Your Rotten Monetary Policy Is Destroying This Country by Ron Paul Before the United States House of Representatives Committee on
Financial Services, Hearing on 'Monetary Policy and the State of the
Economy,' 2/29/2012 Mr. Chairman, thank you for holding this hearing on monetary policy
and the state of the economy. I believe that now, more than ever, the
American people want to hold the Federal Reserve accountable for its
loose monetary policy and want full transparency of the Fed's actions. While the Fed has certainly released an unprecedented amount of
information on its activities, there is still much that remains
unknown. And every move towards transparency has been fought against
tooth and nail by the Fed. It took disclosure requirements enacted
within the Dodd-Frank Act to get the Fed to provide data on the its
emergency lending facilities. It took lawsuits filed by Bloomberg and
Fox News to provide data on discount window lending during the worst
parts of the financial crisis. And it will take further concerted
action on the part of Congress, the media, and the public to keep up
pressure on the Fed to remain transparent.
Transparency is not a panacea, however, as a fully transparent
organization is still capable of engaging in all sorts of mischief, as
the Federal Reserve does on a regular basis. Ironically, one of the
Fed's more egregious recent actions, adopting an explicit inflation
target, was hailed by many as another wonderful example of
transparency. Yet if you think about what this supposed 2% inflation
target actually is, you realize that it is an explicit policy to
devalue the dollar and reduce its purchasing power. Two percent annual
price inflation means that prices rise 22% within a decade, and nearly
50% within two decades. Indeed, if you look at the performance of the consumer price index
(CPI) under Chairman Bernanke's tenure, prices have risen at a rate of
2.25% per year. Many, perhaps even most, economists would consider
this a modest rise, an example of sober, cautious monetary policy.
Some economists of Paul Krugman's persuasion might even argue that
this is too tight a monetary policy. However, 2.25% is not too far off
from the Fed's new 2% target.
Now look at the performance of the US economy since February 1, 2006,
the date Chairman Bernanke took the mantle from Alan Greenspan.
Trillions of dollars have been wasted on bailouts, stimulus packages,
and other feckless spending. Millions of Americans have lost their
jobs and have lost hope of ever regaining employment. The national
debt has risen to more than 100% of GDP, as the federal government
continues to rack up trillion-dollar deficits, aided and abetted by
the Fed's policies of quantitative easing and zero percent interest
rates. And we are supposed to believe that a 2% inflation rate,
similar to what has prevailed during the worst economic crisis since
the Great Depression, is the cure for what ails this economy. This explicit 2% target also fails to take into account that whatever
measure is used to determine price inflation, be it CPI, core CPI,
PCE, etc., will always be chosen with an eye towards underreporting
the true rate of inflation and price rises. Pressure will be exerted
on those calculating the price indices, so as not to alarm the public
when prices begin to accelerate. One need only look at what is taking
place in Argentina today, where the government publishes an official
CPI figure that is often less than half that reported by private
sources. A similar situation exists in this country, where economists
calculating CPI according to the original basket of goods have
determined that price inflation has increased 9.5% per year since
2006, rather than the 2.25% reported by the government. Even the
government's own data reports price rises of nearly 7% per year since
2006 on such consumer goods as gasoline and eggs. Bread, rice, and
ground beef have increased by nearly 6% per year, while bacon and
potatoes have increased nearly 5% per year. This means that in a
little over half a decade, prices on staple consumer goods have
increased 30-50%, all while wages have stagnated and millions of
Americans find themselves out of work and without a paycheck. Of
course, government officials claim that price increases do not affect
the average American because they can always buy hamburger instead of
steak, or have cereal instead of bacon. But the American people can
see how they are suffering because of the Federal Reserve. The
government’s claims that the official statistics show no reason to be
concerned about inflation is Marxist – as in Groucho, who famously
said: "Who are you going to believe, me or your own eyes?" The Federal Reserve continues to keep interest rates low in the hopes
of boosting lending and consumption. But keeping interest rates at
zero discourages saving, particularly as the rate of price inflation
continues to rise. Why stick money in a savings account earning 0.05%
if it is guaranteed to lose at least 2% of its value every year? And
this is a guarantee, as the Fed has promised a 2% rate of increase in
price inflation, while also guaranteeing a zero percent federal funds
rate through 2014. Retirees living on fixed incomes, dependent on
savings, or on interest income from investments will see their savings
drawn down as they are forced to consume principal. Young people, hard
hit by the recession and struggling to find jobs, will fail to see the
virtue of thrift. Saving or investing is an exercise in futility, as
parking money in the bank or in CDs will guarantee a loss, while
investing in stocks, bonds, or mutual funds will net at best paltry
gains, and at worst massive losses in this continuing weak economy. The longer the Federal Reserve keeps interest rates low and
discourages savings and investment, the more societal attitudes will
change from being future oriented to present oriented. The Federal
Reserve and its policies already served to stimulate and prioritize
consumption over saving, creating the largest debt bubble the world
has ever known. The extended zero interest rate policy only serves to
promote more consumption and debt now, eviscerating thrift and savings
– the true building blocks of prosperity. This present-oriented
mindset has become pervasive especially among politicians, putting the
government in dismal financial shape as Congressmen and Presidents
over the years have taken to heart Louis XV's famous saying: "Après
moi, le déluge." If the American people follow the same path in their
own lives, this country will be ruined. Capital will be depleted,
infrastructure will fall into disrepair, and the United States will be
a mere shadow of its former self. It is well past time to end the
failed monetary policy that encourages this mistaken preference for
cheap money now. March 1, 2012 Dr. Ron Paul is a Republican member of Congress from Texas. Original link at LewRockwell.com: http://lewrockwell.com/paul/paul794.html
Financial Services, Hearing on 'Monetary Policy and the State of the
Economy,' 2/29/2012 Mr. Chairman, thank you for holding this hearing on monetary policy
and the state of the economy. I believe that now, more than ever, the
American people want to hold the Federal Reserve accountable for its
loose monetary policy and want full transparency of the Fed's actions. While the Fed has certainly released an unprecedented amount of
information on its activities, there is still much that remains
unknown. And every move towards transparency has been fought against
tooth and nail by the Fed. It took disclosure requirements enacted
within the Dodd-Frank Act to get the Fed to provide data on the its
emergency lending facilities. It took lawsuits filed by Bloomberg and
Fox News to provide data on discount window lending during the worst
parts of the financial crisis. And it will take further concerted
action on the part of Congress, the media, and the public to keep up
pressure on the Fed to remain transparent.
Transparency is not a panacea, however, as a fully transparent
organization is still capable of engaging in all sorts of mischief, as
the Federal Reserve does on a regular basis. Ironically, one of the
Fed's more egregious recent actions, adopting an explicit inflation
target, was hailed by many as another wonderful example of
transparency. Yet if you think about what this supposed 2% inflation
target actually is, you realize that it is an explicit policy to
devalue the dollar and reduce its purchasing power. Two percent annual
price inflation means that prices rise 22% within a decade, and nearly
50% within two decades. Indeed, if you look at the performance of the consumer price index
(CPI) under Chairman Bernanke's tenure, prices have risen at a rate of
2.25% per year. Many, perhaps even most, economists would consider
this a modest rise, an example of sober, cautious monetary policy.
Some economists of Paul Krugman's persuasion might even argue that
this is too tight a monetary policy. However, 2.25% is not too far off
from the Fed's new 2% target.
Now look at the performance of the US economy since February 1, 2006,
the date Chairman Bernanke took the mantle from Alan Greenspan.
Trillions of dollars have been wasted on bailouts, stimulus packages,
and other feckless spending. Millions of Americans have lost their
jobs and have lost hope of ever regaining employment. The national
debt has risen to more than 100% of GDP, as the federal government
continues to rack up trillion-dollar deficits, aided and abetted by
the Fed's policies of quantitative easing and zero percent interest
rates. And we are supposed to believe that a 2% inflation rate,
similar to what has prevailed during the worst economic crisis since
the Great Depression, is the cure for what ails this economy. This explicit 2% target also fails to take into account that whatever
measure is used to determine price inflation, be it CPI, core CPI,
PCE, etc., will always be chosen with an eye towards underreporting
the true rate of inflation and price rises. Pressure will be exerted
on those calculating the price indices, so as not to alarm the public
when prices begin to accelerate. One need only look at what is taking
place in Argentina today, where the government publishes an official
CPI figure that is often less than half that reported by private
sources. A similar situation exists in this country, where economists
calculating CPI according to the original basket of goods have
determined that price inflation has increased 9.5% per year since
2006, rather than the 2.25% reported by the government. Even the
government's own data reports price rises of nearly 7% per year since
2006 on such consumer goods as gasoline and eggs. Bread, rice, and
ground beef have increased by nearly 6% per year, while bacon and
potatoes have increased nearly 5% per year. This means that in a
little over half a decade, prices on staple consumer goods have
increased 30-50%, all while wages have stagnated and millions of
Americans find themselves out of work and without a paycheck. Of
course, government officials claim that price increases do not affect
the average American because they can always buy hamburger instead of
steak, or have cereal instead of bacon. But the American people can
see how they are suffering because of the Federal Reserve. The
government’s claims that the official statistics show no reason to be
concerned about inflation is Marxist – as in Groucho, who famously
said: "Who are you going to believe, me or your own eyes?" The Federal Reserve continues to keep interest rates low in the hopes
of boosting lending and consumption. But keeping interest rates at
zero discourages saving, particularly as the rate of price inflation
continues to rise. Why stick money in a savings account earning 0.05%
if it is guaranteed to lose at least 2% of its value every year? And
this is a guarantee, as the Fed has promised a 2% rate of increase in
price inflation, while also guaranteeing a zero percent federal funds
rate through 2014. Retirees living on fixed incomes, dependent on
savings, or on interest income from investments will see their savings
drawn down as they are forced to consume principal. Young people, hard
hit by the recession and struggling to find jobs, will fail to see the
virtue of thrift. Saving or investing is an exercise in futility, as
parking money in the bank or in CDs will guarantee a loss, while
investing in stocks, bonds, or mutual funds will net at best paltry
gains, and at worst massive losses in this continuing weak economy. The longer the Federal Reserve keeps interest rates low and
discourages savings and investment, the more societal attitudes will
change from being future oriented to present oriented. The Federal
Reserve and its policies already served to stimulate and prioritize
consumption over saving, creating the largest debt bubble the world
has ever known. The extended zero interest rate policy only serves to
promote more consumption and debt now, eviscerating thrift and savings
– the true building blocks of prosperity. This present-oriented
mindset has become pervasive especially among politicians, putting the
government in dismal financial shape as Congressmen and Presidents
over the years have taken to heart Louis XV's famous saying: "Après
moi, le déluge." If the American people follow the same path in their
own lives, this country will be ruined. Capital will be depleted,
infrastructure will fall into disrepair, and the United States will be
a mere shadow of its former self. It is well past time to end the
failed monetary policy that encourages this mistaken preference for
cheap money now. March 1, 2012 Dr. Ron Paul is a Republican member of Congress from Texas. Original link at LewRockwell.com: http://lewrockwell.com/paul/paul794.html
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