A growing number of Americans are becoming aware of the Federal Reserve System, what it is, how it has precipitated our financial crisis, and how it continues to pursue policies that delay economic recovery and weaken the dollar.
The Fed's actions, combined with the federal government's bailout bills and stimulus packages, have struck a nerve in the American people.
Recent polls have shown that more than 75 percent of Americans support efforts to audit the Fed, something which my bill, HR 1207, the Federal Reserve Transparency Act, aims to do. HR 1207 has the support of 304 members of Congress, and the Senate version of the bill, S. 604, is supported by 31 U.S. senators.
Fed Chairman Ben Bernanke has embarked on an ambitious program of monetary expansion, more than doubling the monetary base to almost $1.9 trillion and doubling the size of its balance sheet to over $2 trillion, placing the American economy in a precarious position.
If all this excess money begins to be loaned out, the Fed risks creating a hyperinflationary crisis similar to 1920s Germany. If the Fed contracts this money, it risks harming the banks it desperately wants to see bailed out.
It is imperative that the American people know what the Fed is up to, how much money it loans to banks and what types of agreements it enters into with foreign banks and governments. Just about all of this information is exempt from audit or oversight. The Fed's actions directly affect the value of the dollar, which is coming under increasing pressure from our foreign creditors. If we do not wish to see a complete collapse of the dollar, the Fed needs to be subject to a strict audit of its actions, if not an outright abolition of its charter.
While I would like nothing more than to see the Federal Reserve abolished, it is not absolutely necessary to do so with direct legislation.
The Fed's influence comes about because of its monopolization of the creation of money. If we could abolish the government monopoly on the creation of money, the Federal Reserve would be forced to clean up its act or go out of business. Economists know that monopolies lead to reduced output and higher prices, a suboptimal allocation of resources. This applies as well to the market for circulating currency as it does to markets for any other good.
In the previous Congress I introduced legislation that would eliminate the three major barriers to competition in currency and break the Fed's stranglehold on money.
The first barrier: Legal tender laws, which Congress does not have the Constitutional authority to enact. Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency.
Gresham's Law describes this phenomenon, which can be summed up in one phrase: Bad money drives out good money. In the absence of legal tender laws, Gresham's Law no longer holds. If people are free to reject debased currency, and instead demand sound money, sound money will gradually return to use in society.
The second barrier: laws that prohibit the operation of private mints. Certain sections of U.S. code classified as anti-counterfeiting statutes were in fact intended to shut down private mints that had been operating in California. There is no reason to ban private companies from minting gold and silver coins to compete with the dollar.
All currencies are based on trust, trust that the issuing authority will not debase the currency. If it becomes known that the issuer of a particular currency is minting underweight coins, people will stop accepting that currency and that company will go out of business. If someone else attempts to counterfeit that currency and pass those coins, there are sufficient counterfeiting laws on the books to prosecute those counterfeiters.
Merchants and individuals are free to choose which currencies they accept, and in the absence of legal tender laws I believe that alternative currencies will gain more traction.
Stores today can accept whatever currency they like. In Washington, DC a few years ago, some stores began accepting euros from international tourists. Harrod's in London accepts pounds, euros, and dollars. There is no legal requirement in the United States for a store to accept dollars for non-debt transactions.
If you walk into a 7-11 to buy a soda, the clerk doesn't have to accept your dollars, he could demand euros, silver, or copper. But because legal tender laws backing the dollar have caused the dollar to drive other currencies out of circulation, it is easier for stores to accept dollars.
However, most stores also accept credit cards, personal checks, and debit cards, none of which are legal tender. Some stores are moving to credit card-only transactions to minimize costs, which they are allowed to do.
Under a system of competing currencies, it would be to the advantage of stores to accept as many currencies as they could, in order to attract a wide range of customers. Stores that only accepted one currency would see their customer base shrink. The use of credit cards could simplify things just as it does today when Americans travel to Europe. They pay in euros with their credit card, and their card company bills in dollars. The market will find a solution to any problems that might arise.
The final barrier to competing currencies: Laws that assess capital gains and sales taxes on gold and silver coins. Under federal law, coins are considered collectibles, and are liable for capital gains taxes. These taxes actually tax monetary debasement. The purchasing power of gold may remain relatively constant, but as the nominal dollar value increases because of a weak dollar, the federal government considers this an increase in wealth and assesses taxes.
Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals. For individuals who may wish to use gold and silver in everyday transactions, this can quickly become a complicated and costly burden.
The long-term strength of the dollar will only be weakened by maintaining the Fed's monopoly on our monetary system. Our foreign creditors are already moving to dethrone the dollar as the world's currency.
The prospect of American citizens also turning away from the dollar toward alternate currencies should provide an impetus to the U.S. government to regain control of the dollar and halt its downward spiral. Restoring soundness to the dollar will remove the government's ability and incentive to inflate the currency, and provide stability to the financial system. With a sound currency, everyone is better off, not just those who control the monetary system.
Saturday
Thursday
WHAT I THINK......C.J. MALONEY
I don’t know what had me more surprised – a combination of 8.30 on a Saturday morning with a room full of college students all bright-eyed and bushy-tailed – or the fact that I, a relative nobody, had been invited to participate as a "featured speaker" for the event. "The event," in this case, was the second annual New York Students for Liberty Conference held this past October 10th at Columbia University, a joint production brought about by the trio of the school’s libertarian club, the Students for Liberty, and the Ivy League Alliance for Liberty.
The litany of speakers was an impressive one – if you excluded me. Yet there I sat with my wife and 125 or so others, sipping the first of my doctor’s recommended daily dose of ten cups of coffee and a few Red Bulls (caffeine: the trendy drug of choice to those responsible for a four-year-old). The only reason I was allowed to step behind a podium was due to the kind invitation of J.D. Fernandez, vice president of Columbia University’s Libertarian Club, probably since demoted to janitor.
While I am not enamored of the whole idea of college in general I do like hanging around libertarians – they’re a fun bunch. The libertarians grab the best from both major parties, casting aside the bloodthirsty war-lust of the Republicans and ignoring the prissy, self-righteous moralizing of the Democrats. While they might not be the party in power, they certainly throw the best parties, and that has to count for something.
It’s often quipped that a libertarian is a Republican who likes to smoke pot, and I was not surprised to hear "pot brownies" and "marijuana" 75 or so times before I’d reached my second cup. Granted, you’ll also hear the same at a Democratic or Republican gathering, too, but the participants at such soirées likely don’t cheer happily at the mention of the demon drug’s name.
Outside the conference room, among the booths pitching Reason magazine, Bastiat, and the Mises Institute was a table bearing calendars that featured attractive young women holding signs that urged us to end the war on drugs and to throw in the Fed for good measure. The calendars were helping announce the Ladies of Liberty Alliance, a female-oriented libertarian organization recently birthed by Allison Gibbs.
Ms. Gibbs once worked for the Department of Defense as a microbiologist (Department of Defense and microbiologist topping my list of "words you don’t like to see together") until one day she up and quit, right into the teeth of a deep economic depression, because she didn’t want a job funded by the taxpayer. I’d never before met anyone who had done such a thing and doubt I ever will again.
As one would imagine an Ivy League shindig is a well-appointed one, food and drink were provided. Maybe they followed Cartman’s advice on South Park, "you gotta serve punch and pie!" as last year’s regional conference attracted 15 people – for this year’s almost 200 signed on and 125 actually attended.
The anti-bailout and anti-war rallies I’ve attended only reach 125 people if you count the 100 cops ringed about all the chanting. It’s sad, the progressive strong point is now almost solely libertarian; the Democratic "left" having largely abandoned the field.
I went to NYU for grad school and not once during my entire time there had I even heard of Mises, and they certainly aren’t teaching him at Columbia. It made me wonder where all these kids had come from. My answer came soon enough as I listened to the first couple of speakers. I could hear the constant chirping of the Ron Paul movement’s official bird – the soft ticking of keyboards.
Everything was being twittered, blogged, and filmed, bringing me back a few years to my time hanging around Dr. Paul’s primary campaign. Going through the day, almost every kid I asked, "how’d you fall in with this bunch" had the same two words for an answer – Ron Paul. If you are wondering where Ron Paul nation disappeared to, they haven’t. They’re hanging about your college campus.
I sat in the back of the room in admiring silence; my brain slack-jawed surprised to be surrounded by youth who listened raptly to speakers on Hayek, Mises, and Rothbard, their heads nodded with approval as Reason magazine’s Damon Root condemned Jim Crow Mississippi as "lawless." They get it; they understand why Ron Paul’s ideas are so revolutionary and radical.
It was a long day, running from the one morning’s start to leaving the after bar the next morning, and at one point late in the proceedings a young woman stood up and announced "capitalism is cool." What she really meant to say is "freedom is cool" meaning freedom is fun, because it gives you a choice; and as Lenny Bruce always reminded us, that’s what it’s all about.
And it’s not only the freedom of speech and religion and the right to strap a surface to air missile across your truck’s rear windshield, that’s all just a part of it. Libertarianism is anything you want it to be, it includes the freedom to foolishly throw it all away as and if you please, rather than be forced to let some politically connected shit-head throw it away for you as he pleases. But above all, mostly, it’s the freedom to be left alone.
We were sitting outside the after bar, the younger set smoked cigarettes with their drinks; I led the orchestra’s cigar section. Off leaning against the side of the building a young attendee announced his conversion to libertarianism by vomiting most of the after midnight hours away. I looked up to a tired, pot-bellied man smoking a cigarette, he asked me sheepishly if I could move three feet closer to the street, to smoke a little further away from the building.
His name was James, I think, and he owned the bar. He launched into an unprovoked litany of complaints about all the "rules and regulations" he needed to constantly keep up on, lest the City Council send its agents to shut down the bar – the one that he’s just opened to fulfill a life-long dream. My smoking had caught his attention; he apologized, because they’d been repeatedly fining him for allowing his customers to smoke too close to the front of his bar.
More than anything it’s the relentless crusading of the tea-drinkers; the lily-white, ill-tempered agents of good, healthy clean living that drove me into the arms of libertarianism. It’s the libertarian concern for the workingman, a concern that does not manifest itself in the twisted, elitist urge to make him "better" so endemic to the mislabeled "progressives," but manifested instead in the simple, Christian act of leaving him alone. Libertarianism today is a rear guard action, fought to protect our weekends from the legions of moralistic, do-gooder assholes America produces in such abundance.
The same kind that put a pot-bellied, apologetic bar owner smack dab next to my outside table rather than tending to his business inside, because he’s forced to be there, forced to smoke outside his own goddamn bar because our city’s self-righteous midget of a mayor quit smoking – so now we all have to. When I think about that bar, all our city’s bars, in fact, Washington Irving’s take on the pub springs to mind. "That temple of true liberty, the inn" he called those of his time, and I lament how we’ve sunk so low.
We left early, as forty-year-olds always do. Everybody else stayed behind – for the younger set now, as always, the night was there to be lived through, a time to wring out every drop of dark until daylight sent you to a diner. I drove home; I always drive, and knew that back there the bar was dew cheeked and full of that bright-eyed hopeful earnestness that only the young can hold.
All these Ron Paul kids have yet to come to terms with the fact that they live in a thoroughly socialist world, and that strikes me as just fine. If there’s any chance we’re going to get out of this mess we’re in, we’d better pray they never do.
The litany of speakers was an impressive one – if you excluded me. Yet there I sat with my wife and 125 or so others, sipping the first of my doctor’s recommended daily dose of ten cups of coffee and a few Red Bulls (caffeine: the trendy drug of choice to those responsible for a four-year-old). The only reason I was allowed to step behind a podium was due to the kind invitation of J.D. Fernandez, vice president of Columbia University’s Libertarian Club, probably since demoted to janitor.
While I am not enamored of the whole idea of college in general I do like hanging around libertarians – they’re a fun bunch. The libertarians grab the best from both major parties, casting aside the bloodthirsty war-lust of the Republicans and ignoring the prissy, self-righteous moralizing of the Democrats. While they might not be the party in power, they certainly throw the best parties, and that has to count for something.
It’s often quipped that a libertarian is a Republican who likes to smoke pot, and I was not surprised to hear "pot brownies" and "marijuana" 75 or so times before I’d reached my second cup. Granted, you’ll also hear the same at a Democratic or Republican gathering, too, but the participants at such soirées likely don’t cheer happily at the mention of the demon drug’s name.
Outside the conference room, among the booths pitching Reason magazine, Bastiat, and the Mises Institute was a table bearing calendars that featured attractive young women holding signs that urged us to end the war on drugs and to throw in the Fed for good measure. The calendars were helping announce the Ladies of Liberty Alliance, a female-oriented libertarian organization recently birthed by Allison Gibbs.
Ms. Gibbs once worked for the Department of Defense as a microbiologist (Department of Defense and microbiologist topping my list of "words you don’t like to see together") until one day she up and quit, right into the teeth of a deep economic depression, because she didn’t want a job funded by the taxpayer. I’d never before met anyone who had done such a thing and doubt I ever will again.
As one would imagine an Ivy League shindig is a well-appointed one, food and drink were provided. Maybe they followed Cartman’s advice on South Park, "you gotta serve punch and pie!" as last year’s regional conference attracted 15 people – for this year’s almost 200 signed on and 125 actually attended.
The anti-bailout and anti-war rallies I’ve attended only reach 125 people if you count the 100 cops ringed about all the chanting. It’s sad, the progressive strong point is now almost solely libertarian; the Democratic "left" having largely abandoned the field.
I went to NYU for grad school and not once during my entire time there had I even heard of Mises, and they certainly aren’t teaching him at Columbia. It made me wonder where all these kids had come from. My answer came soon enough as I listened to the first couple of speakers. I could hear the constant chirping of the Ron Paul movement’s official bird – the soft ticking of keyboards.
Everything was being twittered, blogged, and filmed, bringing me back a few years to my time hanging around Dr. Paul’s primary campaign. Going through the day, almost every kid I asked, "how’d you fall in with this bunch" had the same two words for an answer – Ron Paul. If you are wondering where Ron Paul nation disappeared to, they haven’t. They’re hanging about your college campus.
I sat in the back of the room in admiring silence; my brain slack-jawed surprised to be surrounded by youth who listened raptly to speakers on Hayek, Mises, and Rothbard, their heads nodded with approval as Reason magazine’s Damon Root condemned Jim Crow Mississippi as "lawless." They get it; they understand why Ron Paul’s ideas are so revolutionary and radical.
It was a long day, running from the one morning’s start to leaving the after bar the next morning, and at one point late in the proceedings a young woman stood up and announced "capitalism is cool." What she really meant to say is "freedom is cool" meaning freedom is fun, because it gives you a choice; and as Lenny Bruce always reminded us, that’s what it’s all about.
And it’s not only the freedom of speech and religion and the right to strap a surface to air missile across your truck’s rear windshield, that’s all just a part of it. Libertarianism is anything you want it to be, it includes the freedom to foolishly throw it all away as and if you please, rather than be forced to let some politically connected shit-head throw it away for you as he pleases. But above all, mostly, it’s the freedom to be left alone.
We were sitting outside the after bar, the younger set smoked cigarettes with their drinks; I led the orchestra’s cigar section. Off leaning against the side of the building a young attendee announced his conversion to libertarianism by vomiting most of the after midnight hours away. I looked up to a tired, pot-bellied man smoking a cigarette, he asked me sheepishly if I could move three feet closer to the street, to smoke a little further away from the building.
His name was James, I think, and he owned the bar. He launched into an unprovoked litany of complaints about all the "rules and regulations" he needed to constantly keep up on, lest the City Council send its agents to shut down the bar – the one that he’s just opened to fulfill a life-long dream. My smoking had caught his attention; he apologized, because they’d been repeatedly fining him for allowing his customers to smoke too close to the front of his bar.
More than anything it’s the relentless crusading of the tea-drinkers; the lily-white, ill-tempered agents of good, healthy clean living that drove me into the arms of libertarianism. It’s the libertarian concern for the workingman, a concern that does not manifest itself in the twisted, elitist urge to make him "better" so endemic to the mislabeled "progressives," but manifested instead in the simple, Christian act of leaving him alone. Libertarianism today is a rear guard action, fought to protect our weekends from the legions of moralistic, do-gooder assholes America produces in such abundance.
The same kind that put a pot-bellied, apologetic bar owner smack dab next to my outside table rather than tending to his business inside, because he’s forced to be there, forced to smoke outside his own goddamn bar because our city’s self-righteous midget of a mayor quit smoking – so now we all have to. When I think about that bar, all our city’s bars, in fact, Washington Irving’s take on the pub springs to mind. "That temple of true liberty, the inn" he called those of his time, and I lament how we’ve sunk so low.
We left early, as forty-year-olds always do. Everybody else stayed behind – for the younger set now, as always, the night was there to be lived through, a time to wring out every drop of dark until daylight sent you to a diner. I drove home; I always drive, and knew that back there the bar was dew cheeked and full of that bright-eyed hopeful earnestness that only the young can hold.
All these Ron Paul kids have yet to come to terms with the fact that they live in a thoroughly socialist world, and that strikes me as just fine. If there’s any chance we’re going to get out of this mess we’re in, we’d better pray they never do.
Monday
ANYTHING LESS THAN FULL DISCLOSURE IS UNACCEPTABLE
Last week a new bill was introduced in the Senate to audit the Federal Reserve. Some backers of my bill HR1207 and the existing Senate companion bill S.604 were a little miffed at this, but depending on how you think about it, this new legislation poses no great threat to our efforts.
With the economy in shambles, people are looking for answers - not just because of lost savings on Wall Street, but because of lost houses on Main Street. Because of the many problems we face, the Federal Reserve and its powers over the economy have come under scrutiny. This translates into a lot of political pressure on Congress. With all the House Republicans signed on as co-sponsors and over half of the Democrats, HR 1207 has enormous bipartisan support. It would be disingenuous for Washington not to embrace the principles behind this bill after all the promises for transparency. How can one credibly argue for more transparency in government in one breath and defend the secrecy of the Federal Reserve in the next?
However, there is still very powerful resistance to the disclosures that HR 1207 would require and efforts to weaken it will continue to pop up before this issue is settled.
The good news is that Washington is responding and the Federal Reserve has become the issue. Concerned Americans need to keep the pressure on by continuing to define what we want, and what we do not want.
One major concern is that HR 1207 constitutes some kind of power grab for Congress. Congress would not do a better job dictating interest rates or managing money supply growth than the Federal Reserve does for exactly the same reasons: Congress is not the free market. Any select group of people, no matter how wise and educated, simply cannot replace the wisdom of the market. HR 1207 does not seek to replace the wisdom of the Fed with the wisdom of Congress. That would be a giant step backwards. HR 1207 simply asks for full disclosure, and I am agreeable to allowing for a reasonable lag time to calm the fears that Congress intends to dictate monetary policy.
What we do want, what we insist upon, is that no longer will decisions that carry so much economic weight be made in absolute secrecy. We want to know what arrangements the Fed makes with other governments and central banks. We want to know who is benefitting from the actions of the Fed and what deals are being made. The Fed is already reacting to pressure by scaling back its liquidity facilities and returning to more traditional monetary policy through direct asset purchases. With nearly $800 billion in mortgage-backed securities on its books already, $800 billion in Treasury securities, and no real limit to what the Fed can acquire, there is a tremendous opportunity for malfeasance. We need to know who the Fed deals with, what they buy, how much they spend, and who benefits. As good as any step towards Federal Reserve transparency is, anything less than full disclosure at this point is unacceptable.
With the economy in shambles, people are looking for answers - not just because of lost savings on Wall Street, but because of lost houses on Main Street. Because of the many problems we face, the Federal Reserve and its powers over the economy have come under scrutiny. This translates into a lot of political pressure on Congress. With all the House Republicans signed on as co-sponsors and over half of the Democrats, HR 1207 has enormous bipartisan support. It would be disingenuous for Washington not to embrace the principles behind this bill after all the promises for transparency. How can one credibly argue for more transparency in government in one breath and defend the secrecy of the Federal Reserve in the next?
However, there is still very powerful resistance to the disclosures that HR 1207 would require and efforts to weaken it will continue to pop up before this issue is settled.
The good news is that Washington is responding and the Federal Reserve has become the issue. Concerned Americans need to keep the pressure on by continuing to define what we want, and what we do not want.
One major concern is that HR 1207 constitutes some kind of power grab for Congress. Congress would not do a better job dictating interest rates or managing money supply growth than the Federal Reserve does for exactly the same reasons: Congress is not the free market. Any select group of people, no matter how wise and educated, simply cannot replace the wisdom of the market. HR 1207 does not seek to replace the wisdom of the Fed with the wisdom of Congress. That would be a giant step backwards. HR 1207 simply asks for full disclosure, and I am agreeable to allowing for a reasonable lag time to calm the fears that Congress intends to dictate monetary policy.
What we do want, what we insist upon, is that no longer will decisions that carry so much economic weight be made in absolute secrecy. We want to know what arrangements the Fed makes with other governments and central banks. We want to know who is benefitting from the actions of the Fed and what deals are being made. The Fed is already reacting to pressure by scaling back its liquidity facilities and returning to more traditional monetary policy through direct asset purchases. With nearly $800 billion in mortgage-backed securities on its books already, $800 billion in Treasury securities, and no real limit to what the Fed can acquire, there is a tremendous opportunity for malfeasance. We need to know who the Fed deals with, what they buy, how much they spend, and who benefits. As good as any step towards Federal Reserve transparency is, anything less than full disclosure at this point is unacceptable.
THE VERY BUSY POLITICIANS IN WASHINGTON, D.C.
With a faltering economy, multiple wars, and the approaching demise of the dollar’s reserve status, there are more than enough problems to keep politicians in Washington working day and night. In between handing out cash for clunkers and nationalizing healthcare, the administration is busy sending more troops overseas, escalating existing wars, and seeking out excuses to start new wars. Congress is working on “urgent” legislation to address crises like healthcare reform and climate change. The reforms are so very urgent that legislation must pass swiftly with no time to read the bills even though the new laws wouldn’t take effect for several years! Meanwhile, the Federal Reserve is busy dealing with our dollar crisis by printing up more dollars.
Yes, there certainly is a lot for Washington to do these days. Most, if not all, of what Washington is doing however, is more of what created the problems in the first place. Capitol Hill is filled with politicians running around putting out fires – but with gasoline. The truth is that all these fires keep so many powerful people employed and wealthy that it is not truly in many decision makers’ interests to be very effective problem-solvers. If Washington ran out of problems, think how many lobbyists would be out of a job, and how many special interest groups would just disband? Sadly, whatever is bad for the greater economy is good for the economy and job market in DC.
Of course, no form of government, not even one that respected its Constitutional restraints, would magically create a problem-free society. The question is: how should a society deal with its problems? The form of government that our founders envisioned, in which the federal government was strictly constrained by the Constitution, allows private citizens and communities to solve their own problems. The role of the government should be to protect contracts, punish fraud and violence through appropriate laws, law enforcement and the courts. Not a whole lot of laws or bureaucrats are really necessary to work on just that. Instead, new laws are constantly needed to fix the problems that previous unconstitutional laws created. We have ended up with an incomprehensible maze of laws and regulations that severely constrains the people and expands the government – the exact opposite of what our founders intended.
This is all because the Constitution is treated like a suggestion manual instead of the supreme law of the land. Under the Constitution, politicians’ hands are supposed to be tied in most of the areas they involve themselves in today. But somewhere along the line, politicians stepped out of Constitutional bounds and started pretending to solve our problems for us. All we have to show for it is more problems.
Today, Washington politicians can busily “solve” one problem, knowing that unintended consequences from that “solution” will keep them and their friends all very busy tomorrow. The people are ultimately left suffocating under the burden of Washington’s helping hands. It is coming to a point where our economy, our dollar, and indeed, the rest of the world have had about all the help from Washington that they can stand. The United States is headed the way of Rome and the Soviet Union, for the same reasons, unless we reverse the trend.
I continue to hope that enough Americans will realize that the true strength of our country doesn’t come from Washington, but rather the limitations placed on government in the Constitution. We must resolve to reverse the destructive course that we are on and then never again let big government problem-solving take over our lives and our country.
Yes, there certainly is a lot for Washington to do these days. Most, if not all, of what Washington is doing however, is more of what created the problems in the first place. Capitol Hill is filled with politicians running around putting out fires – but with gasoline. The truth is that all these fires keep so many powerful people employed and wealthy that it is not truly in many decision makers’ interests to be very effective problem-solvers. If Washington ran out of problems, think how many lobbyists would be out of a job, and how many special interest groups would just disband? Sadly, whatever is bad for the greater economy is good for the economy and job market in DC.
Of course, no form of government, not even one that respected its Constitutional restraints, would magically create a problem-free society. The question is: how should a society deal with its problems? The form of government that our founders envisioned, in which the federal government was strictly constrained by the Constitution, allows private citizens and communities to solve their own problems. The role of the government should be to protect contracts, punish fraud and violence through appropriate laws, law enforcement and the courts. Not a whole lot of laws or bureaucrats are really necessary to work on just that. Instead, new laws are constantly needed to fix the problems that previous unconstitutional laws created. We have ended up with an incomprehensible maze of laws and regulations that severely constrains the people and expands the government – the exact opposite of what our founders intended.
This is all because the Constitution is treated like a suggestion manual instead of the supreme law of the land. Under the Constitution, politicians’ hands are supposed to be tied in most of the areas they involve themselves in today. But somewhere along the line, politicians stepped out of Constitutional bounds and started pretending to solve our problems for us. All we have to show for it is more problems.
Today, Washington politicians can busily “solve” one problem, knowing that unintended consequences from that “solution” will keep them and their friends all very busy tomorrow. The people are ultimately left suffocating under the burden of Washington’s helping hands. It is coming to a point where our economy, our dollar, and indeed, the rest of the world have had about all the help from Washington that they can stand. The United States is headed the way of Rome and the Soviet Union, for the same reasons, unless we reverse the trend.
I continue to hope that enough Americans will realize that the true strength of our country doesn’t come from Washington, but rather the limitations placed on government in the Constitution. We must resolve to reverse the destructive course that we are on and then never again let big government problem-solving take over our lives and our country.
Saturday
WHAT I THINK......MICHAEL O'BRIAN
The U.S. has moved past none of the core issues that brought the economy to its knees last fall, Rep. Ron Paul (R-Texas) suggested.
Paul asserted that while some big financial institutions may be starting to reap large profits again, the bailouts put in place to help those firms last year have only worsened the long-term economic standing in the country.
"None of this is behind us," the libertarian Republican said during an appearance on CNN. "All we have done is prolong the agony and very soon people are going to realize, in spite of all these huge profits, Wall Street is still a shaky place to be."
The congressman pinned blame for the stagnant economy on the Federal Reserve, long his bête noire, for having extended too much credit to large banks and similar companies, and called for stricter regulation of the Fed.
Paul said that the system would be unable to recover until the U.S. sets a new basis for the dollar.
"We're not going to revive the dollar reserve standard around financial markets that has existed for 35 years," he said. "We have to devise a new system and right now we're only playing games with what we have."
The new standard is necessary because, the 2008 presidential candidate said, Wall Street firms are "pulling the strings" at the Fed.
"You know, it is said that the Congress didn't have enough strings attached to the money that they were giving away, but I think the strings go in the other direction," he said. "I think Wall Street has the strings on Washington. And they pull and do what they want and that's where the corruption is. They control the monetary system."
Paul asserted that while some big financial institutions may be starting to reap large profits again, the bailouts put in place to help those firms last year have only worsened the long-term economic standing in the country.
"None of this is behind us," the libertarian Republican said during an appearance on CNN. "All we have done is prolong the agony and very soon people are going to realize, in spite of all these huge profits, Wall Street is still a shaky place to be."
The congressman pinned blame for the stagnant economy on the Federal Reserve, long his bête noire, for having extended too much credit to large banks and similar companies, and called for stricter regulation of the Fed.
Paul said that the system would be unable to recover until the U.S. sets a new basis for the dollar.
"We're not going to revive the dollar reserve standard around financial markets that has existed for 35 years," he said. "We have to devise a new system and right now we're only playing games with what we have."
The new standard is necessary because, the 2008 presidential candidate said, Wall Street firms are "pulling the strings" at the Fed.
"You know, it is said that the Congress didn't have enough strings attached to the money that they were giving away, but I think the strings go in the other direction," he said. "I think Wall Street has the strings on Washington. And they pull and do what they want and that's where the corruption is. They control the monetary system."
Friday
THE FEDS SHOULD BE MORE TRANSPARENT
The continuing financial crisis has made clear to many people the deep problems that exist within our financial system. One of the key decisions to be made in any of the reform proposals floating around deals with the Federal Reserve System and its powers.
For nearly 100 years the Federal Reserve has operated largely in the shadows. The Fed’s monetary policy operations, including open-market operations and agreements with foreign governments and central banks, are exempt from audit by the Government Accountability Office.
Congress itself never delves into these areas in the limited time it has during the Fed chairman’s semiannual appearances before the House Financial Services Committee, and any pointed questions are evaded. Former Fed Chairman Alan Greenspan was adept at this — his “Greenspan-speak” was legendary — but Chairman Ben Bernanke is no slouch, either, at giving vague and nonresponsive answers to direct questions.
While I oppose giving the Fed any additional power, even members who support an expansion should support dealing with the crucial issue of Fed oversight — before proposals for giving the Fed additional power as a regulator of the financial system are discussed. Using Section 13(3) of the Federal Reserve Act, the Fed has gone on the warpath over the past two years. It has involved itself in direct financial support to individual firms such as Bear Stearns and American International Group, has developed new credit facilities to funnel money to numerous other financial companies and has boosted its balance sheet to more than $2 trillion — secure in the knowledge that the legal blocks put in place in 31 U.S.C. 714 to prevent GAO audits of the most significant of the Fed’s actions will hide it from any serious oversight. For an organization with arguably as much clout as the rest of the federal government put together to be able to escape significant oversight is a situation that needs to be rectified immediately.
This is why I introduced H.R. 1207, the Federal Reserve Transparency Act, earlier this year. I introduced similar bills in the early 1980s, but they never received nearly the attention that H.R. 1207 has. For this, we have the Federal Reserve’s actions to be thankful for. More Americans than ever are now aware of the powers that the Fed has and the extent to which it is using them. In some recent polls, 75 percent of Americans supported an audit of the Federal Reserve, which is what H.R. 1207 would do. All restrictions on GAO audits of the Fed would be lifted, and all of its books would be fair game.
Not surprisingly, the Federal Reserve is opposed to H.R. 1207. One of the most often heard arguments is that opening monetary policy operations to a GAO audit would erode Fed independence. Nothing could be further from the truth. An audit of the Fed has one main goal, and that is to find out how much money is being spent and who is receiving it. Congress already dictates monetary policy to the Fed in the guise of the Humphrey-Hawkins mandates of full employment and price stability, so the Fed’s vaunted independence is already compromised in that regard. Nothing in the audit called for by H.R. 1207 should be construed as leading to increased congressional interference in or dictation of monetary policy.
Another argument the Fed has trotted out is that an audit would erode trust in the central bank and raise borrowing costs for the Treasury. An audit could only erode trust if the Fed had in fact been up to no good. If the Fed acts in good faith and with the interest of the American people in mind, it should have nothing to fear from enhanced transparency.
However, trust in the Fed from our foreign creditors has been waning for a while, and ongoing secrecy on the Fed’s part continues to erode that trust. For far too long our government has spent far too much and issued debt to fund its profligacy. Our creditors understand this and are reluctant to invest any further until they can be assured that the Fed will stop pursuing policies that devalue the dollar.
A final argument that the Fed uses is that publicizing the names of firms that receive financial assistance could lead to investors selling those firms’ stock and potentially cause the firms to collapse. In fact, it has been shown that the stock prices of firms receiving bailout funds actually improve. As misguided and wasteful as bailouts are, the firms that receive them are viewed by many investors as “winners,” at least temporarily. Even if bailed-out firms eventually collapse, the bailouts signal that the government will not let them collapse in the near term, which allows investors to remain invested in the companies and continue to profit from movements in the stock price.
There really is no viable reason to continue to withhold from the American people the names of firms receiving Federal Reserve assistance and the amount of money they receive. The Treasury Department has been relatively transparent in publicizing the disposition of bailout funds and the terms of agreement it signs, so why should the Federal Reserve be any different?
The march toward financial services reform seems to be inevitable at this point. Whatever legislation is passed in the next year will create a new financial system framework that will very likely remain in place largely unchanged for decades to come. It is absolutely imperative that we get a detailed look at all of the Federal Reserve’s past actions and ensure that any future government intervention into markets is fully and completely transparent.
For nearly 100 years the Federal Reserve has operated largely in the shadows. The Fed’s monetary policy operations, including open-market operations and agreements with foreign governments and central banks, are exempt from audit by the Government Accountability Office.
Congress itself never delves into these areas in the limited time it has during the Fed chairman’s semiannual appearances before the House Financial Services Committee, and any pointed questions are evaded. Former Fed Chairman Alan Greenspan was adept at this — his “Greenspan-speak” was legendary — but Chairman Ben Bernanke is no slouch, either, at giving vague and nonresponsive answers to direct questions.
While I oppose giving the Fed any additional power, even members who support an expansion should support dealing with the crucial issue of Fed oversight — before proposals for giving the Fed additional power as a regulator of the financial system are discussed. Using Section 13(3) of the Federal Reserve Act, the Fed has gone on the warpath over the past two years. It has involved itself in direct financial support to individual firms such as Bear Stearns and American International Group, has developed new credit facilities to funnel money to numerous other financial companies and has boosted its balance sheet to more than $2 trillion — secure in the knowledge that the legal blocks put in place in 31 U.S.C. 714 to prevent GAO audits of the most significant of the Fed’s actions will hide it from any serious oversight. For an organization with arguably as much clout as the rest of the federal government put together to be able to escape significant oversight is a situation that needs to be rectified immediately.
This is why I introduced H.R. 1207, the Federal Reserve Transparency Act, earlier this year. I introduced similar bills in the early 1980s, but they never received nearly the attention that H.R. 1207 has. For this, we have the Federal Reserve’s actions to be thankful for. More Americans than ever are now aware of the powers that the Fed has and the extent to which it is using them. In some recent polls, 75 percent of Americans supported an audit of the Federal Reserve, which is what H.R. 1207 would do. All restrictions on GAO audits of the Fed would be lifted, and all of its books would be fair game.
Not surprisingly, the Federal Reserve is opposed to H.R. 1207. One of the most often heard arguments is that opening monetary policy operations to a GAO audit would erode Fed independence. Nothing could be further from the truth. An audit of the Fed has one main goal, and that is to find out how much money is being spent and who is receiving it. Congress already dictates monetary policy to the Fed in the guise of the Humphrey-Hawkins mandates of full employment and price stability, so the Fed’s vaunted independence is already compromised in that regard. Nothing in the audit called for by H.R. 1207 should be construed as leading to increased congressional interference in or dictation of monetary policy.
Another argument the Fed has trotted out is that an audit would erode trust in the central bank and raise borrowing costs for the Treasury. An audit could only erode trust if the Fed had in fact been up to no good. If the Fed acts in good faith and with the interest of the American people in mind, it should have nothing to fear from enhanced transparency.
However, trust in the Fed from our foreign creditors has been waning for a while, and ongoing secrecy on the Fed’s part continues to erode that trust. For far too long our government has spent far too much and issued debt to fund its profligacy. Our creditors understand this and are reluctant to invest any further until they can be assured that the Fed will stop pursuing policies that devalue the dollar.
A final argument that the Fed uses is that publicizing the names of firms that receive financial assistance could lead to investors selling those firms’ stock and potentially cause the firms to collapse. In fact, it has been shown that the stock prices of firms receiving bailout funds actually improve. As misguided and wasteful as bailouts are, the firms that receive them are viewed by many investors as “winners,” at least temporarily. Even if bailed-out firms eventually collapse, the bailouts signal that the government will not let them collapse in the near term, which allows investors to remain invested in the companies and continue to profit from movements in the stock price.
There really is no viable reason to continue to withhold from the American people the names of firms receiving Federal Reserve assistance and the amount of money they receive. The Treasury Department has been relatively transparent in publicizing the disposition of bailout funds and the terms of agreement it signs, so why should the Federal Reserve be any different?
The march toward financial services reform seems to be inevitable at this point. Whatever legislation is passed in the next year will create a new financial system framework that will very likely remain in place largely unchanged for decades to come. It is absolutely imperative that we get a detailed look at all of the Federal Reserve’s past actions and ensure that any future government intervention into markets is fully and completely transparent.
Wednesday
SAVING FACE IN AFGHANISTAN
This past week there has been a lot of discussion and debate on the continuing war in Afghanistan. Lasting twice as long as World War II and with no end in sight, the war in Afghanistan has been one of the longest conflicts in which our country has ever been involved. The situation has only gotten worse with recent escalations.
The current debate is focused entirely on the question of troop levels. How many more troops should be sent over in order to pursue the war? The administration has already approved an additional 21,000 American service men and women to be deployed by November, which will increase our troop levels to 68,000. Will another 40,000 do the job? Or should we eventually build up the levels to 100,000 in addition to that? Why not 500,000 – just to be “safe”? And how will public support be brought back around to supporting this war again when 58 percent are now against it?
I get quite annoyed at this very narrow line of questioning. I have other questions. We overthrew the Taliban government in 2001 with less than 10,000 American troops. Why does it now seem that the more troops we send, the worse things get? If the Soviets bankrupted themselves in Afghanistan with troop levels of 100,000 and were eventually forced to leave in humiliating defeat, why are we determined to follow their example? Most importantly, what is there to be gained from all this? We’ve invested billions of dollars and thousands of precious lives – for what?
The truth is it is no coincidence that the more troops we send the worse things get. Things are getting worse precisely because we are sending more troops and escalating the violence. We are hoping that good leadership wins out in Afghanistan, but the pool of potential honest leaders from which to draw have been fleeing the violence, leaving a tremendous power vacuum behind. War does not quell bad leaders. It creates them. And the more war we visit on this country, the more bad leaders we will inadvertently create.
Another thing that war does is create anger with its indiscriminate violence and injustice. How many innocent civilians have been harmed from clumsy bombings and mistakes that end up costing lives? People die from simply being in the wrong place at the wrong time in a war zone, but the killers never face consequences. Imagine the resentment and anger survivors must feel when a family member is killed and nothing is done about it. When there are no other jobs available because all the businesses have fled, what else is there to do, but join ranks with the resistance where there is a paycheck and also an opportunity for revenge? This is no justification for our enemies over there, but we have to accept that when we push people, they will push back.
The real question is why are we there at all? What do our efforts now have to do with the original authorization of the use of force? We are no longer dealing with anything or anyone involved in the attacks of 9/11. At this point we are only strengthening the resolve and the ranks of our enemies. We have nothing left to win. We are only there to save face, and in the end we will not even be able to do that.
The current debate is focused entirely on the question of troop levels. How many more troops should be sent over in order to pursue the war? The administration has already approved an additional 21,000 American service men and women to be deployed by November, which will increase our troop levels to 68,000. Will another 40,000 do the job? Or should we eventually build up the levels to 100,000 in addition to that? Why not 500,000 – just to be “safe”? And how will public support be brought back around to supporting this war again when 58 percent are now against it?
I get quite annoyed at this very narrow line of questioning. I have other questions. We overthrew the Taliban government in 2001 with less than 10,000 American troops. Why does it now seem that the more troops we send, the worse things get? If the Soviets bankrupted themselves in Afghanistan with troop levels of 100,000 and were eventually forced to leave in humiliating defeat, why are we determined to follow their example? Most importantly, what is there to be gained from all this? We’ve invested billions of dollars and thousands of precious lives – for what?
The truth is it is no coincidence that the more troops we send the worse things get. Things are getting worse precisely because we are sending more troops and escalating the violence. We are hoping that good leadership wins out in Afghanistan, but the pool of potential honest leaders from which to draw have been fleeing the violence, leaving a tremendous power vacuum behind. War does not quell bad leaders. It creates them. And the more war we visit on this country, the more bad leaders we will inadvertently create.
Another thing that war does is create anger with its indiscriminate violence and injustice. How many innocent civilians have been harmed from clumsy bombings and mistakes that end up costing lives? People die from simply being in the wrong place at the wrong time in a war zone, but the killers never face consequences. Imagine the resentment and anger survivors must feel when a family member is killed and nothing is done about it. When there are no other jobs available because all the businesses have fled, what else is there to do, but join ranks with the resistance where there is a paycheck and also an opportunity for revenge? This is no justification for our enemies over there, but we have to accept that when we push people, they will push back.
The real question is why are we there at all? What do our efforts now have to do with the original authorization of the use of force? We are no longer dealing with anything or anyone involved in the attacks of 9/11. At this point we are only strengthening the resolve and the ranks of our enemies. We have nothing left to win. We are only there to save face, and in the end we will not even be able to do that.
Thursday
WHAT i THINK......JOHN RUBINO
Ron Paul has a bestseller. That sounds so nice I’ll say it twice. Ron Paul has a bestseller. His new book, End the Fed, is number 30 on Amazon as this is written -- with 167 mostly glowing reviews -- and his reception last week on Jon Stewart’s Daily Show was hugely positive. Stewart, more-or-less a left/libertarian, clearly sees Paul as one of the good guys, and his audience seems to agree.
With all these doors suddenly slamming open, it’s easy to forget that just a couple of years ago Ron Paul was an obscure, eccentric Texas congressman whose presidential run was met with a yawn in the mainstream media. But when he stood up in the debates and made the case for limited government, sound money, and adherence to the Constitution, he struck a chord. It was clear (to libertarians at least) that he was telling the truth and that the political hacks who were treating him like a deranged uncle were the ones with the vision/character problem.
Paul didn’t win many votes (though out here in Idaho he did get 24% in the Republican primary) but he made an impression. And when pretty much everything he warned us about came true -- while virtually everything the hacks of both parties said turned out to be disastrously wrong -- he even gained a bit of mainstream cred. So when he introduced HR 1207 to audit the Fed, the response was at first respectful, and then enthusiastic. Instead of instantly dismissing him, people began asking their representatives why the Fed isn’t already audited. This law might just pass, with unpredictable but almost certainly amusing results.
But of course auditing the Fed is just the beginning. Paul’s ultimate goal is to eliminate the whole institution, along with other golems like fiat currency and fractional reserve banking, and to reinstitute sound, honest money and limited government.
For those new to this subject, End the Fed is a clearly written primer on how unsound money and expanding government have gradually become the unquestioned conventional wisdom rather than the dangerous delusions that they are. For more seasoned gold bugs the book provides some interesting history, along with plenty of useful debate ammunition.
Some of the high points:
• Paul makes it clear that the Fed isn’t the whole problem. It’s just one part of a system that first went wrong with the introduction of fractional reserve banking centuries ago (banks used to be warehouses, storing depositors’ money for a fee), followed by the spread of European central banks (really just scams to allow a few elite bankers and politicians to expand their own power at the expense of everyone else) and then, finally, the introduction of fiat currency, which freed governments to expand spending and borrowing without regard to, well, anything. The problem, in short, is the whole of modern banking and finance.
• The middle part of the book features transcripts of Congressman Paul grilling Fed chairmen Greenspan and Bernanke. Some of these transcripts date back to the early Reagan era, which means that for going on three decades Paul has been fighting this fight, and slamming into the same brick wall. The Chairmen feel no need to explain themselves to a lowly congressman, and respond with a mixture of lies and obfuscation that apparently fooled most of Washington. The generally-respectful Paul even refers to Greenspan as “pathetic” after one especially dishonest piece of testimony. Less charitable readers will, by the end of this section, want to take a congressional microphone and beat Greenspan and Bernanke senseless.
• Fractional reserve banking and fiat currency make war easier. Back when a ruler needed actual gold to field an army, invading a neighbor required some serious forethought. But once a dictator (or the world’s policeman) could just print a few billion pieces of paper and order some new tanks, “defending the national interest” got a whole lot easier. Hence the bloodbath of the 20th century, and perhaps the mess of the coming decade.
• Paul knows all the major sound money/Austrian economics classics, and he cites them liberally. The "recommended reading" list contains a year’s worth of serious research.
• Though he continues to fight, he’s not optimistic about averting the coming train wreck, which he refers to as the “BIG ONE”.
Anyhow, good book from a great man. Stay healthy, Dr. Paul, your journey into the mainstream has just begun.
With all these doors suddenly slamming open, it’s easy to forget that just a couple of years ago Ron Paul was an obscure, eccentric Texas congressman whose presidential run was met with a yawn in the mainstream media. But when he stood up in the debates and made the case for limited government, sound money, and adherence to the Constitution, he struck a chord. It was clear (to libertarians at least) that he was telling the truth and that the political hacks who were treating him like a deranged uncle were the ones with the vision/character problem.
Paul didn’t win many votes (though out here in Idaho he did get 24% in the Republican primary) but he made an impression. And when pretty much everything he warned us about came true -- while virtually everything the hacks of both parties said turned out to be disastrously wrong -- he even gained a bit of mainstream cred. So when he introduced HR 1207 to audit the Fed, the response was at first respectful, and then enthusiastic. Instead of instantly dismissing him, people began asking their representatives why the Fed isn’t already audited. This law might just pass, with unpredictable but almost certainly amusing results.
But of course auditing the Fed is just the beginning. Paul’s ultimate goal is to eliminate the whole institution, along with other golems like fiat currency and fractional reserve banking, and to reinstitute sound, honest money and limited government.
For those new to this subject, End the Fed is a clearly written primer on how unsound money and expanding government have gradually become the unquestioned conventional wisdom rather than the dangerous delusions that they are. For more seasoned gold bugs the book provides some interesting history, along with plenty of useful debate ammunition.
Some of the high points:
• Paul makes it clear that the Fed isn’t the whole problem. It’s just one part of a system that first went wrong with the introduction of fractional reserve banking centuries ago (banks used to be warehouses, storing depositors’ money for a fee), followed by the spread of European central banks (really just scams to allow a few elite bankers and politicians to expand their own power at the expense of everyone else) and then, finally, the introduction of fiat currency, which freed governments to expand spending and borrowing without regard to, well, anything. The problem, in short, is the whole of modern banking and finance.
• The middle part of the book features transcripts of Congressman Paul grilling Fed chairmen Greenspan and Bernanke. Some of these transcripts date back to the early Reagan era, which means that for going on three decades Paul has been fighting this fight, and slamming into the same brick wall. The Chairmen feel no need to explain themselves to a lowly congressman, and respond with a mixture of lies and obfuscation that apparently fooled most of Washington. The generally-respectful Paul even refers to Greenspan as “pathetic” after one especially dishonest piece of testimony. Less charitable readers will, by the end of this section, want to take a congressional microphone and beat Greenspan and Bernanke senseless.
• Fractional reserve banking and fiat currency make war easier. Back when a ruler needed actual gold to field an army, invading a neighbor required some serious forethought. But once a dictator (or the world’s policeman) could just print a few billion pieces of paper and order some new tanks, “defending the national interest” got a whole lot easier. Hence the bloodbath of the 20th century, and perhaps the mess of the coming decade.
• Paul knows all the major sound money/Austrian economics classics, and he cites them liberally. The "recommended reading" list contains a year’s worth of serious research.
• Though he continues to fight, he’s not optimistic about averting the coming train wreck, which he refers to as the “BIG ONE”.
Anyhow, good book from a great man. Stay healthy, Dr. Paul, your journey into the mainstream has just begun.
Tuesday
BOMBS AND BRIBES
What if tomorrow morning you woke up to headlines that yet another Chinese drone bombing on US soil killed several dozen ranchers in a rural community while they were sleeping? That a drone aircraft had come across the Canadian border in the middle of the night and carried out the latest of many attacks? What if it was claimed that many of the victims harbored anti-Chinese sentiments, but most of the dead were innocent women and children? And what if the Chinese administration, in an effort to improve its public image in the US, had approved an aid package to send funds to help with American roads and schools and promote Chinese values here?
Most Americans would not stand for it. Yet the above hypothetical events are similar to what our government is doing in Pakistan. Last week, Congress did approve an aid package for Pakistan for the stated purposes of improving our image and promoting democracy. I again made the point on the floor of the House that still no one seems to hear: What if this happened on US soil? What if innocent Americans were being killed in repeated drone attacks carried out by some foreign force who was trying to fix our problems for us? Would sending money help their image? If another nation committed this type of violence and destruction on our homeland, would we be at all interested in adopting their values?
Sadly, one thing that has entirely escaped modern American foreign policy is empathy. Without much humility or regard for human life, our foreign policy has been reduced to alternately bribing and bombing other nations, all with the stated goal of “promoting democracy”. But if a country democratically elects a leader who is not sufficiently pro-American, our government will refuse to recognize them, will impose sanctions on them, and will possibly even support covert efforts to remove them. Democracy is obviously not what we are interested in. It is more likely that our government is interested in imposing its will on other governments. This policy of endless intervention in the affairs of others is very damaging to American liberty and security.
If we were really interested in democracy, peace, prosperity and safety, we would pursue more free trade with other countries. Free and abundant trade is much more conducive to peace because it is generally bad business to kill your customers. When one’s livelihood is on the line, and the business agreements are mutually beneficial, it is in everyone’s best interests to maintain cooperative and friendly relations and not kill each other. But instead, to force other countries to bend to our will, we impose trade barriers and sanctions. If our government really wanted to promote freedom, Americans would be free to travel and trade with whoever they wished. And, if we would simply look at our own policies around the world through the eyes of others, we would understand how these actions make us more targeted and therefore less safe from terrorism. The only answer is get back to free trade with all and entangling alliances with none. It is our bombs and sanctions and condescending aid packages that isolate us.
Most Americans would not stand for it. Yet the above hypothetical events are similar to what our government is doing in Pakistan. Last week, Congress did approve an aid package for Pakistan for the stated purposes of improving our image and promoting democracy. I again made the point on the floor of the House that still no one seems to hear: What if this happened on US soil? What if innocent Americans were being killed in repeated drone attacks carried out by some foreign force who was trying to fix our problems for us? Would sending money help their image? If another nation committed this type of violence and destruction on our homeland, would we be at all interested in adopting their values?
Sadly, one thing that has entirely escaped modern American foreign policy is empathy. Without much humility or regard for human life, our foreign policy has been reduced to alternately bribing and bombing other nations, all with the stated goal of “promoting democracy”. But if a country democratically elects a leader who is not sufficiently pro-American, our government will refuse to recognize them, will impose sanctions on them, and will possibly even support covert efforts to remove them. Democracy is obviously not what we are interested in. It is more likely that our government is interested in imposing its will on other governments. This policy of endless intervention in the affairs of others is very damaging to American liberty and security.
If we were really interested in democracy, peace, prosperity and safety, we would pursue more free trade with other countries. Free and abundant trade is much more conducive to peace because it is generally bad business to kill your customers. When one’s livelihood is on the line, and the business agreements are mutually beneficial, it is in everyone’s best interests to maintain cooperative and friendly relations and not kill each other. But instead, to force other countries to bend to our will, we impose trade barriers and sanctions. If our government really wanted to promote freedom, Americans would be free to travel and trade with whoever they wished. And, if we would simply look at our own policies around the world through the eyes of others, we would understand how these actions make us more targeted and therefore less safe from terrorism. The only answer is get back to free trade with all and entangling alliances with none. It is our bombs and sanctions and condescending aid packages that isolate us.
Saturday
THE NEW YORK TIMES AND RON PAUL
The fallout from the credit crisis has put the financial system of the United States under a microscope. Banker pay, lending practices and regulatory oversight are now topics of mainstream interest for the first time since the Great Depression.
As Congress debates whether or not to give more power to the Federal Reserve to watch over the financial system, Ron Paul, the Republican congressman from Texas, is arguing, as he has for years, for the government to go in the opposite direction and actually cut the Fed’s powers.
In an interview with DealBook on Thursday, Mr. Paul discussed his new book, “End the Fed,” as well as his views on Wall Street.
The outspoken lawmaker contends that the government is essentially controlled by the Fed and in collusion with Wall Street, and has created an unsustainable economic system through the excess printing of money. He predicts that the system will eventually break down and the dollar will collapse, creating economic chaos.
Here are edited and condensed excerpts from DealBook’s talk with Mr. Paul.
Q.
What would Wall Street look like without the Fed? Do you believe that Wall Street banks — which you’ve described as a “secretive cartel of powerful money managers” — would be able to manipulate interest rates if the Fed didn’t exist?
A.
No, the interest rate would be set by savers. Capital would come from savings, which is what happens in a free market. So if there were a lot of savings then interest rates would go down. This would give information to the marketplace, which is the most important thing that has to be corrected without a central bank: sending the right information out to borrowers, investors and savers.
Right now we don’t have a free market in interest rates, so it is basically price controls.
Q.
In your book, you argue that ending the Fed would put the American banking system on solid financial footing. With the banks still far from clearing their toxic assets, how is that possible?
A.
Well, to get rid of the toxic assets, the Fed said we need to step in because the assets were illiquid. Illiquid means that they are worthless, and if they are worthless, we should take care of that problem like we did in 1921 and eliminate them and get it over with and get back to work again.
But to take these illiquid, worthless assets and dump them on the American taxpayers and not really get rid of them just prolongs the agony.
Q.
It’s widely believed that the Fed is independent, made up mostly of academics, not politicians or business leaders. What specific powers do you believe the Wall Street banks have over the Fed that would allow them to influence it?
A.
Well, we don’t have a full answer on that, but that’s obviously the reason the Fed doesn’t want a full audit. What we do know is that they do have influence over the Fed; I mean Wall Street was bailed out, and it wasn’t the first time.
We know that Lehman Brothers was allowed to go bankrupt, but Goldman Sachs came out very well outside of this mess. We want to know why this happened, what they did, who got these loans and why. Someone has always been in our Treasury or our Federal Reserve who is closely connected to Wall Street — Goldman Sachs more than anybody else.
Q.
So do you think Goldman Sachs has the most influence at the Fed?
A.
I think they have been in the news the most, but we might find out a lot of new things once we audit the Fed. We might find out that there are some international banks with influence.
The one thing the Fed is really fighting is to keep us from auditing any of the international agreements they have with other central banks and the international financial institutions — who knows who’s involved. The key issue is transparency, and I don’t think you will know the full extent until we have a true audit.
Q.
Which brings us to your bill to audit the Federal Reserve. What would an audit show, and why do you think that information is important?
A.
It is going to show what kind of promises the Fed made, what kind of loans they made, which companies benefited, which companies did not. We want to know about these international arrangements. You know if they can enter into arrangements with other countries and other central banks and issue new money and credit — they are literally a government unto itself.
The Fed is making appropriations that are off the books and didn’t go through Congress. That should be unconstitutional. They are making agreements with other governments. That’s treaty-making and we don’t even know about it. They always say it is to maintain an orderly financial system, but there is nothing orderly about it. They created problems, and it is something we deserve to know about.
Q.
Congress is considering various ways to increase regulatory oversight of Wall Street. Do you believe that could help alleviate the severity of the financial boom and bust cycles?
A.
No, it wouldn’t do a thing because it is a distraction. The real problem is the inflationary monetary policy of the Fed — you have to deal with the problem in order to correct it. I mean Congress is talking about more and more regulations, but that just won’t work.
In a market economy with a gold standard you do have market regulations. Bad businesses and bad banks – they go out of business. They would never be all at one time. F.D.I.C. kind of insurance would be private, banks would be rated by a private company and when they made bad loans, it would be known.
The better they ran their affairs, the lower their insurance rates would be and people would know every single day how a bank is doing, rather than allowing every bank to hide behind government guarantees.
Q.
You mention in the book that your ultimate goal is to “repel legal tender laws and letting everyone get into the business of the production of money.” Can you explain what you mean by that? It sounds kind of chaotic.
A.
This is kind of a theoretical argument, because I follow what [Austrian economist Friedrich] Hayek said in that you should have competing currencies in one economy. The market would decide if you use gold or silver or some other things – anything to restrain the printing press.
If we follow the Constitution, only gold and silver could be legal tender, but today that is not allowed and the only thing you can use is Federal Reserve notes (dollars). That means you get locked into the system.
Q.
Some argue that your view on returning the United States to the gold standard is simplistic and not applicable to today’s sophisticated and interconnected financial system. How do you respond to that?
A.
I think the system we have is not a very good system and it is in the process of causing us a lot of trouble. We had the biggest financial bubble in the world just burst and the dollar reserve standard has literally come to an end, so I would say everything we’ve had, especially since 1971, has been very, very impractical and has not worked anyway.
Q.
So how close are you in convincing members of Congress to “end the Fed”?
A.
They are not ready. They are only going to study it when they see the collapse of the dollar. Although the dollar is collapsing, it’s not happening fast enough for them to think about currency reform. They are talking about financial system reform with all these regulations that will make it worse, but they aren’t anywhere close to dealing with the currency issue. If they think they can double the money supply in a year, they aren’t close to talking about sound money.
That being said, I am excited that now at least people are beginning to take a look at the Federal Reserve. I am very positive about how the college kids have taken to reading Austrian economics. To me it is remarkable that 75 percent of the country said that we should limit the Fed, when a couple years ago they didn’t even think about it.
We now have every Republican on the audit bill and 119 Democrats, so it is very positive that attention is directed toward the Fed.
As Congress debates whether or not to give more power to the Federal Reserve to watch over the financial system, Ron Paul, the Republican congressman from Texas, is arguing, as he has for years, for the government to go in the opposite direction and actually cut the Fed’s powers.
In an interview with DealBook on Thursday, Mr. Paul discussed his new book, “End the Fed,” as well as his views on Wall Street.
The outspoken lawmaker contends that the government is essentially controlled by the Fed and in collusion with Wall Street, and has created an unsustainable economic system through the excess printing of money. He predicts that the system will eventually break down and the dollar will collapse, creating economic chaos.
Here are edited and condensed excerpts from DealBook’s talk with Mr. Paul.
Q.
What would Wall Street look like without the Fed? Do you believe that Wall Street banks — which you’ve described as a “secretive cartel of powerful money managers” — would be able to manipulate interest rates if the Fed didn’t exist?
A.
No, the interest rate would be set by savers. Capital would come from savings, which is what happens in a free market. So if there were a lot of savings then interest rates would go down. This would give information to the marketplace, which is the most important thing that has to be corrected without a central bank: sending the right information out to borrowers, investors and savers.
Right now we don’t have a free market in interest rates, so it is basically price controls.
Q.
In your book, you argue that ending the Fed would put the American banking system on solid financial footing. With the banks still far from clearing their toxic assets, how is that possible?
A.
Well, to get rid of the toxic assets, the Fed said we need to step in because the assets were illiquid. Illiquid means that they are worthless, and if they are worthless, we should take care of that problem like we did in 1921 and eliminate them and get it over with and get back to work again.
But to take these illiquid, worthless assets and dump them on the American taxpayers and not really get rid of them just prolongs the agony.
Q.
It’s widely believed that the Fed is independent, made up mostly of academics, not politicians or business leaders. What specific powers do you believe the Wall Street banks have over the Fed that would allow them to influence it?
A.
Well, we don’t have a full answer on that, but that’s obviously the reason the Fed doesn’t want a full audit. What we do know is that they do have influence over the Fed; I mean Wall Street was bailed out, and it wasn’t the first time.
We know that Lehman Brothers was allowed to go bankrupt, but Goldman Sachs came out very well outside of this mess. We want to know why this happened, what they did, who got these loans and why. Someone has always been in our Treasury or our Federal Reserve who is closely connected to Wall Street — Goldman Sachs more than anybody else.
Q.
So do you think Goldman Sachs has the most influence at the Fed?
A.
I think they have been in the news the most, but we might find out a lot of new things once we audit the Fed. We might find out that there are some international banks with influence.
The one thing the Fed is really fighting is to keep us from auditing any of the international agreements they have with other central banks and the international financial institutions — who knows who’s involved. The key issue is transparency, and I don’t think you will know the full extent until we have a true audit.
Q.
Which brings us to your bill to audit the Federal Reserve. What would an audit show, and why do you think that information is important?
A.
It is going to show what kind of promises the Fed made, what kind of loans they made, which companies benefited, which companies did not. We want to know about these international arrangements. You know if they can enter into arrangements with other countries and other central banks and issue new money and credit — they are literally a government unto itself.
The Fed is making appropriations that are off the books and didn’t go through Congress. That should be unconstitutional. They are making agreements with other governments. That’s treaty-making and we don’t even know about it. They always say it is to maintain an orderly financial system, but there is nothing orderly about it. They created problems, and it is something we deserve to know about.
Q.
Congress is considering various ways to increase regulatory oversight of Wall Street. Do you believe that could help alleviate the severity of the financial boom and bust cycles?
A.
No, it wouldn’t do a thing because it is a distraction. The real problem is the inflationary monetary policy of the Fed — you have to deal with the problem in order to correct it. I mean Congress is talking about more and more regulations, but that just won’t work.
In a market economy with a gold standard you do have market regulations. Bad businesses and bad banks – they go out of business. They would never be all at one time. F.D.I.C. kind of insurance would be private, banks would be rated by a private company and when they made bad loans, it would be known.
The better they ran their affairs, the lower their insurance rates would be and people would know every single day how a bank is doing, rather than allowing every bank to hide behind government guarantees.
Q.
You mention in the book that your ultimate goal is to “repel legal tender laws and letting everyone get into the business of the production of money.” Can you explain what you mean by that? It sounds kind of chaotic.
A.
This is kind of a theoretical argument, because I follow what [Austrian economist Friedrich] Hayek said in that you should have competing currencies in one economy. The market would decide if you use gold or silver or some other things – anything to restrain the printing press.
If we follow the Constitution, only gold and silver could be legal tender, but today that is not allowed and the only thing you can use is Federal Reserve notes (dollars). That means you get locked into the system.
Q.
Some argue that your view on returning the United States to the gold standard is simplistic and not applicable to today’s sophisticated and interconnected financial system. How do you respond to that?
A.
I think the system we have is not a very good system and it is in the process of causing us a lot of trouble. We had the biggest financial bubble in the world just burst and the dollar reserve standard has literally come to an end, so I would say everything we’ve had, especially since 1971, has been very, very impractical and has not worked anyway.
Q.
So how close are you in convincing members of Congress to “end the Fed”?
A.
They are not ready. They are only going to study it when they see the collapse of the dollar. Although the dollar is collapsing, it’s not happening fast enough for them to think about currency reform. They are talking about financial system reform with all these regulations that will make it worse, but they aren’t anywhere close to dealing with the currency issue. If they think they can double the money supply in a year, they aren’t close to talking about sound money.
That being said, I am excited that now at least people are beginning to take a look at the Federal Reserve. I am very positive about how the college kids have taken to reading Austrian economics. To me it is remarkable that 75 percent of the country said that we should limit the Fed, when a couple years ago they didn’t even think about it.
We now have every Republican on the audit bill and 119 Democrats, so it is very positive that attention is directed toward the Fed.
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