Return to the 1998 Congressional Record directory

Project FREEDOM Opening Page

CONGRESSIONAL RECORD: Oct. 16, 1998
PAGE E2216

[pE2216]

MONETARY POLICY

------------

HON. RON PAUL

OF TEXAS

IN THE HOUSE OF REPRESENTATIVES

Friday, October 16, 1998

    Mr. PAUL. Mr. Speaker, a world-wide financial crisis is now upon us.

    For 2 years, I have called attention to this predictable event hoping the Congress would deal with it in a serious manner.

    Although many countries are now suffering more than the United States, in time, I am sure our problems will become much greater

    A world-wide system of fiat money is the root of the crisis. The post-World War II Bretton Woods gold-exchange system was seriously flawed, and free market economists from the start predicted its demise. Twenty-seven years later, on August 15, 1971, it ended with a bang ushering in its turbulent and commodity-driven inflation of the 1970's.

    Now, after another 27 years, we are seeing the end of the post-Bretton Woods floating rate system with another bang as the financial asset inflation of the 1980's and 1990's collapses. A new system is now required.

    Just as the Bretton Woods system was never repaired due to its flaws, so too will it be impossible to rebuild the floating rate system of the past 27 years. The sooner we admit to its total failure, and start planning for sound money, the better.

    We must understand the serious flaw in the current system that is playing havoc with world markets. When license is given to central banks to inflate (debase) a currency, they eventually do so. Politicians love the central bank's role as lender of last resort and their power to monetize the steady stream of public debt generated by the largesse that guarantees the politician's reelection.

    The constitutional or credit restraint of a commodity standard of money offers stability and non-inflationary growth but does not accommodate the special interests that demand benefits bigger and faster than normal markets permit. The only problem is the financial havoc that results when the unsound system is forced into a major correction which are inherent to all fiat systems.

    That is what we are witnessing today. The world-wide fragile financial system is now collapsing and tragically the only cry is for more credit inflation because the cause of our dilemma is not understood. Attempts at credit stimulation with interest rates below 1 percent is doing nothing for Japan's economy and for good reasons. it is the wrong treatment for the wrong diagnosis.

    If the problem were merely that there were not enough money, then money creation alone could make us all millionaires and no one would have to work. But increasing the money supply does not increase wealth. Only work and savings do that. The deception comes because, for a while for the luck few, benefits are received when government inflate the currency and pass it out for political reasons.

    But in time-and that time is now-it comes to an end. Even the beneficiaries suffer the inevitable consequences of a philosophy that teaches wealth comes from money creation and that central banks are acceptable central economic planners-even in countries such as the United States where many pay lip service to free markets and free trade.

    The tragedy in the end is far more damaging to the innocent than any benefit that was supposed to be delivered to the people as a whole. There is no justifiable trade-off. The costs far exceed the benefits. In addition, the economic chaos leads too frequently to a loss of personal liberty.

    A program to prevent this from happening is necessary.

    First, the Federal Reserve should be denied the power to fix interest rates and buy government debt. It should not be central economic planner through manipulation of money and credit.

    Second, Congress should legalize the Constitutional principle that gold and silver be legal tender by prohibiting sales and capital gains taxes from being placed on all American legal tender coins.

    Third, we must abandon the tradition of bailing out bad debtors, foreign and domestic. No International Monetary Fund and related institution funding to prop up bankrupt countries, and no Federal Reserve-orchestrated bailouts such as Long Term Capital Management LP. Liquidation of bad debt and investments must be permitted.

    Fourth, policy elsewhere must conform to free markets and free trade. Taxes, as well as government spending, should be lowered. Regulations should be greatly reduced, and all voluntary economic transactions in hiring practices should be permitted. No control on wages and prices should be imposed.

    Following a policy of this sort could quickly restore growth and stability to any filing economy and soften the blow for all those about to experience the connections that have been put in place by previous years of mischief, mismanagement and monetary inflation.

    Short of a free market, sound money approach will guarantee a sustained attack on personal liberty as governments grow more authoritarian and militaristic.

[pE2217]