1998 Ron Paul 52:1
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 stock average is still down
60% from 1989, and the Japanese banking
system remains vulnerable to its debt burden,
a weakening domestic economy and a growing
Southeast Asian crisis spreading like a
wild fire. That which started in 1989 in
Japan — and possibly was hinted at even in the
1987 stock market “crash” — 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, and 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 all countries of the world are
now participating in, must by their very nature
lead to an economic slump.
1998 Ron Paul 52:3
The crisis in Indonesia is the predictable
consequence of decades of monetary inflation. Timing, severity, and duration of the 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 influences 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 52:4
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 52:5
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. It’s duration likewise is not scientifically ascertainable. A correction can be either deflationary or inflationary
or have characteristics of both.
1998 Ron Paul 52:7
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 52:8
Blame is misplaced. Rarely is the Central
Bank and paper money blamed — unless a currency
value goes to zero. In Indonesia the
most vulnerable scapegoat has been the Chinese
businessmen, now in threat of their lives
and fleeing the country.
1998 Ron Paul 52:9
A much more justifiable “scapegoat” is the
IMF and the American influence on the stringent
reforms demanded in order to receive the
$43 billion IMF bailout. IMF policy on 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 52:10
“Crony capitalism” was not the cause of Indonesia’s
trouble. Inflationism and political corruption
allows 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 52:11
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 blood in the streets of
Jakarta — soon to 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
it.
1998 Ron Paul 52:12
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 results 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 U.S. 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, but it 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 prevails in Indonesia?
1998 Ron Paul 52:14
The U.S. 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 do
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. Proper authority or not put aside, the Indonesian
people perceive even a few U.S. military
advisors as a further threat to them. The
U.S. is seen as an extension of the IMF and
is expected to more likely side with the Indonesian
military than with the demonstrators. No government likes to see any dissolution of
government power even the questionable
ones. It might encourage others unhappy with
their own government. And it is not like 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 52:15
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, and establishing 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, that won’t work,
is the worst policy of all for us to pursue.
1998 Ron Paul 52:16
The Indonesian government had one idea
worth considering under these very difficult circumstances.
1998 Ron Paul 52:17
They wanted to replace their
central bank with a currency board. It’s not the
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 Greenspan and company. A currency board would allow a close linkage
of the rupiah to the dollar, 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 is that the Indonesian currency and
economy would be dependent on dollar stability
which is far from guaranteed.
In the approximately 8 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 who 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.
1998 Ron Paul 52:19
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 Southeast
Asian crisis.
1998 Ron Paul 52:20
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 the same 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 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 deliberately
destroy it, 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 52:22
As the Asian crisis spreads, I would expect
Europe to feel the crunch next. Unemployment
is already at a 12% level 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 weapons. 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 to talk about 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 52:23
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 Fed
from manufacturing money and credit out of
thin air for the benefit of politicians, corporations
and bankers who directly benefit.
Notes:
1998 Ron Paul Chapter 52
Despite the wording at the beginning, none of this speech was
delivered in the House of Representatives. At 23:17:37 local time, the Speaker pro tempore called on Mr. PAUL but got no response.
This speech is very similar to 1998 Ron Paul Chapter 54.
1998 Ron Paul 52:6 It’s duration probably should be Its duration (without an apostrophe).
1998 Ron Paul 52:9 IMF policy on aggravates probably should be, IMF policy only aggravates
1998 Ron Paul 52:11 marshal law probably should be martial law.
1998 Ron Paul 52:13 If anything, conditions have worsened the Indonesians deeply resent the austere conditions demanded by the IMF.
probably should be two sentences, If anything, conditions have worsened. The Indonesians deeply resent the austere conditions demanded by the IMF.
Cf. 1998 Ron Paul 54:13.
1998 Ron Paul 52:13 The political and economic future, just a few months ago looking rosy, but it is now bleak beyond all description. is defective.
Perhaps it should have been The political and economic future, just a few months ago was looking rosy, but it is now bleak beyond all description.
1998 Ron Paul 52:15 For Congress, the most important thing is to forget the
notion that further taxing American workers to finance a
bail-out, that wonít work, is the worst policy of all for
us to pursue. The literal meaning of this sentence is contrary
to Ron Paul’s teachings. Perhaps he meant what he actually said in
1998 Ron Paul 54:15, namely,
For Congress, the most important thing is to forget the
notion that further taxing American workers to finance a
bail-out will work. It wonít work ó it is the worst
policy of all for us to pursue.
1998 Ron Paul 52:17 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 54:17.
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