather than as an investment in the classical sense. Americans understand this less than citizens of other countries; some nations have suffered from severe monetary inflation that literally led to the destruction of their national currency. Though our inflation-- i.e. the depreciation of the U.S. dollar-- has been insidious, average Americans are unaware of how this occurs. For instance, few Americans know nor seem concerned that the 1913 pre-Federal Reserve dollar is now worth only four cents. Officially, our central bankers and our politicians express no fear that the course on which we are set is fraught with great danger to our economy and our political system. The belief that money created out of thin air can work economic miracles, if only properly 'managed,' is pervasive in D.C."The Perils of Economic Ignorance, Dr. Ron Paul, March 27 2006
"The Fed tries to keep the consumer spending spree going, not through hard work and savings, but by creating artificial wealth in stock markets bubbles and housing bubbles. When these distortions run their course and are discovered, the corrections will be quite painful."
"The best analogy to our affinity for government spending, borrowing, and inflating is that of a drug addict who knows if he doesn’t quit he’ll die; yet he can’t quit because of the heavy price required to overcome the dependency. The right choice is very difficult, but remaining addicted to drugs guarantees the death of the patient, while our addiction to deficit spending, debt, and inflation guarantees the collapse of our economy."
"Special interest groups, who vigorously compete for federal dollars, want to perpetuate the system rather than admit to a dangerous addiction. Those who champion welfare for the poor, entitlements for the middle class, or war contracts for the military industrial corporations, all agree on the so-called benefits bestowed by the Fed’s power to counterfeit fiat money. Bankers, who benefit from our fractional reserve system, likewise never criticize the Fed, especially since it’s the lender of last resort that bails out financial institutions when crises arise. And it’s true, special interests and bankers do benefit from the Fed, and may well get bailed out -- just as we saw with the Long-Term Capital Management fund crisis a few years ago. In the past, companies like Lockheed and Chrysler benefited as well. But what the Fed cannot do is guarantee the market will maintain trust in the worthiness of the dollar. Current policy guarantees that the integrity of the dollar will be undermined. Exactly when this will occur, and the extent of the resulting damage to financial system, cannot be known for sure -- but it is coming. There are plenty of indications already on the horizon."
"Foreign policy plays a significant role in the economy and the value of the dollar. A foreign policy of militarism and empire building cannot be supported through direct taxation. The American people would never tolerate the taxes required to pay immediately for overseas wars, under the discipline of a gold standard. Borrowing and creating new money is much more politically palatable. It hides and delays the real costs of war, and the people are lulled into complacency-- especially since the wars we fight are couched in terms of patriotism, spreading the ideas of freedom, and stamping out terrorism. Unnecessary wars and fiat currencies go hand-in-hand, while a gold standard encourages a sensible foreign policy.
The cost of war is enormously detrimental; it significantly contributes to the economic instability of the nation by boosting spending, deficits, and inflation. Funds used for war are funds that could have remained in the productive economy to raise the standard of living of Americans now unemployed, underemployed, or barely living on the margin."
"Foreign policy contributes to the crisis when the spending to maintain our worldwide military commitments becomes prohibitive, and inflationary pressures accelerate. But the real crisis hits when the world realizes the king has no clothes, in that the dollar has no backing, and we face a military setback even greater than we already are experiencing in Iraq. Our token friends may quickly transform into vocal enemies once the attack on the dollar begins."
"At home the war on poverty, terrorism, drugs, or foreign rulers provides an opportunity for authoritarians to rise to power, individuals who think nothing of violating the people’s rights to privacy and freedom of speech. They believe their role is to protect the secrecy of government, rather than protect the privacy of citizens. Unfortunately, that is the atmosphere under which we live today, with essentially no respect for the Bill of Rights."
"Though great economic harm comes from a government monopoly fiat monetary system, the loss of liberty associated with it is equally troubling. Just as empires are self-limiting in terms of money and manpower, so too is a monetary system based on illusion and fraud. When the end comes, we will be given an opportunity to choose once again between honest money and liberty on one hand; chaos, poverty, and authoritarianism on the other."
"Last week in this column I wrote of a perfect economic storm facing America, caused by a federal government that spends, borrows, and prints so much money that our dollars are eroding in value at an alarming rate. Year after year, our federal government spends beyond its revenues, prints new money to pay its debts, and borrows hundreds of billions abroad in the form of Treasury obligations that someday must be paid. With too many dollars and debt instruments in circulation, and no political will in Washington to cut spending, we've created a monster. Our perceived prosperity depends on keeping the great debt and credit engine pumping, but the only way to attract new lenders to fuel the engine is higher interest rates. At some point one of two things must happen: either the party in Washington ends, or the supremacy of the dollar as the world's reserve currency ends. It's a sobering thought, but a choice must be made."The End of Dollar Hegemony, Dr. Ron Paul, February 15 2006
"How did this happen? How did we get to such a state? The answer is found in the nature of politics itself. The truth is that many politicians and voters essentially believe in a free lunch. They believe in a free lunch because they don't understand basic economics, and therefore assume government can spend us into prosperity. This is the fallacy that pervades American politics today."
"I strongly recommend that every American acquire some basic knowledge of economics, monetary policy, and the intersection of politics with the economy. No formal classroom is required; a desire to read and learn will suffice. There are countless important books to consider, but the following are an excellent starting point: The Law by Frederic Bastiat; Economics in One Lesson by Henry Hazlitt; What has Government Done to our Money? by Murray Rothbard; The Road to Serfdom by Friedrich Hayek; and Economics for Real People by Gene Callahan.
If you simply read and comprehend these relatively short texts, you will know far more than most educated people about economics and government. You certainly will develop a far greater understanding of how supposedly benevolent government policies destroy prosperity. If you care about the future of this country, arm yourself with knowledge and fight back against economic ignorance. We disregard economics and history at our own peril."
"In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that’s the United States. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. But this leads to a loss of manufacturing jobs to overseas markets, as we become more dependent on others and less self-sufficient. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption.2005
It sounds like a great deal for everyone, except the time will come when our dollars-- due to their depreciation-- will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production. The shift in sentiment regarding the dollar has already started, but the worst is yet to come.
The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. Last year alone M3 increased over $700 billion.
The artificial demand for our dollar, along with our military might, places us in the unique position to “rule” the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can’t last.
Price inflation is raising its ugly head, and the NASDAQ bubble-- generated by easy money-- has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world’s rejection of the dollar. It’s bound to come and create conditions worse than 1979-1980, which required 21% interest rates to correct. But everything possible will be done to protect the dollar in the meantime. We have a shared interest with those who hold our dollars to keep the whole charade going.
Greenspan, in his first speech after leaving the Fed, said that gold prices were up because of concern about terrorism, and not because of monetary concerns or because he created too many dollars during his tenure. Gold has to be discredited and the dollar propped up. Even when the dollar comes under serious attack by market forces, the central banks and the IMF surely will do everything conceivable to soak up the dollars in hope of restoring stability. Eventually they will fail."
"Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged—as it already has been. In November 2000, Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O’Neill, the major topic was how we would get rid of Saddam Hussein -- though there was no evidence whatsoever he posed a threat to us ... And once again there’s this urgent call for sanctions and threats of force against Iran at the precise time Iran is opening a new oil exchange with all transactions in Euros."
"Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid.
The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or Euros."
The GSE Crisis - Reforming the Government Sponsored Enterprises (Fannie Mae and Freddie Mac), Dr. Ron Paul, October 27 2005
"One of the major privileges the federal government grants to the GSEs is a line of credit from the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. GSEs also benefit from an explicit grant of legal authority given to the Federal Reserve to purchase the debt of the GSEs. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors. This implicit promise by the government to bail out the GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt. This is why I am offering an amendment to cut off this line of credit.The Coming Category 5 Financial Hurricane, Dr. Ron Paul, September 15 2005
The connection between the GSEs and the government helps isolate the GSEs’ management from market discipline. This isolation from market discipline is the root cause of the mismanagement occurring at Fannie and Freddie. After all, if investors did not believe that the federal government would bail out Fannie and Freddie if the GSEs faced financial crises, then investors would have forced the GSEs to provide assurances that the GSEs are following accepted management and accounting practices before investors would consider Fannie and Freddie to be good investments."
"[O]ne of the forgotten lessons of the financial scandals of a few years ago is that the market is superior at discovering and punishing fraud and other misbehavior than are government regulators. After all, the market discovered, and began to punish, the accounting irregularities of Enron before the government regulators did."
"Regulatory capture occurs when regulators serve the interests of the businesses they are supposed to be regulating instead of the public interest. While H.R. 1427 does have some provisions that claim to minimize the risk of regulatory capture, regulatory capture is always a threat where regulators have significant control over the operations of an industry. After all, the industry obviously has a greater incentive than any other stakeholder to influence the behavior of the regulator.
The flip side of regulatory capture is that managers and owners of highly subsidized and regulated industries are more concerned with pleasing the regulators than with pleasing consumers or investors, since the industries know that investors will believe all is well if the regulator is happy. Thus, the regulator and the regulated industry may form a symbiosis where each looks out for the other’s interests while ignoring the concerns of investors."
"Ironically, by transferring the risk of widespread mortgage defaults to the taxpayers through government subsidies and convincing investors that all is well because a "world-class" regulator is ensuring the GSEs' soundness, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie and Freddie have distorted the housing market by allowing Fannie and Freddie to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive uses into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital into housing creates a short-term boom in housing. Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have been had government policy not actively encouraged over-investment in housing."
"Perhaps the Federal Reserve can stave off the day of reckoning by purchasing the GSEs' debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary and painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts."
"Instead of expanding unconstitutional and market distorting government bureaucracies, Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market."
"We face a coming financial crisis. Our current account deficit is more than $600 billion annually. Our foreign debt is more than $3 trillion. Foreigners now own over $1.4 trillion of our Treasury and mortgage debt. We must borrow $3 billion from foreigners every business day to maintain our extravagant spending. Our national debt now is increasing $600 billion per year, and guess what, we print over $600 billion per year to keep the charade going. But there is a limit and I’m fearful we’re fast approaching it."The Republican Congress Wastes Billions Overseas, Dr. Ron Paul, July 20 2005
"The Federal Reserve must stop inflating the currency merely for the purpose of artificially lowering interest rates to perpetuate a financial bubble. This policy allows government and consumer debt to grow beyond sustainable levels, while undermining incentives to save. This in turn undermines capital investment while exaggerating consumption. If this policy doesn’t change, the dollar must fall and the current account deficit will play havoc until the house of cards collapses."
"Our spending habits, in combination with our flawed monetary system, if not changed will bring us a financial whirlwind that will make Katrina look like a minor storm ... If Congress does not show some sense of financial restraint soon, we can expect the poor to become poorer; the middle class to become smaller; and the government to get bigger and more authoritarian -- while the liberty of the people is diminished. The illusion that deficits, printing money, and expanding the welfare and warfare states serves the people must come to an end."
"The trillions of dollars we have shipped overseas as aid, and to influence and manipulate political affairs in sovereign countries, has not made life better for American citizens. It has made them much poorer without much to show for it, however."Reject Taxpayer Bank Bailouts, Dr. Ron Paul, May 4 2005
"This bill continues to fund organizations such as the National Endowment for Democracy, which as I have written before has very little to do with democracy. It is an organization that uses US tax money to actually subvert democracy, by showering funding on favored political parties or movements overseas. It underwrites color-coded 'people’s revolutions' overseas that look more like pages out of Lenin’s writings on stealing power than genuine indigenous democratic movements. The NED used American taxpayer dollars to attempt to guarantee that certain candidates overseas are winners and others are losers in the electoral processes overseas. What kind of message do we think this sends to foreign states? The National Endowment for Democracy should receive no funding at all, but this bill continues to funnel tens of millions of dollars to that unaccountable organization."
"Mr. Speaker, this is a shameful day for the US Congress. We are taking billions out of the pockets of Americans and sending the money overseas in violation of the Constitution. These are billions that will not be available for investment inside the United States: investment in infrastructure, roads, new businesses, education. These are billions that will not be available to American families, to take care of their children or senior relatives, or to give to their churches or favorite charities. We must not continue to spend money like there is no tomorrow. We are going broke, and bills like this are like a lead foot on the accelerator toward bankruptcy."
"In the event of a severe banking crisis, Congress likely will transfer funds from general revenues into the Deposit Insurance Fund, which would make all taxpayers liable for the mistakes of a few. Of course, such a bailout would require separate authorization from Congress, but can anyone imagine Congress saying no to banking lobbyists pleading for relief from the costs of bailing out their weaker competitors?"2004
"[R]egulators have incentives to downplay or even cover-up problems in the financial system such as banking facilities. Banking failures are black marks on the regulators' records. In addition, regulators may be subject to political pressure to delay imposing sanctions on failing institutions, thus increasing the magnitude of the loss.
Immediately after a problem in the banking industry comes to light, the media and Congress inevitably blame it on regulators who were 'asleep at the switch.' Yet most politicians continue to believe that giving more power to the very regulators whose incompetence (or worse) either caused or contributed to the problem somehow will prevent future crises!"
Government Spending - A Tax on the Middle Class, Dr. Ron Paul, July 8 2004
"[P]rinting money to pay for federal spending dilutes the value of the dollar, which causes higher prices for goods and services. Inflation may be an indirect tax, but it is very real – the individuals who suffer most from cost of living increases certainly pay a 'tax.'"2003
"Anyone truly concerned about the middle class suffering from falling real wages, under-employment, a rising cost of living, and a decreasing standard of living should pay a lot more attention to monetary policy. Federal spending, deficits, and Federal Reserve mischief hurt the poor while transferring wealth to the already rich. This is the real problem, and raising taxes on those who produce wealth will only make conditions worse."
"There’s no historic evidence to show that taxing productive Americans to support both the rich and poor welfare beneficiaries helps the middle class, produces jobs, or stimulates the economy."
"Paying for government spending with Federal Reserve credit, instead of taxing or borrowing from the public, is anything but a good deal for everyone. In fact it is the most sinister seductive 'tax' of them all. Initially it is unfair to some, but dangerous to everyone in the end. It is especially harmful to the middle class, including lower-income working people who are thought not to be paying taxes.
The 'tax' is paid when prices rise as the result of a depreciating dollar. Savers and those living on fixed or low incomes are hardest hit as the cost of living rises. Low and middle incomes families suffer the most as they struggle to make ends meet while wealth is literally transferred from the middle class to the wealthy. Government officials stick to their claim that no significant inflation exists, even as certain necessary costs are skyrocketing and incomes are stagnating. The transfer of wealth comes as savers and fixed income families lose purchasing power, large banks benefit, and corporations receive plush contracts from the government – as is the case with military contractors. These companies use the newly printed money before it circulates, while the middle class is forced to accept it at face value later on. This becomes a huge hidden tax on the middle class, many of whom never object to government spending in hopes that the political promises will be fulfilled and they will receive some of the goodies. But surprise – it doesn’t happen. The result instead is higher prices for prescription drugs, energy, and other necessities. The freebies never come."
"Not only is the Fed directly responsible for inflation and economic downturns, it causes artificially low interest rates that serve the interests of big borrowers, speculators, and banks. This unfairly steals income from frugal retirees who chose to save and place their funds in interest bearing instruments like CDs.
The Fed’s great power over the money supply, interest rates, the business cycle, unemployment, and inflation is wielded with essentially no Congressional oversight or understanding. The process of inflating our currency to pay for government debt indeed imposes a tax without legislative authority.
This is no small matter. In just the first 24 weeks of this year the M3 money supply increased 428 billion dollars, and 700 billion dollars in the past year. M3 currently is rising at a rate of 10.5%. In the last seven years the money supply has increased 80%, as M3 has soared 4.1 trillion dollars. This bizarre system of paper money worldwide has allowed serious international imbalances to develop. We owe just four Asian countries 1.5 trillion dollars as a consequence of a chronic and staggering current account deficit now exceeding 5% of our GDP. This current account deficit means Americans must borrow 1.6 billion dollars per day from overseas just to finance this deficit. This imbalance, which until now has permitted us to live beyond our means, eventually will give us higher consumer prices, a lower standard of living, higher interest rates, and renewed inflation. Rest assured the middle class will suffer disproportionately from this process.
The moral of the story is that spending is always a tax. The inflation tax, though hidden, only makes things worse. Taxing, borrowing, and inflating to satisfy wealth transfers from the middle class to the rich in an effort to pay for profligate government spending, can never make a nation wealthier. But it certainly can make it poorer."
Fannie Mae and Freddie Mac Subsidies Distort the Housing Market, Dr. Ron Paul, September 10 2003
"One of the major government privileges granted to GSEs is a line of credit with the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion dollars. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt."Paper Money and Tyranny, Dr. Ron Paul, September 5 2003
"Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.
Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.
"[S]pecial privileges granted to GSEs distort the housing market and endanger American taxpayers. Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market."
"A fiat monetary system allows power and influence to fall into the hands of those who control the creation of new money, and to those who get to use the money or credit early in its circulation. The insidious and eventual cost falls on unidentified victims who are usually oblivious to the cause of their plight. This system of legalized plunder (though not constitutional) allows one group to benefit at the expense of another. An actual transfer of wealth goes from the poor and the middle class to those in privileged financial positions."The False Tax Cut Debate, Dr. Ron Paul, May 6 2003
"Fiat money is also immoral because it allows government to finance special interest legislation that otherwise would have to be paid for by direct taxation or by productive enterprise. This transfer of wealth occurs without directly taking the money out of someone’s pocket. Every dollar created dilutes the value of existing dollars in circulation. Those individuals who worked hard, paid their taxes, and saved some money for a rainy day are hit the hardest, with their dollars being depreciated in value while earning interest that is kept artificially low by the Federal Reserve easy-credit policy. The easy credit helps investors and consumers who have no qualms about going into debt and even declaring bankruptcy."
"Artificially low interest rates deceive investors into believing that rates are low because savings are high and represent funds not spent on consumption. When the Fed creates bank deposits out of thin air making loans available at below-market rates, mal-investment and overcapacity results, setting the stage for the next recession or depression. The easy credit policy is welcomed by many: stock-market investors, home builders, home buyers, congressional spendthrifts, bankers, and many other consumers who enjoy borrowing at low rates and not worrying about repayment. However, perpetual good times cannot come from a printing press or easy credit created by a Federal Reserve computer. The piper will demand payment, and the downturn in the business cycle will see to it. The downturn is locked into place by the artificial boom that everyone enjoys, despite the dreams that we have ushered in a “new economic era.” Let there be no doubt: the business cycle, the stagflation, the recessions, the depressions, and the inflations are not a result of capitalism and sound money, but rather are a direct result of paper money and a central bank that is incapable of managing it."
"Ironically, the more successful the money managers are at restoring growth or prolonging the boom with their monetary machinations, the greater are the distortions and imbalances in the economy. This means that when corrections are eventually forced upon us, they are much more painful and more people suffer with the correction lasting longer."
"A paper monetary standard means there are no restraints on the printing press or on federal deficits. In 1971, M3 was $776 billion; today it stands at $8.9 trillion, an 1100% increase. Our national debt in 1971 was $408 billion; today it stands at $6.8 trillion, a 1600% increase. Since that time, our dollar has lost almost 80% of its purchasing power. Common sense tells us that this process is not sustainable and something has to give. So far, no one in Washington seems interested."
"Liberals foolishly believe that they can control the process and curtail the benefits going to corporations and banks by increasing the spending for welfare for the poor. But this never happens. Powerful financial special interests control the government spending process and throw only crumbs to the poor. The fallacy with this approach is that the advocates fail to see the harm done to the poor, with cost of living increases and job losses that are a natural consequence of monetary debasement. Therefore, even more liberal control over the spending process can never compensate for the great harm done to the economy and the poor by the Federal Reserve’s effort to manage an unmanageable fiat monetary system."
"Our current economic problems are directly related to the monetary excesses of three decades and the more recent efforts by the Federal Reserve to thwart the correction that the market is forcing upon us."
"We are now faced with an economy that is far from robust and may get a lot worse before rebounding. If not now, the time will soon come when the conventional wisdom of the last 90 years, since the Fed was created, will have to be challenged. If the conditions have changed and the routine of fiscal and monetary stimulation don’t work, we better prepare ourselves for the aftermath of a failed dollar system, which will not be limited to the United States."
"It’s now admitted that the deficit is out of control, with next year’s deficit reaching over one-half trillion dollars, not counting the billions borrowed from “trust funds” like Social Security. I’m sticking to my prediction that within a few years the national debt will increase over $1 trillion in one fiscal year. So far, so good, no big market reactions, the dollar is holding its own and the administration and congressional leaders are not alarmed. But they ought to be.
I agree, it would be politically tough to bite the bullet and deal with our extravagance, both fiscal and monetary, but the repercussions here at home from a loss of confidence in the dollar throughout the world will not be a pretty sight to behold. I don’t see any way we are going to avoid the crisis."
"The process by which the Fed monetizes debt and accommodates Congress contributes to, if not causes, most of our problems. This process of government financing:2002
1. Generates the “business” cycle and thus increases unemployment;
2. Destroys the value of the dollar and thus causes price inflation;
3. Encourages deficits by reducing restraints on congressional spending;
4. Encourages an increase in the current account deficit (the dollar being the reserve currency) and causes huge foreign indebtedness;
5. Reflects a philosophy of instant gratification that says, 'Live for the pleasures of today and have future generations pay the bills.'"
Has Capitalism Failed? Dr. Ron Paul, July 9 2002
"So far the assessment made by the administration, Congress, and the Fed bodes badly for our economic future. All they offer is more of the same, which can't possibly help. All it will do is drive us closer to national bankruptcy, a sharply lower dollar, and a lower standard of living for most Americans, as well as less freedom for everyone."Economic Concerns, Dr. Ron Paul, February 7 2002
"More spending, more debt, more easy credit, more distortion of interest rates, more regulations on everything, and more foreign meddling will soon force us into the very uncomfortable position of deciding the fate of our entire political system."
"The world economies are more integrated than ever before. When they are growing, it is a benefit to all, but in a contraction, globalism based on fiat money and international government assures that most economies will be dragged down together."
'Today, a party- tomorrow an economic hangover' has essentially been our philosophy for decades. But there's always a limit to deficit spending, whether it's private or governmental, and the short-term benefits must always be paid for in one form or another later on."
"Those who felt and acted wealthy in holding the dot-com and Enron stocks were brought back to earth with a shattering correction. There's a lot more of this type of correction yet to come in the financial sector."
"Interest rates, instead of rising, are pushed dramatically downward by the Federal Reserve, creating massive amounts of new credit. This new credit, according to economic law, must in time push the value of the dollar down and general prices up. When this happens and the dollar is threatened on exchange markets, the cost of living is pushed sharply upward."
"For over a year, the Fed has been massively inflating the money supply, and there is no evidence that it has done much good. This continuous influx of new credit instead delays the correction that must eventually come - the liquidation of bad debt, and the reduction of overcapacity. ... Welfarism and our expanding growing foreign commitments, financed seductively through credit creation by the Fed, are not viable options."
"[W]e operate with a system that compromises free markets and causes economic injury to a growing number of people, while rewarding special interests and steadily undermining the principles of liberty. Unfortunately, the policy of monetary inflation is most harmful to the poor and the middle class, especially in the early stages."
"[T]he record is clear. Any sign of distress prompts government action for any and every conceivable problem. Since each action by the government not only fails in its attempt to solve the problem it addresses, it creates several new problems in addition while prompting even more government intervention. Here in the United States we have seen the process at work for several decades with steady growth in the size and scope of the federal bureaucracy and the corresponding reduction in our personal freedoms. This principle also applies to overseas intervention. One episode of meddling in the affairs of other nations leads to several new problems requiring even more of our attention and funding."
"Very few in Washington, however, recognize the dire consequences to economic prosperity that welfarism, warfarism, and inflationism cause. Most believe that the occasional recession can be easily handled by government programs and a Federal Reserve policy designed to stimulate growth. It's happened many times already, and almost everyone believes that in a few months our economy and stock market will be roaring once again."
"Every recession in the last 30 years, since the dollar became a purely fiat currency, has ended after a significant correction and resumption of all the bad policies that caused the recession in the first place. Each rebound required more spending, debt and easy credit than the previous recovery did. And with each cycle, the government got bigger and more intrusive."
"An economy that depends on ever-increasing rates of monetary inflation will appear much healthier and the people much richer than is the actual case. Owners of the dot-com companies or Enron stocks know what it's like to feel rich one day and very poor the next. This is not a unique experience but one that should be expected and is predictable."
Countries that inflate their currencies must adjust their values periodically with sudden devaluations, which destroy the pseudo-wealth of the middle class and poor. The wealthy, more often than not, can protect themselves from the sudden shocks to the monetary system. However, they can't protect from the insidious loss of liberty that accompanies these adjustments, and eventually everyone suffers."
"It's possible this recession may end in a few months as the optimists predict, but if it does, our problems are only delayed. The fundamental correction will still be necessary to preserve the productivity of a market economy. If we do not change our ways, the financial bubble will just go back to inflating again. The big correction, like that which Argentina is now experiencing with rapid disappearance of paper wealth, will eventually hit our economy. The longer the delay, the bigger will be the bust and greater the threat to our freedoms and institutions. Since we're moving toward the big correction, we're going to see a lot more wealth removed from our balance sheets and our retirement accounts. The rampant price inflation that results will erode the purchasing power of all fixed-income retirement funds like Social Security and mean a lower standard living for most people."
"Wealth - the product of labor, investment and savings- can never be substituted by government spending or by a central bank that creates new money out of thin air. Governments can only give things they first take away from someone else. Printing money only diminishes the value of each monetary unit. Neither can create wealth; both can destroy it."
"The economic loss is bad enough, but whether it's fighting the war on terrorism, acting as the world's policeman, or solving the problems of vanishing wealth, the real insult will come from the freedoms we lose. These freedoms, vital to production and wealth formation, are necessary and represent what the American dream is all about. They are what made us the richest nation in all of history, but this we will lose if Congress is not careful with what it does in the coming months."
"With the current war on terrorism, there is no end in sight and there is no precise enemy, and we've been forewarned that this fight will go on for a long time. This means that a return to normalcy after the sacrifices we are making with our freedoms is not likely. The implementation of a national ID card, pervasive surveillance, easy-to-get search warrants, and loss of financial and medical privacy will be permanent."
"Can freedom and prosperity survive if the police state continues to expand? I doubt it. It never has before in all of history, and this is a threat the Congress should not ignore."
The Collapse of Enron, Dr. Ron Paul, February 4 2002
"It is a mistake for Congress to view the Enron collapse as a justification for more government regulation. Publicly held corporations already comply with massive amounts of SEC regulations, including the filing of quarterly reports that disclose minute details of assets and liabilities. If these disclosure rules failed to protect Enron investors, will more red tape really solve anything? The real problem with SEC rules is that they give investors a false sense of security, a sense that the government is protecting them from dangerous investments.2001
In truth, investing carries risk, and it is not the role of the federal government to bail out every investor who loses money. In a true free market, investors are responsible for their own decisions, good or bad. This responsibility leads them to vigorously analyze companies before they invest, using independent financial analysts. In our heavily regulated economy, however, investors and analysts equate SEC compliance with reputability. The more we look to the government to protect us from investment mistakes, the less competition there is for truly independent evaluations of investment risk.
The SEC, like all government agencies, is not immune from political influence or conflicts of interest. In fact, the new SEC chief used to represent the very accounting companies now under SEC scrutiny. If anything, the Enron failure should teach us to place less trust in the SEC. Yet many in Congress and the media characterize Enron’s bankruptcy as an example of unbridled capitalism gone wrong. Few in Congress seem to understand how the Federal Reserve System artificially inflates stock prices and causes financial bubbles. Yet what other explanation can there be when a company goes from a market value of more than $75 billion to virtually nothing in just a few months? The obvious truth is that Enron was never really worth anything near $75 billion, but the media focuses only on the possibility of deceptive practices by management, ignoring the primary cause of stock overvaluation: Fed expansion of money and credit.
The Fed consistently increased the money supply (by printing dollars) throughout the 1990s, while simultaneously lowering interest rates. When dollars are plentiful, and interest rates are artificially low, the cost of borrowing becomes cheap. This is why so many Americans are more deeply in debt than ever before."
"[I]f Congress wishes to avoid future bankruptcies like Enron, the best thing it can do is repeal existing regulations which give investors a false sense of security, and reform the country’s monetary policy to end the Fed-generated boom-and-bust cycle. Congress should also repeal those programs which provide taxpayer subsidies to large, politically-powerful corporations such as Enron."
"Once again, corporate welfare benefits certain interests at the expense of taxpayers. The point is that Enron was intimately involved with the federal government. While most of my colleagues are busy devising ways to 'save' investors with more government, we should be viewing the Enron mess as an argument for less government. It is precisely because government is so big and so thoroughly involved in every aspect of business that Enron felt the need to seek influence through campaign money. It is precisely because corporate welfare is so extensive that Enron cozied up to D.C.-based politicians of both parties. It’s a game every big corporation plays in our heavily regulated economy, because they must when the government, rather than the marketplace, distributes the spoils.
This does not mean Enron is to be excused. There seems to be little question that executives at Enron deceived employees and investors, and any fraudulent conduct should of course be fully prosecuted. However, Mr. Chairman, I hope we will not allow criminal fraud in one company, which constitutionally is a matter for state law, to justify the imposition of burdensome new accounting and stock regulations. Instead, we should focus on repealing those monetary and fiscal policies that distort the market and allow the politically powerful to enrich themselves at the expense of the American taxpayer."
The Foolishness of Fiat, Dr. Ron Paul, October 31 2001
"Returning to deficit spending, as we already have, will not help us any more than it has helped Japan, which continues to sink into economic morass. Nothing can correct the problems we face if we do not give up on the foolishness of fiat. Mr. Speaker, a dollar crisis is quickly approaching. We should prepare ourselves."The US Dollar and the World Economy, Dr. Ron Paul, September 6 2001
"Paper money helps the strong and hurts the weak before it self-destructs and undermines international trade. The US dollar, with its reserve-currency status, provides a much greater benefit to American citizens than that which occurs in other countries that follow a similar monetary policy. It allows us to export our inflation by buying cheap goods from overseas, while our dollars are then lent back to us to finance our current account deficit. We further benefit from the confidence bestowed on the dollar by our being the economic and military powerhouse of the world, thus postponing the day of reckoning. This permits our extravagant living to last longer than would have otherwise occurred under a gold standard.Uncontrolled Spending Threatens Our Liberty, Dr. Ron Paul, April 2 2001
Some may argue that a good deal like that shouldn't be denied, but unfortunately the piper must eventually be paid. Inevitably the distortions, such as our current account deficit and foreign debt, will come to an end with more suffering than anyone has anticipated."
"Fiat money has been around for a long time off and on throughout history. But never has the world been so enthralled with the world economy being artificially structured with paper money and with a total rejection of the anchor that gold provided for thousands of years. Let there be no doubt, we live in unprecedented times, and we are just beginning to reap what has been sown the past thirty years. Our government and Federal Reserve officials have grossly underestimated this danger."
"The next recession, from which I'm sure we're already suffering, will be even more pervasive worldwide than the one in the 1930s due to the artificial nature of modern globalism, with world paper money and international agencies deeply involved in the economy of every nation. We have witnessed the current and recent bailouts in Mexico, Argentina, Brazil, Turkey and the Far East. While resisting the market's tendency for correction, faith in government deficits and belief in paper money inflation will surely prolong the coming worldwide crisis."
"Instead of the newly inflated money being directed toward the stock market, it now finds its way into the rapidly expanding real-estate bubble. This, too, will burst as all bubbles do. The Fed, the Congress, or even foreign investors can't prevent the collapse of this bubble, any more than the incestuous Japanese banks were able to keep the Japanese 'miracle' of the 1980s going forever."
"A major problem still remains. Ultimately the market determines all value including all currencies. With the current direction of the dollar certainly downward, the day of reckoning is fast approaching. A weak dollar will prompt dumping of GSE [i.e. Fannie Mae and Freddie Mac] securities before treasuries, despite the Treasury's and the Fed's attempt to equate them with government securities. This will threaten the whole GSE system of finance, because the challenge to the dollar and the GSEs will hit just when the housing market turns down and defaults rise. Also, a major accident can occur in the derivatives markets where Fannie Mae and Freddie Mac are deeply involved in hedging their interest-rate bets. Rising interest rates that are inherent with a weak currency will worsen the crisis.
The weakening dollar will usher in an age of challenge to the whole worldwide financial system. The dollar has been the linchpin of economic activity, and a severe downturn in its value will not go unnoticed and will compound the already weakening economies of the world. More monetary inflation, even if it's a concerted worldwide effort, cannot solve the approaching crisis. The coming crisis will result from fiat money and monetary inflation; therefore, more of the same cannot be the solution."
"The Fed never admits it, and the Congress disregards it out of ignorance, but the serious harm done by artificially low interest rates--leading to mal-investment, overcapacity, excessive debt and speculation causes the distortions that always guarantee the next recession.
Serious problems lie ahead. If the Fed continues with the same monetary policy of perpetual inflation, and the Congress responds with more spending and regulations, real solutions will be indefinitely delayed."
"A realization that we cannot continue our old ways may well be upon us, and, the inflating, taxing, regulating, and centralized planning programs of the last thirty years must come to an end. Only reining in the welfare-warfare state will suffice."
"[T]he single greatest threat to our liberty in America is uncontrolled spending by Congress. Americans need to understand the stark reality behind the often boring and confusing budget rhetoric: Congress will spend nearly $2 trillion in 2002. This amount represents almost 11% more than Congress will spend in 2001. This massive spending funds an unbelievable number of federal departments, agencies, programs, and personnel. Most Americans understand that the federal government is far too large, yet most of their representatives in Congress continue to vote for spending increases every year. As a result, the same unconstitutional agencies grow, the same counterproductive programs are perpetuated, and the same military adventurism expands around the globe. In short, this spending insures that the federal government has more and more power over our lives, power never dreamed of nor intended by the authors of our Constitution. The more Congress spends, the less liberty we have."Challenge to America: A Current Assessment of Our Republic, Dr. Ron Paul, February 7 2001
"As long as government has so much to offer, public officials will be tempted to accept the generous offers of support from special interests. Those who can benefit have too much at stake not to be in the business of influencing government. Eliminating the power of government to pass out favors is the only real solution."2000
"My concerns are threefold: the health of the economy, the potential for war, and the coming social discord. If our problems are ignored, they will further undermine the civil liberties of all Americans. The next decade will be a great challenge to all Americans."
"Boom times built on central-bank credit creation always end in recession or depression ... We must face the fact that the business cycle, with its recurring recessions, wage controls, wealth transfers, and social discord are still with us and will get worse unless there is a fundamental change in economic and monetary policy. Regardless of the type, central economic planning is a dangerous notion."
"The dollar still represents approximately 77% of all world central-bank reserves. This means that the United States has license to steal. We print the money and spend it overseas, while world trust continues because of our dominant economic and military power. This results in a current account and trade deficit so large that almost all economists agree that it cannot last. The longer and more extensive the distortions in the international market, the greater will be the crisis when the market dictates a correction. And that's what we're starting to see. When the recession hits full force, even the extraordinary power and influence of Alan Greenspan and the Federal Reserve, along with all the other central banks of the world, won't be able to stop the powerful natural economic forces that demand equilibrium."
"But the really big borrowing has been what the US as a whole has borrowed from foreigners to pay for the huge deficit we have in our current account. We are now by far the largest foreign debtor in the world and in all of history. This convenient arrangement has allowed us to live beyond our means and, according to long-understood economic laws, must end."
"During the past 30 years in the post-Bretton Woods era, worldwide sentiment has permitted us to inflate our money supply and get others to accept the dollar as if it were as good as gold. This convenient arrangement has discouraged savings, which are now at an historic low. Savings in a capitalist economy are crucial for furnishing capital and establishing market interest rates. With negative savings and with the FED fixing rates by creating credit out of thin air and calling it capital, we have abandoned a necessary part of free-market capitalism, without which a smooth and growing economy is sustainable. No one should be surprised when recessions hit or bewildered as to their cause or danger. The greater surprise should be the endurance of an economy fine-tuned by a manipulative central bank and a compulsively interventionist Congress. But the full payment for all past economic sins may now be required. Let's hope we can keep the pain and suffering to a minimum."
"The FED can create excess credit, but it can't control where it goes as it circulates throughout the economy; nor can it dictate value either. Claiming that a subdued government-rigged CPI and PPI proves that no inflation exists is pure nonsense. It is well established that, under certain circumstances, new credit inflation can find its way into the stock or real estate market, as it did in the 1920s, while consumer prices remain relatively stable. This does not negate the distortion inherit in a system charged with artificially low interest rates. Instead it allows the distortion to last longer and become more serious, leading to a bigger correction."
"Much else related to artificially low interest rates goes unnoticed. An overpriced stock market, overcapacity in certain industries, excesses in real-estate markets, artificially high bond prices, general mal-investments, excessive debt, and speculation all result from the generous and artificial credit the Federal Reserve pumps into the financial system. These distortions are every bit, if not more, harmful than rising prices. As the economy soars from the stimulus effect of low interest rates, growth and distortions compound themselves. In a slump, the reverse is true, and the pain and suffering is magnified as the adjustment back to reality occurs."
"The extra credit in the 1990s has found its way especially into the housing market like never before. GSEs, in particular Freddie Mac and Fannie Mae, have gobbled up huge sums to finance a booming housing market. GSE securities enjoy implicit government guarantees, which have allowed for a generous discount on most housing loans. They have also been the vehicles used by consumers to refinance and borrow against their home equity to use these funds for other purposes, such as investing in the stock market. This has further undermined savings by using the equity that builds with price inflation that homeowners enjoy when money is debased. In addition, the Federal Reserve now buys and holds GSE securities as collateral in their monetary operations. These securities are then literally used as collateral for printing Federal Reserve notes; this is a dangerous precedent."
"Creating money out of thin air is morally equivalent to counterfeiting. It's fraud and theft, because it steals purchasing power from the savers and those on fixed incomes. That in itself should compel all nations to prohibit it, as did the authors of our Constitution."
"But the day will come when we will have no choice but to question the current system. Yes, the FED does help to finance the welfare state. Yes, the FED does come to the rescue when funds are needed to fight wars and for us to pay the cost of maintaining our empire. Yes, the Fed is able to stimulate the economy and help create what appear to be good times. But it's all built on an illusion. Wealth cannot come from a printing press. Empires crumble and a price is eventually paid for arrogance toward others. And booms inevitably turn into busts."
"Talk of a new era the past five years has had many, including Greenspan, believing that this time it really would be different. And it may indeed be different this time. The correction could be an especially big one, since the Fed-driven distortion of the past 10 years, plus the lingering distortions of previous decades have been massive. The correction could be big enough to challenge all our institutions, the entire welfare state, Social Security, foreign intervention, and our national defense. This will only happen if the dollar is knocked off its pedestal. No one knows if that is going to happen soon or later. But when it does, our constitutional system of government will be challenged to the core."
"We are in great danger of becoming involved in a vicious war for oil, as well as being drawn into a religious war that will not end in our lifetime. The potential for war in this region is great, and the next one could make the Persian Gulf War look small. Only a reassessment of our entire policy will keep us from being involved in a needless and dangerous war in this region. ... It's impossible for us to maintain a policy that both supports Israel and provides security for Western-leaning secular Arab leaders, while at the same time taunting the Islamic fundamentalists. Push will come to shove, and when that happens in the midst of an economic crisis, our resources will be stretched beyond the limit. This must be prevented."
"Seizure and forfeiture laws, clearly in violation of the Constitution, have served as a terrible incentive for many police departments to raise money for law-enforcement projects outside the normal budgeting process. Nationalizing the police force for various reasons is a trend that should frighten all Americans. The drug war has been the most important factor in this trend."
"If the trends we have witnessed over the past 70 years are not reversed, our economic and political system will soon be transposed into a fascist system. The further along we go in that direction, the more difficult it becomes to reverse the tide without undue suffering. This cannot be done unless respect for the rule of law is restored. That means all public officials must live up to their promise to follow the written contract between the people and the government: the US Constitution."
"For far too long, we have accepted the idea that government can and should take care of us. But that is not what a free society is all about. When government gives us something, it does two bad things. First it takes it from someone else; second, it causes dependency on government. A wealthy country can do this for long periods of time, but eventually the process collapses. Freedom is always sacrificed and eventually the victims rebel. As needs grow, the producers are unable or unwilling to provide the goods the government demands. Wealth then hides or escapes, going underground or overseas, prompting even more government intrusion to stop the exodus from the system. This only compounds the problem."
"Endless demands and economic corrections that come with the territory will always produce deficits. An accommodating central bank then is forced to steal wealth through the inflation tax by merely printing money and creating credit out of thin air. Even though these policies may work for a while, eventually they will fail. As wealth is diminished, recovery becomes more difficult in an economy operating with a fluctuating fiat currency and a marketplace overly burdened with regulation, taxes, and inflation. The time to correct these mistakes is prior to the bad times, before tempers flair. Congress needs to consider a new economic and foreign policy."
"But we have good reason to be concerned for our future. Prosperity can persist, even after the principles of a sound market economy have been undermined, but only for a limited period of time. Our economic, military, and political power, second to none, has perpetuated a system of government no longer dependent on the principles that brought our Republic to greatness. Private-property rights, sound money, and self-reliance have been eroded, and they have been replaced with welfarism, paper money, and collective management of property. The new system condones special-interest cronyism and rejects individualism, profits, and voluntary contracts."
Economic Update, Dr. Ron Paul, December 4 2000
"What we must remember though, is that every time someone pressures the Fed to lower interest rates, they are saying to the Fed that the money supply must be inflated. The only tool the Fed has for lowering interest rates is to increase the supply of money. They are arguing the case for further systematic and deliberate debasement of the US dollar. Those who chant for lower interest rates are literally attacking the dollar."Economic Problems Ahead, Dr. Ron Paul, November 13 2000
"Congress should be prepared for some surprises in the not-to-distance future. A slumping economy or definite recession will obviously lower revenues. This will reverse the illusion of the grand surpluses that everyone has been anxious to spend. Instead of expenditures being held under control, expect them to rise rapidly.
Many are starting to talk now about a legislative stalemate with no clear majority in the House or Senate and the Presidency being uncertain. This concern about a stalemate is overblown. Not that the problem isn't serious, but I am certain that under the conditions that we are about to experience, the Congress and the President will be all too willing to deal with the deteriorating conditions with increased spending and with a concerted bi-partisan effort to pressure the Federal Reserve to further inflate the currency in pursuing the fiction that the Federal Reserve can prevent a "hard landing" by merely increasing the money supply in an effort to dictate short-term Fed funds rates.
Although this will not be the impasse that many anticipate, the actual capitulation by both parties to deal with the oncoming economic slowdown will actually be more harmful than gridlock because Congress will undoubtedly do more harm than good to the economy."
"A major financial crisis is possible since the dollar is the reserve currency of the world, held in central banks as if it were gold itself. The current account deficit for the United States continues to deteriorate, warning us of danger ahead. Our foreign debt of $1.7 trillion continues to grow rapidly and it will eventually have to be paid.
Action by the Congress and the Federal Reserve will most likely make the correction that is now starting much worse. Also, under conditions such as these, personal liberty is always vulnerable to the advocates of big government. It is well known that during the times of military wars personal liberties are in endangered. Social wars such as the war on drugs are notorious for undermining the principles of liberty. So too, under economic conditions that are difficult to understand and deal with, personal liberty comes under attack. This should concern us all."
"A huge financial bubble has been created by the GSEs, such as Fannie Mae and Freddie Mac. The $33 billion of shareholder equities in these two organizations has been leveraged into $1.07 trillion worth of assets - a bubble waiting to be pricked."Warning about Foreign Policy and Monetary Policy, Dr. Ron Paul, October 12 2000
"Commercial debt was but $50 billion in 1994 and is now ten times higher now at $551 billion. The money supply is now growing at greater than a 10% rate and the derivatives market, although difficult to calculate, probably exceeds $75 trillion. We also have consumer debt, which is at record highs and has not yet shown signs of slowing. The Dow Jones Industrial Average stocks are now 5 times book value, the highest in over a hundred years. There will come a day when most people come to realize the fraud associated with Social Security and the inability for it to continue as currently managed. Rising oil and natural gas prices, it is argued, are not inflationary, yet they are playing havoc with the pocketbooks of most Americans. The economies of Asia, and in particular Japan, will not offer any assistance in dealing with the approaching storm in this country. Our foreign policy, which continues to obligate our support around the world, shows no signs of changing and will contribute to the crisis and possibly our bankruptcy."
"[I]n spite of the grand prosperity that we have had for this past decade, I believe it is an illusion in many ways, because we have not paid for it. In a true capitalist society, true wealth comes from hard work and savings. Today, the American people have a negative savings rate, which means that we get our so-called capital from a printing press, because there are no savings and no funds to invest. The Federal Reserve creates these funds to be invested. On a short-term, this seems to benefit everyone ... The only problem with this is it always ends, and it always ends badly."Congress Ignores its Constitutional Responsibility Regarding Monetary Policy, Dr. Ron Paul, October 11 2000
"Congress has certainly reneged on its responsibility in this area. We continue to grant authority to a central bank that designs monetary policy in complete secrecy, inflating the currency at will, thus stealing value from the already existing currency through a dilution effect."The Dollar and Our Current Account Deficit, Dr. Ron Paul, May 16 2000
"[T]he truth is our Presidents deserve neither the credit for the good times nor the blame for the bad times. The Federal Reserve, which maintains a monopoly control over the money supply, credit and interest rates, is indeed the culprit and should be held accountable. But the real responsibility falls on the Congress, for it is Congress' neglect that permits the central bank to debase the dollar at will.
Destroying the value of a currency is immoral and remains unconstitutional. It should be illegal. And only a responsible Congress can accomplish that.
In preparation for the time when we are forced to reform the monetary system, we must immediately begin to consider the problems that befall a nation that permits systematic currency depreciation as a tool to gain short-term economic benefits while ignoring the very dangerous long-term consequences to our liberty and prosperity."
"Although international trade imbalances are a predictable result of fiat money, the duration and intensity of the cycles associated with it are not. A reserve currency, such as is the dollar, is treated by the market quite differently than another fiat currency.1998
The issuer of a reserve currency - in this case the United States - has greater latitude for inflating and can tolerate a current account deficit for much longer periods of time than other countries not enjoying the same benefit. But economic law, although at times it may seem lax, is ruthless in always demanding that economic imbalances arising from abuse of economic principles be rectified. In spite of the benefits that reserve currency countries enjoy, financial bubbles still occur and their prolongation, for whatever reason, only means the inevitable adjustment, when it comes, is more harsh.
Our current state of imbalance includes a huge US/foreign debt of $1.5 trillion, a record 20% of GDP and is a consequence of our continuously running a huge monthly current account deficit that shows no signs of soon abating. We are now the world's greatest debtor. The consequence of this deficit cannot be avoided. Our current account deficit has continued longer than many would have expected. But not knowing how long and to what extent deficits can go is not unusual. The precise event that starts the reversal in the trade balance is also unpredictable. The reversal itself is not."
International Economic Turmoil, Dr. Ron Paul, September 15 1998
"The notion being that once governments inflate, create new credit for the purpose of driving down interest rates, the low interest rates send bad signals, confusing signals, to business people, who do dumb things. They overinvest, there is overcapacity, they have malinvestment, and they tend to accumulate a lot more debt. Banks loan out more money. But this is a consequence of the central banks' error of creating too much credit. And then, again, this leads to the speculations and to the derivatives markets that you mentioned."The Bubble, Dr. Ron Paul, April 28 1998
"Stock prices, though, are greatly inflated ... The NASDAQ is now selling at 85 times earning. There is no doubt that most stock prices are grossly inflated and probably represent the greatest financial bubble known in history."1997
"The basic cause of any financial bubble is the artificial creation of credit by a central bank (in this case our Federal Reserve). Artificially creating credit causes the currency to depreciate in value over time. It is important to understand the predictable economic problems that result from a depreciating currency:
1. In the early stages it is difficult to forecast exactly who will suffer and when.
2. Inflated currency and artificially low interest rates result in mal-investment that produces over capacity in one area or another.
3. Wealth generally transfers from the hands of the middle-class into the hands of the very wealthy. (The very poor receiving welfare gain a degree of protection, short of a total destruction of the currency.)
4. Prices indeed do go up, although which prices will go up is unpredictable, and the CPI and PPI can never be a dependable measurement of a monetary policy driven by loose credit.
5. The group that suffers the very most is the low-middle-income group (those willing to stay off welfare, yet unable to benefit from any transfer of wealth as stagnant wages fail to protect them from the ravages of the rising cost of living)."
"Even though Japan first recognized signs of difficulty nine years ago, their problems linger because they have not allowed the liquidation of debt, or the elimination of over capacity, or the adjustment for real estate prices that would occur if the market were permitted to operate free of government intervention. The U.S. did the same thing in the 1930s, and I suspect we will do exactly what Japan is doing once our problems become more pressing."
"This process of deliberately depreciating a currency over time (inflation) causes a loss in purchasing power and is especially harmful to those individuals who save. AIER (American Institute for Economic Research) calculates that 100 million households since 1945 have lost $11.2 trillion in purchasing power. This comes out to $112,000 per household, or put another way, over 5 decades each one of these households lost $2,200 every year. Although many households are feeling very wealthy today because their stock portfolios are more valuable, this can change rather rapidly in a crash. The big question is what does the future hold for the purchasing power of the dollar over the next 10 or 20 years?"
"The goal of central bankers has always been to gain `benefit' from the inflation they create, while preventing deflation and prolonging the boom as long as possible--a formidable task indeed. The more sophisticated and successful the central bankers are as technicians, the larger the bubble they create."
"Central bankers have also had the advantage of technological changes that increase productivity and also serve to keep down certain prices. It is true that we live in an information age, an age in which travel is done with ease and communication improvements are astounding. All of these events allow for a bigger bubble and a higher standard of living. Unfortunately this will not prove to be as sustainable as many hope."
"It must be understood that politicians and the pressure of the special interests in Washington demand that the current policies of spending, deficits, artificially low interest rates and easy credit will not change. It took the complete demise of the Soviet-Communist system before change came there. But be forewarned: change came with a big economic bang not a whimper."
"[I]n the midst of a deep recession, the scapegoats will be found and alien workers will always be a target. The greatest danger in a collapsing financial bubble is that the economic disruptions that follow might lead to political turmoil. Once serious economic problems develop, willingness to sacrifice political liberty is more likely, and the need for a more militant government is too often accepted by the majority."
"Liberals are heedless of the significance of monetary policy and its ill effects on the poor. They have no idea that the transfer of wealth from the poor to the rich occurs as a result of monetary policy and serves to hurt the very people they claim to represent."
"With daily pronouncements that inflation is dead, the stage is set for unlimited credit expansion whenever it becomes necessary. Just as deficit spending and massive budgets will continue, we can expect the falling value of the dollar, long term, to further undermine the economic and political stability of this country and the world. Until we accept the free market principle that governments cannot create money out of thin air and that money must represent something of real value, we can anticipate a lot more confiscation of wealth through inflation."
Conduct of Monetary Policy, Dr. Ron Paul, July 22 1997
"[W]hat we really need to be concerned about the correction that inevitably comes after a period of inflation."Federal Reserve has Monopoly over Money and Credit in the United States, Dr. Ron Paul, April 28 1997
"My question and suggestion is maybe we ought to be doing something now, because there is a lot of credit out there doing something else, causing malinvestment, causing deficits and debt to buildup, and that there will be a correction. We have not repealed the business cycle. So we have to expect something from this."
"[The Federal Reserve] works in collaboration with the banking system, where not only can [it] create money and credit out of thin air and manipulate interest rates, it also works closely with the banks through the fractional reserve banking system that allows the money supply to expand. This is the source of a lot of mischief and a lot of problems, and if we in the Congress could ever get around to understanding this issue, we might be able to do something about the lowering standard of living which many Americans are now suffering from. If we are concerned about repealing the business cycle, we would have to finally understand the Federal Reserve and how they contribute to the business cycle."Our Soaring Trade Deficit Cannot Be Ignored, Dr. Ron Paul, April 9 1997
"Not only is this a monopoly control over money and credit, unfortunately it is a very secret monopoly. Mr. Speaker, I serve on the Committee on Banking and Financial Services and I am on the Subcommittee on Domestic and International Monetary Policy, and I myself cannot attend the open market committee meetings. I have no access to what really goes on. I have no authority to do any oversight. There is no appropriation made for the Federal Reserve ... If they have the authority to manipulate interest rates, which is the cost of borrowing, which is the price as well as the supply of money, this is an ominous power because we use the money in every single transaction ... yet [Congress has] reneged on our responsibility to monitor the Fed to determine whether or not this dollar will maintain value."
"[W]e will have to someday restore the integrity of the monetary system, and we have to have more respect for the free market if we ever expect to undertake a reform of a monetary system which has given us a great deal of trouble, and it is bound to give us a lot more trouble as time goes on."
"Some argue that the Federal Reserve is private and out of our control. That is not exactly true. It is secret, but it is a creature of Congress. Congress created the Federal Reserve System and Congress has the authority to do oversight, but it refuses and has ignored the responsibility of really monitoring the value of our currency and monitoring this very, very powerful central bank."
"So, then, they go and spend the money and, lo and behold, there is not enough money to borrow and not enough tax money to go around, so they have to have one more vehicle, and that is the creation of money out of thin air, and this is what they do. They send the Treasury bills or the bonds to the Federal Reserve, and with a computer they can turn a switch and create a billion or $10 billion in a single day and that debases the currency. It diminishes the value of the money and alters interest rates and causes so much mischief that, if people are concerned about the economy, or their standard of living, or rising costs of living, this is the source of the problem. So it is not only with the Federal Reserve manipulating the money and the interest rates, but the responsibility falls on the Congress as well because the Federal Reserve serves the interests of the Congress in accommodating the Congress as we here in the Congress spend more than we should."
"As the Federal Reserve manipulates the economy by first lowering interest rates below what they should be and then raising interest rates above what they think they should be, this causes the business cycle. This is the source of the business cycle. So anybody who is concerned about unemployment and downturns in the economy and rising costs of living must eventually address the subject of monetary policy."
"[W]e in the Congress here cannot continue to ignore it and believe that we can endlessly accommodate deficits with the creation of new money. There is no doubt that it hurts the working man more so than the wealthy man. The working man who has a more difficult time adjusting to the rising cost of living is now suffering from a diminished standard of living because real wages are going down."
"But the real problem is why does the Federal Reserve have this much power over interest rates? In a free market, interest rates would be determined by savings. People would be encouraged to work, spend what they want, save the rest. If savings are high, interest rates go down, people then are encouraged to borrow and invest and build businesses. But today we have created an environment that there is no encouragement for savings, for tax reasons, and for psychological reasons, very, very little savings is occurring in this country. Our country saves less money than probably any country in the world. But that does not eliminate the access to credit. Because if the banks and the businesses need money, the Federal Reserve comes along and they crank out the credit and they lower the interest rates artificially, which then encourages business people and consumers to do things that they would not otherwise do. This is the expansion or the bubble part of the business cycle, which then sets the stage for the next recession. So people can talk about how to get out of the next recession when the next recession hits and they can talk about what caused it, but the next recession has already been scheduled. It has been scheduled by the expansion of the money supply and the spending and the borrowing and the deficits that we have accumulated here over the last six to eight years."
"But unfortunately, because we do not look at the fundamentals of what we have done, and the spending and the deficits, the next stage will be what we have done before. That is, if unemployment is going up, the government has to spend more money, there has to be more unemployment insurance. We cannot let people suffer. So the deficits will go up, revenues will go down and as we spend more money to try to bail ourselves out of the next recession, we will obviously just compound the problems because that is what we have been doing for the past 50 years. We have not solved these problems.
As a matter of fact, what has happened, because we eventually get the economy going again, what we do is we continue to build this huge financial bubble which exists today. It is a much bigger bubble than ever existed in the 1920s, it is international in scope and it is something never experienced in the history of mankind. Yet we have to face up to this, because when that time comes, we have to do the right things."
"I think [Greenspan] knows what is coming and why adjustments have to be made. But his critics are saying, when they talk about do not raise interest rates, what we have to remember is what they are saying to him is make sure there is more inflation, more money, lower interest rates and, of course, that will add to our problems in the future."
"Not only do we have Members of Congress telling the Fed what to do, and the former Chairman of the Council of Economic Advisers telling them, many others all have an opinion on what to do, but nobody really asks the question, why are they doing all this in secret and where did they get all this power and why do we tolerate this system of money?"
"Those who want to perpetuate this system do not want us to think of the real cause, and that is, the real cause is the monetary system. They would like us to think about the symptoms and not the cause, because it is not in the interest of a lot of people, not only not in the interest of the big spenders here in the Congress who love the idea that the Federal Reserve is able to accommodate them on deficits, but there are business and banking interests and international interests and even some military production interests who like the idea that the credit is readily available and that they will be accommodated. The little guy never benefits. The little guy pays the taxes, he suffers from the inflation, he suffers from the unemployment, but there is a special group of people in an inflationary environment that benefits. Today, of course, there are a lot of people on Wall Street benefiting from this environment."
"The one thing that we do not have in the Congress and we do not have in the Federal Reserve, and the President does not have, is to guarantee the value of the money, and that is the problem. Today, all we hear about is the strength of the dollar, but if you look at the dollar from 1945 on, the dollar is on a downward spiral, and we are on a slight upward blip right now. Ultimately, the dollar will be attacked by the marketplace, and it will be more powerful than any of the policy changes that our Federal Reserve might institute."
"So in an age when you have tremendous excessive credit, money and credit, you have more speculation. Consumers speculate, they spend too much money, a businessman speculates, invests in things he probably should not, but also governments do the same thing. They spend money that they should not have. But in this area of derivatives, we have things like swaps, futures, and options, repos, and the foreign currency market. Right now there is $20, $21 trillion worth of these derivatives floating around out there outside of the measurement by our conventional money supply, which means that this participates in this huge financial bubble that exists around the world."
"[I]n all monetary systems which are based on fiat, the creation of money out of thin air, eventually comes to an end, and when it comes to an end, there is the rejection of the dollar, and then the dollars come home, interest rates will go up, inflation will be back with a vengeance, and there will come a time, and nobody knows when that time will come, it will not be because of us in the Congress being very deliberate and very wise to all of a sudden live within our means, but we will be forced to live within our means because those who want to loan the money to us and the value of the money will change, that there will just not be enough wealth."
"We need today a very serious debate on what the monetary system ought to be all about. It cannot be a debate which is isolated from the role of government. If we have a role of government which is to run the welfare state, to give anything to anybody who needs something or wants something, or claims it is an entitlement, or claims it is a right, if that is a system of government that we want to perpetuate, it is going to be very difficult to have any reform. If we continue to believe that this country is the policeman of the world, that we must police the world and build bases overseas at the same time we neglect our own national defense, our own borders, our own bases here at home, but we continue to spend money on places, on Bosnia and Africa, and pay for the defense of Japan and Europe; as long as we accept those ideas, there is no way we can restore any sanity to our budget."
"I was gone for a few years. I was here in the Congress in 1976, and, after returning, there is one dramatic difference. There are more lobbyists than ever, more demands, more people coming and more people wanting things. I have more demand from the business community than I do from those who are from the poor end of the spectrum. There is a vicious maldistribution of wealth in a society that destroys its money. Inevitably, if a country destroys its money, it destroys its middle class."
"[T]he time will come, because we will go bankrupt, because no country has ever done this before. No country can live beyond its means endlessly. No country can spend and inflate and destroy its money. There will be this transfer of wealth. It happened in many, many countries in this century ... The middle class suffers the most."
"I suspect in the next several years Congress will be truly challenged. The high level of frustration in this body comes from the fact that the large majority are not yet willing to give up the principles upon which the welfare state exists. Eventually, an economic crisis will force all Americans, including Congress, to face up to the serious problems that we have generated for ourselves over the past 50 years. I expect deficits to explode and not come down. I suspect the economy is much weaker than is currently claimed. In the not too distant future, we will be in a serious recession. Under these circumstances the demand for spending will override all other concerns ... Consumers and entitlement recipients will face the problem of stagflation, probably worse than we saw in the 1970s. I expect very few in Congress to see the monetary side of this problem."1984
Current Political Philosophies' Errors to Result in Political and Economic Crisis, Dr. Ron Paul, September 20 1984
"Government is literally out of control. Spending, taxes, regulations, monetary inflation, invasion of our privacy, welfarism to both the rich and the poor, military spending, and foreign adventurism around the world will one day precipitate a crisis that will truly test our will to live in a free society."1980
"Without a significant change in attitude by the American people and Congress as to the purpose of government, the choices are horrible; an inflationary collapse or a deflationary one. The form and timing of the collapse is yet to be determined; the event itself is certain. This crisis will come, as others have, because we refuse to face up to reality and live within our means."
Gold versus Paper, Dr. Ron Paul, July 1, 1980
"Milton Friedman claims that paper money will work, if government is just told to limit the monetary expansion to a fixed rate of 4 to 5 percent a year. This indicates little understanding about human nature. Even if we had such a law on the books, we would not be able to restrain the politicians from abusing this prerogative and arbitrarily increasing the number of dollars in circulation. Power is corrupting. Do not tempt anyone with a purchasing medium made of something artificial, without intrinsic value, and ask that a limited supply be allowed. It just will not work. If we found perfection in elected officials, possibly Friedman's monetary ideas would have merit; but, believe me, there is such a scarcity of even the 'good guys' in Washington, let alone any that are considered perfect, that it precludes any such dream."1979
Debasement, Dr. Ron Paul, December 12 1979
"To debase the currency is to inflate it. To inflate the currency is to distend, swell, and expand the money supply, and thereby destroy its value. To destroy the currency is to undermine and attack freedom. Without a sound and honest money, a free society cannot long exist."The Chrysler Bailout, Dr. Ron Paul, November 21 1979
"Do we in Congress have the authority, either moral or constitutional, to cause this suffering? I can find no provision in the Constitution authorizing Congress to make loans or loan guarantees to anyone, let alone to major corporations. Nor have I yet seen a valid moral argument concluding that we, as representatives of all the people, have the right to tax the American people – most of whom receive less in wages and benefits than Chrysler workers – to support a multibillion-dollar corporation. What right have we – and I pose a serious question that deserves an answer – what right have we to force the American taxpayers to risk their money in a business venture which private investors dealing in their own funds have judged to be too risky?"Inflation is Caused by Government, Dr. Ron Paul, November 16 1979
"Last year there were 200,000 bankruptcies in this country, according to U.S. News & World Report. Yet we have selected only the largest for our aid. This is discrimination of the crassest sort. We ignore the smaller victims of this government’s policies simply because they are small. Only the largest, those with the most clout, the most pull, get our attention. This aristocracy of pull is morally indefensible. What answer can be given to the small businessman driven into bankruptcy by government regulations when he asks: "You bailed out Chrysler, why not me?" No justification can be given for this discrimination between the powerful and the powerless, the big and the small.
It is an axiom of our legal system that all citizens are to enjoy the equal protection of the laws. That axiom is violated daily by our tax laws, and now by this proposed corporate welfare plan for Chrysler. Apparently some citizens are more equal than others. That is a notion I reject, and I hope you do, too. I urge you to reject this proposal for all the reasons I have stated."
"Since the federal government uses inflation -- the creation of new money -- to pay its bills, we can look on it as a tax, a tax we all pay in higher prices. But inflation is an exceedingly unfair and regressive tax. Not all sectors of the economy suffer equally. In fact, some benefit, since inflation results in a transfer of wealth from savers and workers to speculators, bureaucrats, and the special interests favored by government. Inflation also breeds mistrust. Its economic effects are so destructive, because it leads -- as it has in our country -- to rising prices and unemployment. It misdirects the economy and prevents accurate assessment of future business conditions, thus contributing to bankruptcies of cities and corporations, like New York City, Cleveland, and Chrysler.
At first, inflation does 'stimulate' the economy, in the same way a dose of heroin stimulates a drug addict. It feels great for a while, but there is a price to be paid. Eventually, the economic conditions created by inflation lead to social discontent and anger, as classes, races, and regions are set against one another. Everybody grows irritable and uncertain about the future, as they find it harder and harder to make ends meet. Plans become difficult to make, and everyone directs his efforts toward day-to-day survival, rather than the long-term efforts that build an economy and a society."
"Inflation is theft. People who worked hard and saved, the retired, and others on fixed incomes, are robbed, just as surely as if an armed criminal mugged them on the street. The very people who should be rewarded for their effort in caring for themselves are the ones hurt the most."
"The Founding Fathers, after their experience with inflation during the Revolution, said that real money was gold and silver. A dollar was about 1/20th of an ounce of gold. But we have had so much inflation that today's dollar -- which is only a piece of paper backed by nothing -- is worth less than 1/400th of an ounce of gold. To end inflation, we need to stop deficit spending and have a dollar that is tied to a specific commodity, like gold or silver ... Let us pull the plug on the printing presses, stop the destruction of our money and our country through inflation, and encourage the healthy economic growth we need."