HON. RON PAUL
OF TEXAS
IN THE HOUSE OF REPRESENTATIVES
Wednesday, January 20, 2010
2010 Ron Paul 3:1
Mr. PAUL.
Madam Speaker, as we start the
new year 2010, the establishment politicians,
economists and Wall Street are trying to convince
themselves that we have turned the corner
and economic growth has once again
begun. The predictions that conditions are getting
back to normal come from those who
never saw the crisis coming and don’t have
the vaguest notion what caused it. Some of
them concede that it could be a jobless recovery.
That will establish a new definition for a
recovery.
2010 Ron Paul 3:2
Official unemployment is at 10 percent but
even the government knows that if everyone is
counted, including those individuals that are
too discouraged to even be looking for work,
the unemployment rate is 17 percent. Free-
market economists claim the actual unemployment
rate is closer to 22 percent.
2010 Ron Paul 3:3
There’s reason to believe that the correction
is just barely started and has a long way to
run. If the financial bubble came from excess
credit created by the Federal Reserve, doubling
the money supply can hardly be a solution.
It wouldn’t make much sense for a doctor
taking care of a very sick patient from severe
infection to deliberately give the patient another
infection. Yet that’s what the PhD doctors
are doing to our very sick economy. It
can’t work. It will make the economy much
sicker. If our leaders don’t wake up soon, the
economy will be brought to its knees. Great
danger lies ahead.
2010 Ron Paul 3:4
In foreign policy, it’s always crucial that the
motives of those who would do us harm are
understood. Denial of the truth and accepting
more politically palatable excuses will guarantee
that threats to our safety will continue
as we pursue a seriously flawed involvement
overseas.
2010 Ron Paul 3:5
It’s the same in economic policy. If there’s
denial or ignorance of the real cause of financial
bubbles and the inevitable corrections that
must follow, the economy cannot be reenergized.
2010 Ron Paul 3:6
We should have learned the lesson from the
Depression of the 1930s that it was a predictable
result from the Federal Reserves orchestrated
excesses of the 1920s. Instead, the
new-born Keynesian economists who took
charge made certain that the correction would
not be a one or two year affair as were the
previous corrections in our history. The aggressive
intervention by Hoover and Roosevelt,
the Republicans and the Democrats,
turned a short recession into the Great Depression,
which lasted until the end of World
War II.
2010 Ron Paul 3:7
The real tragedy was that the interpretation
of the 1930s institutionalized bad economic
theories. Unfortunately, and erroneously, the
Depression was blamed on the gold standard,
free markets and a lack of regulations. Though
monetary policy was analyzed, its importance
was 100 percent misinterpreted. The low interest
rates and excess credit of the 1920s, driven
by Federal Reserve policy, was not considered
a factor in producing the stock market
bubble and the mal-investment.
2010 Ron Paul 3:8
Instead, the 1930s analysts and even later
analysis by Milton Freidman and the
monetarists, along with academic “scholars”
like Bernanke, came to an opposite conclusion:
the Fed was at fault but only because it
was too tight, arguing that massive monetary
inflation was the only answer to the slumping
economy.
2010 Ron Paul 3:9
And now we are witnessing a grand experiment
by the very person who for years
claimed special knowledge regarding the Depression.
Chairman Bernanke is in the midst
of trying to solve the problem of massive monetary
inflation and excessively low interest
rates instituted by his predecessor, Alan
Greenspan, by implementing even more inflation
at historic rates. The sad part is the answer
to his very risky experiment with the
wealth of our country and the health of our
economy will take years to analyze. The conclusions
will be just as flawed as they were in
the aftermath of the Great Depression by an
intellectual and political community that had
totally rejected commodity money and the
principle of free market with the current understanding
in Washington.
2010 Ron Paul 3:10
One hope, though, is that free-market thinking
and Austrian economic theories will have
greater influence in the next decade or two,
since their influence is now on a dramatic upswing.
But there are a lot of hurdles to overcome.
2010 Ron Paul 3:11
In the 1930s, in an effort to find the true
cause of the crisis, Congress ordered an official
investigation. It became known as the
“Pecora Investigation” named after Ferdinand
Pecora, the aggressive chief council of the
hearings. It received a lot of public attention
and brought about many major changes but,
tragically, every conclusion made and new
policies implemented caused the depression
to worsen and legitimized bad economic theories
that continue to haunt us to this day.
2010 Ron Paul 3:12
The Federal Reserve was not blamed except
for not printing enough money fast
enough. Artificially low interest rates and mal-
investment, the main source of the grossly distorted
economy and bubble of the 1920s were
exonerated. Not enough regulations were
blamed, thus the Glass-Stiegall Act and the
Securities Act of 1933 were passed and deepened
the depression. Separating commercial
and investment banking and the newly created
SEC were to have solved all future problems
—as long as the Fed was free from any
restraint in its money creation operation to
serve big-government spenders and members
of the banking cartel.
2010 Ron Paul 3:13
Since the flaws in the monetary and economic
system were not corrected but made
worse after the Depression, it was to be expected
that periodic booms and busts would
persist. The longer these cycles could be papered
over with new money and credit, the
greater would be the distortions and debt that
would one day have to undergo a major correction.
2010 Ron Paul 3:14
That correction is now in its early stages.
Since the dollar was the reserve currency of
the world and totally fiat since 1971, without
any linkage to gold, the financial bubble became
worldwide. This bubble that burst in
2008 was the largest in history. During the formation
of the bubble, the U.S. as the issuer of
the world currency received undeserved benefits.
We essentially became the counterfeiter
of the world and no one called us on it. Even
today, the trust in the dollar that persists has
buffeted the pain of the correction for us. This
unique setup was a prime cause for our balance
of payment deficits and the huge foreign
debt we owe—the largest in the history of the
world. The discord in the world financial system
is telling us that it’s time for us to pay for
our profligate spending and massive foreign
indebtedness. We have lived, as a nation, far
beyond our means and the message is, for
the foreseeable future, that we will be forced
to live beneath our means as this debt is paid.
2010 Ron Paul 3:15
The inflation optimists are excited about current
signs of economic growth and have even
announced the end of the recession. It is conceivable
that a reprieve can be achieved and
the penalty that our economy must endure delayed.
A reprieve must not be confused with a
pardon; one is a temporary delay, the other an
exemption. The payback for our excesses is
certain to come.
2010 Ron Paul 3:16
Massively increasing debt and monetary inflation
can slow the crash and change some
government statistics encouraging the optimists.
But real job growth and return of prosperity
will remain elusive. The odds of us once
again becoming an exporter of manufactured
goods, like steel, cars, and textiles, are remote.
2010 Ron Paul 3:17
Ironically, a reprieve may well restore some
confidence and motivate some spending and
investment. But instead of restoring long-term
growth, it may well act perversely by precipitating
price inflation and higher interest rates.
Since today’s interest rates are artificially set,
much of our investing is unproductively misdirected.
2010 Ron Paul 3:18
Current enthusiasm in the stock market is
once again a reflection of the message that
low interest rates send. Thus too, the government’s
stimulus package has helped to sustain
the bond bubble, which in time must be deflated
in order to get back to sound economic
growth. All of this activity poses a threat to the
dollar.
2010 Ron Paul 3:19
Governments are very powerful, and when
in partnership with the monetary authorities
that can inflate the currency at will, big government
thrives. Welfare demands and senseless
wars can be financed for long period of
time through inflation, as long as trust in the
currency lasts. Trust, though ultimately controlled
by facts, can be misleading, since currency
values can gain benefit from a country
that has a strong military and wealth and a
reasonably healthy economy. Eventually, markets
and reality overwhelm, and illusions about
a currency’s worth become a reality.
2010 Ron Paul 3:20
Today, reality is setting in and the first of
three major events has begun. The worldwide
financial system, built on a foundation of
paper, has received the shock waves of an
impending collapse.
2010 Ron Paul 3:21
The wild speculation and the derivatives
market, the stock market bubble, the insurmountable
debt—public and private—and the
massive mal-investments have been shattered.
2010 Ron Paul 3:22
The only solution so far offered worldwide,
but led by the United States has been to “print
money” faster, keep interest rates low at practically
zero percent, and remove all stops for
controlling deficits. These are the very policies
that caused the disequilibrium, and doing
more of the same, but only faster, can hardly
help our economy. The addiction to easy credit
and deficit defies a wise political solution.
Politicians are incapable of delivering the message
of frugality, common sense, and sound
money.
2010 Ron Paul 3:23
We can expect that the course we are on to
continue and accelerate, since the first event,
the collapse of the financial system, is still in
its early stage.
2010 Ron Paul 3:24
The housing crisis is far from over; the commercial
property crisis has not yet gotten
much attention, and the financial obligations of
the government are growing exponentially.
And none of this forces the slightest pause in
the expanding of welfare growth. The number
of regulations, which are indeed a tax, are exploding
though the market was already suffering
from regulatory excesses. There’s a
consensus in Washington that “wise” regulations
can compensate for all the mistakes
made by the Federal Reserve, the Executive
Branch, and Congress. This fallacy has been
around a long time and will be difficult to overcome.
2010 Ron Paul 3:25
The pessimism of the middle class continues
to get worse despite the prognostication
of Wall Street and the Administration. Most
Americans know that the standard of living
and real wages have not gone up for the past
10 years. If you’re not a shrewd stock trader
and instead invested in stocks 10 years ago
and held on, in real terms you would have lost
20 percent of your savings. The middle class
is poorer also because house prices have
crashed and many have lost their homes. On
top of this, all we hear about is the trillions of
dollars of debt and entitlement obligations that
have been racked up for future taxpayers to
pay. When it is revealed that the insider
friends of the Fed and Congress get billions of
dollars in bailout at the expense of the middle
class, it’s no wonder the people are taking to
the streets and directing their hostilities toward
both Republicans and Democrats in Washington.
Many would agree it’s well-earned
anger and properly directed.
2010 Ron Paul 3:26
This anger and frustration will certainly grow
as the consequences of the collapse of the financial
system become more severe. The
concerted effort to prevent the correction the
market demands, guarantees a prolonged agonizing
crisis. Every effort to reverse the tide
will depend on spending, higher deficits, increased
taxes and money creation. This effort
is now providing another grand bubble: the
dollar/bond bubble.
2010 Ron Paul 3:27
The next event will be a dollar crisis. A full-
blown dollar crisis will be worse than our current
financial crisis. The extent of a dollar crisis
depends on whether or not the Washington
politicians wake up and change their ways—a
dubious hope.
2010 Ron Paul 3:28
More likely, the insanity will continue until
some not yet known event will undermine the
confidence of the dollar worldwide. Signs of
less desire by foreigners to hold our dollars
are already present. I’m certain our Treasury
and Federal Reserve are pulling out all stops
to prevent a massive run on the dollar. At
present the “orderly” retreat from the dollar is
working. But it won’t last.
2010 Ron Paul 3:29
China is quite active in investing in national
resources around the world, and including in
Iran. While we live in the dark ages and believe
only our military presence and military
threats can protect our access to oil, China is
actually spending some of their savings investing
in their future access to energy and other
precious metals and minerals.
2010 Ron Paul 3:30
But the orderly retreat from the dollar won’t
last forever. Since 1973, shortly after the
breakdown of the Bretton Woods Agreement,
the dollar has lost 32 percent of its value
against a Federal Reserve basket of currencies.
But that doesn’t tell the real story,
since that is a measurement against all other
currencies, and they are fiat currencies as
well. This gave the dollar an artificial benefit
from its position of power in great wealth and
military prowess. The dollar in relationship to
gold, however, is down 97 percent since 1971,
and 82 percent as measured by the CPI. The
dollar, mismanaged by the Fed, has not been
a benefit to the savers who sought to responsibly
take care of themselves. They’ve been
cheated by a rotten system and are just beginning
to understand exactly how the Federal
Reserve has been responsible for the swindle.
2010 Ron Paul 3:31
It is impossible to predict the time when
confidence will be lost, but it can come quickly.
Resorting to buying other paper currencies
will not be of much help. When the dollar
crashes, most likely the purchasing power of
all currencies—since all countries hold dollars
as a reserve—will go down as well.
2010 Ron Paul 3:32
This means that dollars and other currencies
will go into buying consumer items,
precious metals and other physical properties.
Consumer prices will soar, as well as interest
rates. The central bank will lose control; and
the more they inflate, the worse the confidence
becomes. The interest rates will respond
to these efforts by rising sharply.
2010 Ron Paul 3:33
If the Fed tries to reverse the run on the
dollar, interest rates will also soar, and the
pain on the American citizens will be of such
proportion that political chaos will result. Either
scenario leads to political and social chaos—
the third event, and the most dangerous.
2010 Ron Paul 3:34
With no ability of the federal government to
fund its commitments, international or domestic,
major changes will occur in our system.
The social unrest will elicit cries for government
to exert unusual force to head off a complete
breakdown of law and order. The ultimate
trap will be set for a system of government
claiming to protect a free society. If more
power and police authority are not given to the
federal government, it will be argued that only
anarchy will result. If more government policing
power is given, it will mean a lethal threat
to civil liberties. Already we have permitted the
notion that a single person, the Attorney General
or President, can decide who is an
“enemy combatant”, thus denying that individual
the right to habeas corpus, permitting
indefinite detentions without charges made.
This attitude toward civil liberties has changed
significantly since the fear built around 9/11.
2010 Ron Paul 3:35
Yes, I know declaring one an “enemy combatant”
is reserved for the radical Muslims engaged
in terrorism against the United States.
To be reassured by this reasoning is quite
dangerous and naive. Logic should not lead
us to equate suspects with terrorists, and include
American citizens, and yet this has already
been set by precedent. Under difficult
circumstances, our political leaders will not be
hesitant to use these powers to maintain
order. Tragically, the people may even demand
it.
2010 Ron Paul 3:36
We are rapidly moving toward a dangerous
time in our history. Society as we know it is
vulnerable to political and social chaos.
2010 Ron Paul 3:37
This impending crisis comes as a consequence
of our flawed foreign and domestic
economic policies, a silly notion about money,
ignorance about Central Banking, ignoring the
onerous power and mischief of our out-of-control
intelligence agencies, our unsustainable
welfare state, and a willingness to sacrifice privacy
and civil liberties in an attempt to achieve
safety and security from an inept government.
Dangerous times indeed!
2010 Ron Paul 3:38
What can be done about it? Must we wait
for the inevitable and expect to restore our liberties
in a street fight against the overwhelming
power of the state? Not a good option!
2010 Ron Paul 3:39
The only way that we can prevent blood
from running in the streets is to offer a better
idea of the proper role of government in a society
that desires first and foremost—liberty.
2010 Ron Paul 3:40
And that is impossible without a firm commitment
by our thought leaders to the ideas of
freedom, the source of all creative energy and
prosperity. An all-powerful state is the threat to
that ideal.
2010 Ron Paul 3:41
The prevailing attitude of the people—as it
once was in early America—must be that of
liberty and self reliance, rather than the nanny
state and dependency relying on government
force to mold all private choices.
2010 Ron Paul 3:42
If this is understood, a smooth—although
not painless—transition to a free society is
achievable. Ignoring this option will be very
destructive to everything that is dear to the
hearts of most Americans.
2010 Ron Paul 3:43
What is it that we must do? We must immediately
embark on:
2010 Ron Paul 3:46
A full audit and more supervision of the
Federal Reserve leading to abolishing the
Federal Reserve;
2010 Ron Paul 3:47
Legalize competition to the Federal Reserve
with competing currencies;
2010 Ron Paul 3:48
Regain respect for civil liberties and privacy
while reigning in the CIA;
2010 Ron Paul 3:49
Wean ourselves off the dependence of
wealth transfers by government;
2010 Ron Paul 3:50
Abolish crony capitalism—no subsidies, no
bailouts, no regulatory or tax privileges to protect
the powerful elite especially the military industrial
complex; and
2010 Ron Paul 3:51
Eliminate the income tax, inheritance tax
and taxes on savings and dividends.
2010 Ron Paul 3:52
None of this can happen without the restoration
of Congress to its dominant position of
the three Branches of Government as was
originally intended by the Constitution. The Executive
and Judicial must be reined in, and
Congress must assert its prerogatives over all
legislation curtailing all unconstitutional
agendae through budgetary controls.
2010 Ron Paul 3:53
Signs abound that angry Americans are now
more ready than ever before for a change in
direction that is indeed real. If this program
were improvised—even suddenly and dramatically
—the adjustment, though significant and
to a degree somewhat painful, would be much
shorter and of minor consequence compared
to the chaos and poverty that will result if we
refuse to change our gluttonous appetite for a
free lunch.
