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2008 Ron Paul Chapter 50
Financial
Services Committee
Full Committee Hearing on “Implications of a Weaker Dollar for Oil Prices and the U.S. Economy”
July 24, 2008
2008 Ron Paul 50:1
Mr. Chairman,
2008 Ron Paul 50:2
The root of
our
current economic malaise, the weak dollar, the high price of oil, and
the
collapse of the housing market, comes about because almost no one
understands
what inflation is.
Inflation is an
increase in the money supply, which occurs by various methods, the
printing of
currency, low reserve requirements, Federal Reserve open market
operations, etc.
2008 Ron Paul 50:3
In Germany
in the
1920s, South America in the 1980s, and Zimbabwe today, everyone
recognizes that
inflation was caused by the government running the printing presses
non-stop,
with the resulting exponential rise in prices being the necessary
result of
monetary growth.
Yet somehow, both
the empirical and theoretical reality of inflation as a rise in money
supply is
ignored in this country.
Inflation
is conflated with price inflation, the increase in the overall price
level, and
is viewed as something both endogenous to the market economy while at
the same
time influenced by exogenous price shocks.
2008 Ron Paul 50:4
Because no
one
understands that inflation is growth in the monetary supply, no one is
able to
combat it effectively.
We hear all
sorts of hand-wringing about increasing inflation, and all sorts of
explanations
about how rising oil and food prices will make inflation worse.
At the same time, the fact that MZM, the closest approximation
to total
money supply that still is reported by the Fed, is still rising by
almost 15%
per year and that M2 is rising significantly as well is quietly ignored.
The pundits have causation backwards, it is inflation that leads
to
rising prices of oil and food, and not vice versa.
2008 Ron Paul 50:5
Until the
cause of
inflation is understood, no effective strategy can be undertaken to
combat it.
The problem, however, is that the government does not want
inflation to
be done away with.
Inflation
benefits debtors and harms creditors, and the United States government
is the
biggest debtor of all.
The United
States government, the banking monopoly under the Federal Reserve
System, and
politically-connected firms and industries are the first entities to
take
advantage of new money injected into the system, before prices increase.
As the increased supply of money begins to chase the same number
of
goods, prices rise, and the average American suffers.
Poor and middle class Americans are always the hardest hit by
inflation,
as the weakening dollar makes the imported goods that many Americans
depend on
more expensive.
2008 Ron Paul 50:6
As Chairman
Bernanke
admitted last week, inflation is a tax, and it is the most pernicious
because of
its hidden nature.
It taxes the very
purchasing power of money, and because the inflation rate in recent
years has
generally been low, its effects often take a while to manifest
themselves.
Now that inflation is beginning to rise, more and more rhetoric
is being
spun to hide the government’s role in creating inflation.
I applaud Chairman Frank for holding this hearing, as hearings
such as
this one investigating the link between the weak dollar and the high
price of
oil are more important now than ever.
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