HON. RON PAUL
OF TEXAS
IN THE HOUSE OF REPRESENTATIVES
Friday, May 22, 1998
1998 Ron Paul 54:1
Mr. PAUL.
Mr. Speaker, the Soviet system,
along with the Berlin Wall, came crashing
down in 1989, the same year the new,
never-to-end, era came to a screeching halt in
Japan. The Japanese economic miracle of the
1970’s and the 1980’s, with its “guaranteed”
safeguards, turned out to be a lot more vulnerable
than any investor wanted to believe. Today the Nikkei (Tokyo) stock average is still
down 57% from 1989, and the Japanese
banking system remains vulnerable to its debt
burden, a weakening domestic economy and a
growing East Asian crisis spreading like a wild
fire. That which started in 1989 in Japan — and
possibly was hinted at even in the 1987
stocke market “crash” here — is now sweeping
the Asian markets. The possibility of what is
happening in Asia spreading next to Europe,
and then to America, should not be summarily
dismissed.
Belief that an artificial boom, brought about
by Central Bank credit creation, can last forever
is equivalent to finding the philosopher’s
stone. Wealth cannot be created out of thin
air. New money and credit, although it can on
the short-term give an illusion of wealth creation,
is destructive of wealth on the long run. This is what we are witnessing in Indonesia —
the long run — and it’s a much more destructive
scenario than the currently collapsing financial
system in Japan. All monetary inflation,
something nearly all countries of the
world are now participating in, must by their
very nature lead to an economic slump.
1998 Ron Paul 54:3
The crisis in Indonesia is the predictable
consequence of decades of monetary inflation. Timing, severity, and duration of a correction,
is unpredictable. These depend on political
perceptions, realities, subsequent economic
policies, and the citizen’s subjective reaction
to the ongoing events. The issue of trust in the
future and concerns for personal liberties
greatly influence the outcome. Even a false
trust, or an ill-founded sense of security from
an authoritarian leader, can alter the immediate
consequences of the economic corrections,
but it cannot prevent the inevitable contraction
of wealth as is occurring slowly in the
more peaceful Japan and rapidly and violently
in Indonesia.
1998 Ron Paul 54:4
The illusion of prosperity created by inflation,
and artificially high currency values, encourage
over-expansion, excessive borrowing
and delusions that prosperity will last forever. This attitude was certainly present in Indonesia
prior to the onset of the economic crisis
in mid 1997. Even military spending by the Indonesian
government was enjoying hefty increases
during the 1990’s. All that has quickly
ended as the country now struggles for survival.
1998 Ron Paul 54:5
But what we cannot lose sight of is that the
Indonesia economic bubble was caused by a
flawed monetary policy which led to all the
other problems. Monetary inflation is the mother
of all “crony capitalism.”
One important characteristic of an economic
correction, after a period of inflation (credit expansion),
is its unpredictable nature because
subjective reactions of all individuals concerned
influence both political and economic
events. Therefore, it’s virtually impossible to
predict when and how the bubble will burst. Its
duration likewise is not scientifically ascertainable.
1998 Ron Paul 54:7
A correction can be either deflationary or inflationary
or have characteristics of both. Today, in Indonesia, the financial instruments
and real estate are deflating in price, while
consumer prices are escalating at the most
rapid rate in 30 years due to the depreciation
of the rupiah. Indonesia is in the early stages
of an inflationary depression — a not unheard
of result of sustained Central Bank inflationary
policy. Many believe price inflation only occurs
with rapid growth. This is not so.
1998 Ron Paul 54:8
Blame is misplace. Rarely is the Central
Bank and irredeemable paper money
blamed — unless a currency value goes toward
zero. In Indonesia the most vulnerable scapegoat
has been the Chinese businessmen who
are now in threat of their lives and fleeing the
country.
1998 Ron Paul 54:9
A much more justifiable “scapegoat” is the
International Monetary Fund (IMF) and the
American influence on the stringent reforms
demanded in order to receive the $43 billion
IMF-led bailout. IMF policy only aggravates
and prolongs the agony while helping the special
interest rich at the expense of the poor. The IMF involvement should not be a distraction
from the fundamental cause of the financial
problem, monetary inflation, even if it did
allow three decades of sustained growth.
1998 Ron Paul 54:10
“Crony capitalism” was not the cause of Indonesia’s
trouble. Inflationism and political corruption
allow crony capitalism to exist. It would
be better to call it economic interventionism for
the benefit of special interests — a mild form of
fascism — than to abuse the free market term
of capitalism.
1998 Ron Paul 54:11
Any serious economic crisis eventually generates
political turmoil, especially if political
dissent has been held in check by force for
any significant period of time. There should be
no surprise to see the discontent, with blood
in the streets of Jakarta, soon spread and
build. Political events serve to aggravate and
magnify the logical but subjectively-sensitive
declining currency values and the faltering
economy. The snowballing effect makes the
political crisis much more serious than the
economic crisis since it distracts from the
sound reforms that could restore economic
growth. These circumstances, instead of leading
to more freedom, invite marshal law for the
purpose of restoring stability and the dangers
that go with marshal law.
1998 Ron Paul 54:12
Errors in economic thinking prompt demands
from the masses for more government
programs to take care of the rapidly growing
number of poor. Demands for more socialism
and price controls result whether it’s in education,
medical care, unemployment benefits
or whatever — all programs that Indonesia cannot
afford even if they tried to appease the rioting
populous.
The IMF’s $43 billion bailout promise has
done nothing to quell the panic in the streets
of Jakarta. If anything, conditions have worsened. The Indonesians deeply resent the austere
conditions demanded by the IMF. Since
the United States is the biggest contributor to
the IMF and the world financial and military
cop, resentment toward the United States is
equal to that of the IMF. The Indonesian people
know they won’t be helped by the bailout. They already see their jobs disappearing and
prices soaring. The political and economic future,
just a few months ago looking rosy, is
now bleak beyond all description. Indonesians
know what the American taxpayers know: the
IMF bailout helps the rich lenders who for decades
made millions but now want their losses
covered by weak victims. Is there any wonder
resentment and rage prevail in Indonesia?
1998 Ron Paul 54:14
The United States has just sent a military
delegation to study and obviously advise the
Indonesian government regarding the law and
order crisis now in process. Our officials say
that we’re there to watch that the Indonesian
military does not abuse the rights of Indonesian
citizens. Even if true, and well motivated,
where did this authority come from for
us to run to the scene of the crime — on the
other side of the world — and pretend we have
all the answers? Putting aside the question of
whether there is proper authority or not, the
Indonesian people perceive even a few U.S. military advisors as a further threat to them.
1998 Ron Paul 54:15
The IMF is seen as an extension of the United
States and is expected to more likely side with
the Indonesian military that with the demonstrators. No government, even the questionable
ones, likes to see any dissolution of governmental
power. It might encourage others
unhappy with their own government. And it is
not as if the U.S. Government is innocent and
benign, considering our recent history at Kent
State, Waco, and Ruby Ridge and the hundreds
of no-knock entries made in error, causing
loss of life, multiple injuries and destruction
of property. Let us make sure our own government
acts responsibly in all matters of law and
order here at home before we pretend we can
save the world — a responsibility not achievable
even if motivated with the best of intentions.
1998 Ron Paul 54:16
Effort to prop up an ailing economy after the
financial bubble has been popped, prolongs
the agony and increases the severity of the
correction. Japan’s bubble burst in 1989, and
there is not yet any sign of the cleansing of
the system of bad debt and mal-investment
which is necessary before sound growth will
resume. And Indonesia is embarking on the
same predictable course. Restoration of free
markets, including the establishment of a
sound monetary policy, has not yet been considered. The people of Indonesia and the rest
of the world should prepare for the worst as
this crisis spreads. For Congress, the most important
thing is to forget the notion that further
taxing American workers to finance a bail-out
will work. It won’t work — it is the worst policy
of all for us to pursue.
1998 Ron Paul 54:17
The Indonesian Government had one idea
worth considering under these very difficult circumstances. They wanted to replace their
central bank with a currency board. It’s not as
good as gold standard, but it would have been
a wise choice under current conditions. But
the United States and the IMF insisted that in
order to qualify for IMF funding this idea had
to be rejected outright and the new central
bank for Indonesia had to be patterned after
the Federal Reserve with, I’m sure, ties to it
for directions from Federal Reserve Board
Governor Alan Greenspan and company. A
currency board would allow a close linkage of
the rupiah to the dollar, with its value controlled
by market forces, and would have prevented
domestic Indonesia monetary inflation
— the principle cause of the economic bubble
now collapsed. The shortcoming of a currency
board tied to the U.S. dollar is that the
Indonesian currency and economy would be
dependent on dollar stability which is far from
guaranteed.
In the approximately eight months since the
crisis hit Indonesia, there has been no serious
look at the underlying cause: monetary inflation
brought about by a central bank. Nor has
any serious thought gone into the internationalization
of credit as United States exports of
billions of dollars, and thus our own inflation,
to most nations of the world which hold these
dollars in reserve and use them to further inflate
their own currencies. Our huge negative
trade balance and foreign debt is not considered
by conventional wisdom to be relevant to
the Asian currency problems, yet undoubtedly
it is. True reform to deal with the growing
worldwide crisis can only be accomplished by
us first recognizing the underlying economic
errors that caused the current crisis.
The philosophy of the free market holds a
lot of answers — yet the difference between
free market capitalism and interventionist political
cronyism has not been considered by any
of the world banking and political leaders currently
addressing the exploding East Asian crisis.
1998 Ron Paul 54:19
Concern for personal liberty is not a subject
associated with the crisis and is an ongoing
casualty of past and current policy. A greater
concern for individual liberty will be required if
a positive outcome is to be expected from the
fall-out of the Indonesian crisis. Let’s hope we
can get our priorities straight. Congress has
an obligation not to worsen the crisis by
capitulating to more bail-outs and to remain
vigilant enough to keep the administration
from accomplishing a similar bail-out through
Executive Orders outside the law.
What should the message be to the Congress
and the American people regarding this
sudden and major change in the economic climate
in Indonesia? First and foremost is that
since we operate with a fiat currency, as do
almost all the countries of the world. We are
not immune from a sudden and serious economic
adjustment — at any time. Dollar
strength and our ability to spend dollars overseas,
without penalty, will not last forever. Confidence in the U.S. economy, and the dollar,
will one day be challenged. The severity of
the repercussion is not predictable but it could
be enormous. Our obligation, as Members of
Congress, is to protect the value of the dollar,
not to destroy it deliberately, in an attempt to
prop up investors, foreign governments or foreign
currencies. That policy will only lead to a
greater crisis for all Americans.
1998 Ron Paul 54:21
As the Asian crisis spreads, I would expect
Europe to feel the crunch next. Unemployment
is already at or approaching 12% in Germany
and France. The events can be made worse
and accelerated by outside events like a Middle
Eastern crisis or a war between India and
Pakistan both now rattling their nuclear sabers. Eventually though, our system of “crony
capitalism” and fiat money system will come
under attack. Our system of favoring industries
is different than the family-oriented favoritism
of Suharto, but none-the-less is built on a system
of corporate welfare that prompts constant
lobbying of Congress and the Administration
for each corporation’s special interests. We
have little room to talk as we preach austerity,
balanced budgets and sound money to the
current victims. Our day will come when we
will humble ourselves before world opinion as
our house of cards comes crashing down.
1998 Ron Paul 54:22
We will all know we are on the right track
when the people and our leaders are talking of
restoring liberty to all equally, and establishing
a sound money system that prevents the Federal
Reserve from manufacturing money and
credit out of thin air for the benefit of politicians,
corporations and bankers who directly
profit
Notes:
1998 Ron Paul Chapter 54
The text of this chapter was inserted in the Extensions of Remarks section of CongressionalRecord and was not spoken on the House floor. It is very similar to
1998 Ron Paul Chapter 52.
1998 Ron Paul 54:1 the 1987 stocke market “crash” probably should have been
the 1987 stock market “crash”.
1998 Ron Paul 54:8 Blame is misplace. probably
should have been Blame is misplaced.
1998 Ron Paul 54:11 subjectively-sensitive probably should have been subjectively sensitive (without a hyphen).
1998 Ron Paul 54:11 marshal law in both cases probably should have been martial law.
Cf. 1998 Ron Paul 52:11.
1998 Ron Paul 54:14 more likely side with the Indonesian
military that with the demonstrators. probably
should have been more likely side with the Indonesian military
than with the demonstrators. as rendered in
1998 Ron Paul 52:14.
1998 Ron Paul 54:17 Nor has any serious thought gone into the internationalization of
credit as United States exports of billions of dollars, and thus our
own inflation, to most nations of the world which hold these dollars
in reserve and use them to further inflate their own currencies.
Here, the of might not belong. Ron Paul does not discuss exports worth billions
of dollars, but rather, exports of the dollars themselves. The sentence is rendered the same way in
1998 Ron Paul 52:17.
1998 Ron Paul 55:22
There is no punctuation at the end, same as in CongressionalRecord.
