[Congressional Record Volume 143, Number 52 (Monday, April 28, 1997)]
[House]
[Pages H1901-H1906]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




[[Page H1901]]



  FEDERAL RESERVE HAS MONOPOLY OVER MONEY AND CREDIT IN UNITED STATES

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 7, 1997, the gentleman from Texas [Mr. Paul] is recognized for 
60 minutes as the designee of the majority leader.
  Mr. PAUL. Mr. Speaker, today I would like to talk about the subject 
of monopolies. The American people historically have been very much 
opposed to all monopolies. The one thing that generally is not known is 
that monopolies only occur with government support. There is no such 
thing as a free market monopoly. As long as there is free entry into 
the market, a true monopoly cannot exist.
  The particular monopoly I am interested in talking about today is the 
monopoly over money and credit, and that is our Federal Reserve System.
  The Federal Reserve System did not evolve out of the market, it 
evolved out of many, many pieces of legislation that were passed over 
the many years by this Congress. Our Founders debated the issue of a 
central bank and they were opposed to a central bank, but immediately 
after the Constitutional Convention there was an attempt to have a 
central bank, and the First Bank of the United States was established. 
This was repealed as soon as Jefferson was able to do it.
  Not too long thereafter the Second National Bank of the United States 
was established, another attempt at centralized banking, and it was 
Jackson, who abhorred the powers given to a single bank, that abolished 
the Second National Bank.
  Throughout the 19th century there were attempts made to reestablish 
the principle of central banking, but it was not until 1913 that our 
current Federal Reserve System was established. Since that time it has 
evolved tremendously, to the point now where it is literally a 
dictatorship over money and credit.
  It works in collaboration with the banking system, where not only can 
the Federal Reserve create money and credit out of thin air and 
manipulate interest rates, it also works closely with the banks through 
the fractional reserve banking system that allows the money supply to 
expand. This is the source of a lot of mischief and a lot of problems, 
and if we in the Congress could ever get around to understanding this 
issue, we might be able to do something about the lowering standard of 
living which many Americans are now suffering from. If we are concerned 
about repealing the business cycle, we would have to finally understand 
the Federal Reserve and how they contribute to the business cycle.
  Recently it has been in the news that Alan Greenspan had raised 
interest rates, and he has received a lot of criticism. There were some 
recent letters written to Greenspan saying that he should not be 
raising interest rates. That may well be true, but I think the more 
important thing is, why does he have the power? Why does he have the 
authority to even be able to manipulate interest rates? That is 
something that should be left to the market.
  Not only is this a monopoly control over money and credit, 
unfortunately it is a very secret monopoly. Mr. Speaker, I serve on the 
Committee on Banking and Financial Services and I am on the 
Subcommittee on Domestic and International Monetary Policy, and I 
myself cannot attend the open market committee meetings. I have no 
access to what really goes on. I have no authority to do any oversight. 
There is no appropriation made for the Federal Reserve.
  The recent news revealed that the chief of the janitorial services 
over at the Federal Reserve makes $163,000 a year, and yet we have no 
authority over the Federal Reserve because it is a quasi-private 
organization that is not responding to anything the Congress says. Yes, 
they come and give us some reports about what they are doing, but 
because Congress has reneged, they no longer have much to say about 
what the Federal Reserve does.
  This, to me, is pretty important when we think how important money 
is. If they have the authority to manipulate interest rates, which is 
the cost of borrowing, which is the price as well as the supply of 
money, this is an ominous power because we use the money in every 
single transaction. It is 50 percent of every transaction. Whether it 
is the purchase of a good or whether it is the selling of our labor, it 
is denominated in terms of what we call the dollar, which does not have 
much of a definition anymore, and yet we have reneged on our 
responsibility to monitor the Fed to determine whether or not this 
dollar will maintain value.
  Things have not always been this bad, and it did not happen 
automatically in 1913 when the Federal Reserve was established. It took 
a while. But it is worse now than it has ever been. Matter of fact, a 
well-known former Chairman of the Federal Reserve, William McChesney 
Martin, had interesting comments to make about this very issue in 1953. 
Mr. Martin said this: ``Dictated money rates breeds dictated prices all 
across the board.''
  Well, it is abhorrent to those who believe in free enterprise and the 
marketplace. He goes on to say, ``This is characteristic of 
dictatorship. It is regimentation. It is not compatible with our 
institutions.''
  So here we have a former Chairman of the Federal Reserve System 
coming down very hard on the concept of control of money and credit, 
and yet today it is assumed that the Federal Reserve has this 
authority. And so often it gravitates into the hands of one individual.
  So those who are levying criticism toward the Federal Reserve today 
are justified, but if it is only to modify policy and not go to the 
source of the problem, which means why do they have the power in the 
first place, it is not going to do much good. So we will have to 
someday restore the integrity of the monetary system, and we have to 
have more respect for the free market if we ever expect to undertake a 
reform of a monetary system which has given us a great deal of trouble, 
and it is bound to give us a lot more trouble as time goes on.
  How will this be done? Some argue that the Federal Reserve is private 
and out of our control. That is not exactly true. It is secret, but it 
is a creature of Congress. Congress created the Federal Reserve System 
and Congress has the authority to do oversight, but it refuses and has 
ignored the responsibility of really monitoring the value of our 
currency and monitoring this very, very powerful central bank.
  There is no doubt in my mind and in the minds of many others that 
this has to be done. To say that we must just badger a little bit to 
the Fed and to Mr. Greenspan, and say that interest rates should be 
lowered or raised or whatever, and tinker with policy, I think that 
would fall quite short of what needs to be done.
  What is the motivation behind a Federal Reserve System and a central 
bank? Indeed, there is some very interesting motivation because it does 
not happen accidentally. There is a good reason to have a central bank 
that has this power to just with a computer create billions of dollars. 
It is not an accident that Congress more or less closes their eyes to 
it.

  Between 1913 and 1971 there were a lot more restrictions on the 
Federal Reserve to do what they are doing today, because at that time 
we were still making a feeble attempt to follow the Constitution. The 
dollar was defined as the weight of gold. There were restrictions in 
the amount of new money and credit one could create because of the gold 
backing of the currency.
  Although Americans were not allowed to own gold from the 1930's to 
1971, foreigners could. Foreigners could come in and deliver their 
dollars back onto the United States and say, ``Give us $35 an ounce.'' 
But that was a fiction, too, because by that time we had created so 
many new dollars that the market knew that it took more dollars to get 
one ounce of gold. In the process, we gave up a large portion of our 
gold that was present in our Treasury.
  Why would the Congress allow this and why would they permit it? I 
think the reason is Congress likes to spend money, and many here like 
to tax, and they have been taxing. But currently, today, the average 
American works more than half the time for the Government. If we add up 
the cost of all the taxes and the cost of regulations, we all work into 
July just to support our Government, and most Americans are not that 
satisfied with what they are getting from the Government.
  The taxes cannot be raised much more, so they can go out and borrow 
money. The Congress will spend too

[[Page H1902]]

much because there is tremendous pressure to spend on all these good 
things we do; all the welfare programs, and all the military 
expenditures to police the world and build bases around the world. It 
takes a lot of money and there is a lot of interest behind that to 
spend this money.
  So, then, they go and spend the money and, lo and behold, there is 
not enough money to borrow and not enough tax money to go around, so 
they have to have one more vehicle, and that is the creation of money 
out of thin air, and this is what they do. They send the Treasury bills 
or the bonds to the Federal Reserve, and with a computer they can turn 
a switch and create a billion or $10 billion in a single day and that 
debases the currency. It diminishes the value of the money and alters 
interest rates and causes so much mischief that, if people are 
concerned about the economy or their standard of living or rising costs 
of living, this is the source of the problem.
  So it is not only with the Federal Reserve manipulating the money and 
the interest rates, but the responsibility falls on the Congress as 
well because the Federal Reserve serves the interests of the Congress 
in accommodating the Congress as we here in the Congress spend more 
than we should.
  Before 1971, when there were still restraints on the Federal Reserve, 
there was not as much deficit spending. Since that time, since the 
breakdown of the final vestiges of the gold standard in 1971, we have 
not balanced the budget one single time. So there is definitely a 
relationship. Now we have a national debt built up to $5.3 trillion, 
and we keep borrowing more and more.
  We have a future obligation to future generations of $17 trillion, 
and this obligation is developed in conjunction with this idea that 
money is something we can create out of thin air. Now, if it were only 
the accommodation for the excess spending that was the problem, and we 
just had to pay interest to the Federal Reserve, that would be a 
problem in itself but it would not be the entire problem that we face 
today and that we face in the future.
  As the Federal Reserve manipulates the economy by first lowering 
interest rates below what they should be and then raising interest 
rates above what they think they should be, this causes the business 
cycle. This is the source of the business cycle. So anybody who is 
concerned about unemployment and downturns in the economy and rising 
costs of living must eventually address the subject of monetary policy.

                              {time}  1445

  As a member of the Committee on Banking and Financial Services, I am 
determined that we will once again have a serious discussion about what 
money is all about and why it is so important and why we in the 
Congress here cannot continue to ignore it and believe that we can 
endlessly accommodate deficits with the creation of new money. There is 
no doubt that it hurts the working man more so than the wealthy man. 
The working man who has a more difficult time adjusting to the rising 
cost of living is now suffering from a diminished standard of living 
because real wages are going down.
  There are many, many statistics now available to show that the real 
wage is down. Between 1973 and 1997, the wages of the working man has 
gone down approximately 20 percent. This has to do with the changes in 
the economy, but it also has to do with changes in the value of the 
currency and the wages do not keep up with the cost of living.
  The increase in the supply of money is called inflation, even though 
there are not very many people in the news world or here in the 
Congress would accept that as a definition, because everybody wants to 
say that inflation is that which we measure by the Consumer Price 
Index.
  The Consumer Price Index is merely a technique or a vehicle in a 
feeble attempt to measure the depreciation of our money. It is 
impossible to measure the money's value by some index like the Consumer 
Price Index. There are way too many variables because the individual 
who is in a $20,000 tax bracket buys different things than the 
individual who is in a $200,000 tax bracket. Wages are variable and the 
amount of money we borrow, the amount of money we spend on education as 
well as medicine varies from one individual to another. So this 
Consumer Price Index which we hang so much on is nothing more than a 
fiction about what we are trying to do in evaluating and accommodating 
and adjusting to the depreciating value of the dollar.
  The critics of the Fed are numerous, as I said. The recent criticism 
has erupted because a few weeks ago, after warning of about 3 or 4 
months by the Chairman of the Federal Reserve that interest rates were 
going to go up and, lo and behold, he did. The overnight interest rates 
that banks pay to borrow money just to adjust their books went up one-
fourth of 1 percent. This is very disturbing to the markets. But Alan 
Greenspan mentioned this for 3 or 4 months. He started talking about 
the threat to the marketplace and the threat to the stock market back 
in December. But instead of him being entirely in control as he would 
pretend to be, actually market interest rates were already rising. 
Because if we look carefully at the monetary statistics from December 
up until the time he raised interest rates, he actually was doubling 
the growth of the money supply.
  What does this mean? This means that there were pressures already on 
rising interest rates, and the way to keep interest rates down is to 
create more and more money. It is the supply-and-demand effect. So if 
you have more money, make it more available, interest rates come down. 
So this was his attempt to keep interest rates down rather than him 
saying, today we have to have higher interest rates.
  But the real problem is why does the Federal Reserve have this much 
power over interest rates? In a free market, interest rates would be 
determined by savings. People would be encouraged to work, spend what 
they want, save the rest. If savings are high, interest rates go down, 
people then are encouraged to borrow and invest and build businesses. 
But today we have created an environment that there is no encouragement 
for savings, for tax reasons and for psychological reasons, very, very 
little savings in this country. Our country saves less money than 
probably any country in the world. But that does not eliminate the 
access to credit. Because if the banks and the businesses need money, 
the Federal Reserve comes along and they crank out the credit and they 
lower the interest rates artificially, which then encourages 
businesspeople and consumers to do things that they would not otherwise 
do.
  This is the expansion or the bubble part of the business cycle, which 
then sets the stage for the next recession. So people can talk about 
how to get out of the next recession when the next recession hits and 
they can talk about what caused it, but the next recession has already 
been scheduled. It has been scheduled by the expansion of the money 
supply and the spending and the borrowing and the deficits that we have 
accumulated here over the last 6 to 8 years. And so, therefore, we can 
anticipate, and we in the Congress will have to deal with it, we 
anticipate for the next recession.
  But unfortunately, because we do not look at the fundamentals of what 
we have done and the spending and the deficits, the next stage will be 
what we have done before. That is, if unemployment is going up, the 
government has to spend more money, there has to be more unemployment 
insurance. We cannot let people suffer. So the deficits will go up, 
revenues will go down and as we spend more money to try to bail 
ourselves out of the next recession, we will obviously just compound 
the problems because that is what we have been doing for the past 50 
years. We have not solved these problems.
  As a matter of fact, what has happened, because we eventually get the 
economy going again, what we do is we continue to build this huge 
financial bubble which exists today. It is a much bigger bubble than 
ever existed in the 1920's, it is international in scope and it is 
something never experienced in the history of mankind. Yet we have to 
face up to this, because when that time comes, we have to do the right 
things.
  The 64 Members of Congress recently that signed the letter to Alan 
Greenspan said, Mr. Greenspan, you should not raise interest rates. Of 
course I just mentioned that maybe interest rates were rising, anyway, 
maybe he was accommodating the market pressures. But when 64 Members of 
Congress write to Greenspan and say do not let interest rates rise, or 
lower interest rates,

[[Page H1903]]

what they are really saying is crank out more money, because if there 
is a greater supply of money, then interest rates will be lower and 
everybody is going to be happy. That is true, for the short run. On the 
long run, it causes very serious problems.
  Stiglitz, who used to be the chairman of the council of economic 
advisers, is a very strong critic of Alan Greenspan right now. He said 
that there are no problems, there is no cliff we are about to go over, 
do not worry about the future. I do not fault Mr. Greenspan's concern, 
believe me. I think he knows what is coming and why adjustments have to 
be made. But his critics are saying, when they talk about do not raise 
interest rates, what we have to remember is what they are saying to him 
is make sure there is more inflation, more money, lower interest rates 
and, of course, that will add to our problems in the future.
  Not only do we have Members of Congress telling the Fed what to do, 
and the former Chairman of the Council of Economic Advisers telling 
them, many others all have an opinion on what to do, but nobody really 
asks the question, why are they doing all this in secret and where did 
they get all this power and why do we tolerate this system of money?

  Even the IMF, something I am very much concerned about is the 
internationalization of our credit system, the IMF now has issued a 
recent report, but they do not agree with the 64 Members of Congress 
and they do not agree with the critics who say lower interest rates, 
create more money. They are saying to our Federal Reserve, you are 
creating too much money and you are having too much growth. Who ever 
heard of anything like too much growth? What is wrong with too much 
growth? Some people think that too much growth causes inflation, which 
is an absolute fallacy. If there is a lot of growth and a lot of 
production, prices would come down. Prices go up when the value of the 
money goes down. But the IMF is saying that should not even be involved 
in our domestic policy, and they are more involved than ever before, 
they are telling our Fed, this is good, what you are doing is good, 
keep raising your interest rates, turn off the economy, have a little 
slump here.
  We do not need that kind of advice from somebody. We have enough 
problems taking advice from our own people and our own Congress about 
what has to happen, but we certainly do not need the advice from the 
IMF telling us that we ought to have more inflation, that we should 
involve overheating and that for some reason growth is bad. In a free 
market, sound monetary system, growth is good. If you have sound money 
and you have economic growth of 6 or 7 or 8 percent a year, you do not 
have inflation. That does not cause the inflation. It is only the 
debasement of the money that causes prices to rise.
  Why do we hear so much concern about interest rates and price? Well, 
there is a specific reason for this according to some very sound 
economic thinkers, and, that is they would like for us here in the 
Congress to think only about prices, either the price of money, which 
is the interest rate, or other prices, because so often it leads to the 
conclusion that, well, maybe what we ought to do is have price 
controls, which they tried in the early 1970's and it was a total 
disaster, but this is essentially what we have in medicine today.
  We create new credit, the money goes in certain areas, the Government 
takes this money and channels it into education in medicine, so you 
have more price inflation. So what do you do? You have price controls. 
That is what is going on. That is what we are having today in medicine, 
rationing of health care. That is what managed care is all about. 
Patients suffer from this because they have less choices, and they do 
not have as much decisionmaking on what care they are going to get. 
This is a consequence of Government manipulation of money and credit.
  Those who want to perpetuate this system do not want us to think of 
the real cause, and that is, the real cause is the monetary system. 
They would like us to think about the symptoms and not the cause, 
because it is not in the interest of a lot of people, not only not in 
the interest of the big spenders here in the Congress who love the idea 
that the Federal Reserve is able to accommodate them on deficits, but 
there are business and banking interests and international interests 
and even some military production interests who like the idea that the 
credit is readily available and that they will be accommodated. The 
little guy never benefits. The little guy pays the taxes, he suffers 
from the inflation, he suffers from the unemployment, but there is a 
special group of people in an inflationary environment that benefits. 
Today of course there are a lot of people on Wall Street benefiting 
from this environment.
  If this type of system were real good, we would all be very, very 
prosperous, and if we listened to the Government statistics, we would 
say there are no problems in this country. But I know differently. A 
lot of people I talk to, they tell me they are having a lot of problems 
making ends meet. Sometimes they work two and three jobs to get their 
bills paid. It is not all feminism that makes women go to work. A lot 
of women go to work because they have to do it to make ends meet and 
take care of their families. So there are a lot of problems.
  But one key point that I think is important and, that is economic 
growth. If we have no economic growth and there is no productivity 
growth, we cannot maintain the standard of living, we cannot have 
increasing wages. If you do not produce more, you cannot have wages 
going up.
  Unfortunately, that is where we are really hurting in this country. 
We are living prosperously because we borrow a lot of money, by 
individuals, by corporations, and our Government borrows a lot from 
overseas. But we are not producing. Productivity growth in the last 5 
years has averaged 0.3 percent. This is very, very low. It is 
equivalent to what happened before the Industrial Revolution, and it is 
going to lead to major problems in this country unless we understand 
why we are not producing as we had in the past. We need to address this 
if we have any concern about the people who suffer from these 
consequences.
  The economic growth is slow. Predictions are that they, according to 
the Government statistics, are going to slow even more in time, whether 
it is the end of this year or next. We will have a recession. Even by 
some Government statistics now, we are seeing signs that there is a 
rising price level in some of our commodities. There is belief that 
these prices will go up and we will be suffering more so, even measured 
by the Consumer Price Index. This story that is being passed out here 
in the Halls of Congress and in other places in Washington that we do 
not have to worry about the Consumer Price Index, it overstates 
inflation, therefore we can make the adjustment, I do not think that is 
correct at all. I think the Consumer Price Index probably way 
underestimates inflation. If you have private sources, there are many 
people who suffer the cost of living much higher than the 3 or 4 
percent that the Government reports. But there are some commodity 
indices that in the past 2 years have gone up over 50 percent. This is 
a sign of the consequence of the inflating of the money supply and it 
is starting to hit, or will hit some of our consumer products, because 
it is already hitting our commodities.
  This idea that if there is a sign that prices are increasing, what we 
have to do is take it under control and we have to suppress economic 
growth and raise interest rates, this says something about our policy 
that shows the lack of understanding. Because if we look at all the 
recessions that we have had since World War II, in spite of the 
seriousness of many of these recessions, prices still go up.
  The one that we remember most clearly is in the 1970's, where they 
even coined the word ``stagflation.'' This is not an unheard of 
economic phenomenon. It is very frequent in many other nations, where 
you have a lot of inflation and poor economic growth. We have not had a 
serious problem with that, but it is very likely that that is 
eventually what we will get, because we have absolutely no backing and 
no restraint on our monetary system.

                              {time}  1500

  When we have an economic and monetary system as we have today, I 
mention how it encourages Congress to spend beyond its means. It spends 
too much, it borrows too much, it inflates

[[Page H1904]]

too much, and it leads to serious long-term problems, that as long as 
you can borrow again and borrow again, you sort of hide the problems, 
delay the consequences of the problem and prevent the major correction 
that eventually comes.
  But what have the American people been doing? Well, they have been 
encouraged by this. They see the credit is available out there. They 
keep borrowing, living beyond their means. Government lives beyond 
their means, and individuals live way beyond their means.
  But some of the statistics are not very good about what is happening 
with our consumers, the American citizens. In 1996 personal 
bankruptcies were up 27 percent. It is at record high; well over a 
million bankruptcies were filed in 1996. This is a reflection of loose 
credit policies, but it also is a reflection of a moral attitude.
  There was a time in our history where bankruptcy was looked down 
upon, that we had a moral obligation to do our very best. If we have a 
bad turn in our businesses, what we did was we notified everybody, we 
went back to work, and we systematically did our very best to pay off 
all our debts. There is no incentive for that today. So it is very easy 
today to see the bankruptcies filed, and they are increasing rapidly. I 
suspect that they are going to continue to increase even more 
dramatically.
  Credit card delinquencies are at an all time high. They were at 3.72 
percent in 1996, and those who are late payments, they are also a 
historic high, well over 5 percent. So the credit conditions of this 
country are not very good.
  Now what do we see as the signs of things changing to sort of take 
care of this problem? So far, not too many good things happening. In 
1995, the latest year we have measurements for, we find out that credit 
card issuers, credit card companies, issued 2.7 billion credit cards, 
preapproved. Preapproved credit cards, 2.7 billion, and it was 
equivalent to sending every single American between the ages of 18 and 
64, 17 preapproved credit cards. Nothing like throwing out the 
temptation there, and many Americans fall into the temptations. 
Congress does it. They keep borrowing, and they exist. So the 
individual keeps borrowing, takes another credit card, rolls them over.
  Eventually, though, the banker will call. The banker will call the 
individual. Who calls the Congress? Who calls a country when it spends 
beyond its means and it is way past the time when they should be 
cutting back? The problem that develops then is not so much that the 
Government, our Government, quits taxing and quits paying the bills. We 
will always do that. We have control over that because we now have this 
authority by Federal Reserve to create the money. The checks will 
always come.
  The one thing that we do not have in the Congress and we do not have 
in the Federal Reserve, and the President does not have, is to 
guarantee the value of the money, and that is the problem. Today all we 
hear about is the strength of the dollar, but if you look at the dollar 
from 1945 on, the dollar is on a downward spiral, and we are on a 
slight upward blip right now. Ultimately the dollar will be attacked by 
the marketplace, and it will be more powerful than any of the policy 
changes that our Federal Reserve might institute.
  There is a couple other things that have happened in our financial 
system that is different than in the other ones. Some would argue with 
me and say you are concerned about the supply of money and credit. 
Well, I can show you a statistic measured by M-1, M-2 and M-3, and the 
money supply is not going up all that rapidly. And this is the case 
compared to other times, that money supply as measured by the more 
conventional methods are not--those measurements are not going up as 
rapidly as they have in the past. But there are other things that can 
accommodate the lack of expansion of money as measured by, say, M-2 and 
M-3.
  First, if an individual has an incentive not to hold the money and 
save the money, but spend their money the day they get it, that is 
called the velocity or the propensity to spend the money, and if you 
use it more often, it is like having more dollars, and that is one 
statistic that has gone up dramatically. Between 1993 and 1996 it has 
gone up 45 percent, so there is more desire to take the money and spend 
it, and it acts as if there is a lot more money, and we will also put 
pressure on the marketplace and cause the distortions that can be 
harmful.
  The other thing that we have going that is different than ever before 
is that because there is no definition of the money, the dollars, no 
definition of the dollar, we have introduced the notion of all kinds of 
hedges and all kinds of speculation, and some serve financial and 
economic interests to do hedging, but because there is no soundness to 
the currency there is a greater need all the time to hedge and to try 
to protect against sudden changes. Some of that would be economically 
driven, but other activity of that sort is driven by speculation.
  So in an age when you have tremendous excessive credit, money and 
credit, you have more speculation. Consumers speculate they spend too 
much money, a businessman speculates, invests in things he probably 
should not, but also governments do the same thing. They spend money 
that they should not have.
  But in this area of derivatives, we have things like swaps and 
futures and options, repos, and the foreign currency market. Right now 
there is $20, $21 trillion worth of these derivatives floating around 
out there outside of the measurement by our conventional money supply, 
which means that this participates in this huge financial bubble that 
exists around the world.
  There is also a measurement that we make on a daily basis which is 
called through the clearinghouse interbank payment system, and this is 
all the electronic money that is traded throughout the world every 
single day, and this again reflects how quickly we are spending our 
money and how fast we are circulating and how quickly it moves among 
and through our computers. Today it is estimated that $1.4 trillion is 
transferred over the wire service.
  Now, if there were a sound dollar and it was created only with a 
proper procedure rather than out of thin air, this would not be as bad, 
but the fact that this is contributing toward a financial bubble I 
think is a very, very dangerous condition.
  We live in an age called the Information Age; we live in a computer 
age, and this technology is all very, very helpful to us. As a matter 
of fact, it has served us in many ways to accommodate this age of the 
paper money systems of the world. No money is sound today in history in 
the entire world. So there is what we call the fluctuating currency 
rates. Every single day, every single minute, the value of the dollar 
versus the yen, versus the mark, versus the pound is changing 
instantly.
  Now in the old days each currency was defined by a weight of gold. 
There was less speculation even though under those conditions 
governments manipulating, and there were periodic times when certain 
countries would have to devalue. But now the computer system has really 
been a free market answer to those individuals who like the system, and 
it does work, it does work to a large degree for a time. But it also 
allows the system to last longer, and it allows us to create more of 
this financial bubble.

  This is why we have been able to go along with the system of 
government where we have made commitments to our future generations of 
$17 trillion; otherwise we could not have made these commitments that 
would have had to be a correction. We would have had to cut back and 
live within our means, just as individuals do; they have to live within 
their means, and they have to live probably less high than they were 
when they were borrowing all the money. A country will have to do that, 
too, that has lived way beyond its means, and this is why what we are 
doing is so dangerous.
  The fact that we had these floating exchange rates for years has 
permitted many of our paper currencies to last a lot longer than they 
otherwise would have. We in the United States have a dollar which is 
considered the reserve currency in the world which lends itself to even 
more problems because the dollar is held in higher esteem and it is 
considered the reserve that other countries are more willing to hold, 
and this came out of the World War II because we had essentially all 
the gold, the dollar was strong, our economy was

[[Page H1905]]

strong, so the dollar was good as gold. So people took dollars and they 
would hold them, and they still do that to a large degree today.
  So what does that encourage us to do? It encourages here in the 
Congress and elsewhere to create this debt, and then as the money 
circulates, we go and we say, oh, we have a lot of credit, we can 
borrow this money, we will buy foreign products, and that is what we 
do. We buy a lot of foreign products, and everybody is decrying, you 
know, this foreign deficit. We owe more money to foreigners and we have 
a greater foreign deficit than any other country in the world, and it 
is encouraged because they are willing to take our dollars, and we are 
willing to spend the money and we are willing to run up these deficits 
and not worry about the future.
  But where do these dollars go? They go into the central banks, they 
buy our Treasury bills, and they are quite satisfied at the moment. But 
when they get unsatisfied and dissatisfied with it, they are going to 
dump these dollars, and they will come back. But the trade deficit is 
running more than a hundred billion dollars a year, which means we buy 
more products from overseas than we sell to the tune of a hundred 
billion dollars.
  This in many ways has allowed our Federal Reserve to get off the hook 
a bit because if we had a $100 billion that nobody wants to loan us and 
they had to create that new money, that would be very, very damaging to 
the psychology of our market, and it would be very, very inflationary. 
So it is still inflationary, but it is delayed. So as long as 
foreigners will take our dollars and let us buy their goods and we live 
beyond our means and hold our dollars and we keep creating new money 
and paying the interest, this thing could go on for a while. But 
eventually though in all monetary systems which are based on fiat, the 
creation of money out of thin air, eventually comes to an end, and when 
it comes to an end, there is the rejection of the dollar, and then the 
dollars come home, interest rates will go up, inflation will be back 
with a vengeance, and there will come a time, and nobody knows when 
that time will come, it will not be because of us in the Congress being 
very deliberate and very wise to all of a sudden live within our means, 
but we will be forced to live within our means because those who want 
to loan the money to us and the value of the money will change, that 
there will just not be enough wealth.
  What promotes all this? Well, what is the grand illusion that allows 
us to get ourselves into such a situation? Well, the grand illusion of 
the 20th century, especially in the latter half of the 20th century, 
has been that prosperity can come from the creation of credit. Now if 
you think about it, it does not make any sense if you take a Monopoly 
game and you create more Monopoly money and pass it out, everybody 
knows it has no value. But we have literally endorsed the concept that 
if we just print money and pass it out, everybody is going to be 
wealthy, and because it is government and because it was related to a 
gold standard and because foreigners will take money, this system 
continues to work because there is still trust in the money.
  But eventually this trust will be lost. The wealth cannot be created 
by creating new money. Yes, if the Federal Reserve prints more money 
today and hands it to me, I can go spend it and I can feel wealthier. 
But in the grand scheme of things, you do not create wealth that way, 
and that is also the reason why productivity growth is down. We do not 
create it. We have to have incentives, we have to encourage work and 
effort. That is the only place you can get wealth.
  So our taxes are too high, the regulations are too high, we borrow 
too much money, interest rates are too high, and we discourage savings 
all because of this monetary system. So eventually we are going to be 
required to do something about that to restore trust in the money so we 
do save money so we work harder. But we have to lower taxes, we have to 
get rid of regulations, we have to get rid of taxes on capital gains 
and get rid of taxes on savings and interest and get rid of taxes on 
inheritance. Then people will have more of an incentive to work rather 
than just to borrow. So the illusion of wealth today is that which 
comes from a fiat or paper monetary system.
  We need today a very serious debate on what the monetary system ought 
to be all about. It cannot be a debate which is isolated from the role 
of government. If we have a role of government which is to run the 
welfare state, to give anything to anybody who needs something or wants 
something or claims it is an entitlement or claims it is a right, if 
that is a system of government that we want to perpetuate, it is going 
to be very difficult to have any reform. If we continue to believe that 
this country is the policeman of the world, that we must police the 
world and build bases overseas at the same time we neglect our own 
national defense, our own borders, our own bases here at home, but we 
continue to spend money on places, on Bosnia and Africa, and pay for 
the defense of Japan and Europe; as long as we accept those ideas, 
there is no way we can restore any sanity to our budget.

                              {time}  1515

  So I am suggesting to my colleagues here in the Congress that what we 
must do is address the subject of what the role of government ought to 
be. There should be a precise role for government. That is what the 
whole idea and issue was of the Constitutional Convention as well as 
our Revolution. We did not like the role of government that the English 
and the British had given us, and we here in the United States decided 
that the role of government ought to be there for the preservation of 
liberty.
  The role of government ought not to be to redistribute wealth, it 
ought not to be the counterfeiter of the world, to create money out of 
thin air. It is illegal for you or I to counterfeit money. Why do we 
allow the Government to counterfeit the money and make it worthless all 
the time?
  As long as we accept that, we are going to have big problems. But 
there will be a time coming, and I suggest to all of my colleagues that 
we be ready for it, because it is so serious. Not only is it a serious 
threat to our physical and economic well-being, the greater threat is 
the threat to our individual liberty. As conditions worsen, and when we 
have to face up to our problems, so often the response is, all we need 
is another government program. And that is still an attitude that I see 
all the time around here: if we just have a little more tax money.
  Already in this very early Congress, we have had tax increases in 
spite of the rhetoric against taxes. We have been raising taxes. We 
have increased the amount of regulations. We have done nothing to 
really address the subject.
  That comes from the fact that we never really ask the right 
questions. What should the role of government be? The Founders, as they 
concluded after the Revolution, as they wrote the Constitution, it very 
clearly was stated that the role of government, especially at the 
Federal level, ought to be there to protect the individual liberties of 
all individuals, no matter what. But today, we have lost that as a goal 
and as a target. We concentrate, whether it is a businessman or the 
person that is receiving welfare benefits, the concentration is on the 
material benefits that usually come from a free society in a voluntary 
way. But today, if anybody wants something or they need something or 
they think they have a right to it, what do they do; they order a 
political action committee and come to Washington.
  I was gone for a few years. I was here in the Congress in 1976, and, 
after returning, there is one dramatic difference. There are more 
lobbyists than ever, more commands, more people coming and more people 
wanting things. I have more demand from the business community than I 
do from those who are from the poor end of the spectrum. There is a 
vicious maldistribution of wealth in a society that destroys its money. 
Inevitably, if a country destroys its money, it destroys its middle 
class.
  This is what is happening in this country already. The poor, middle 
class individual who is still proud enough not to go on the dole and 
not to take welfare, that is the individual who suffers the very most; 
and he is the one that is most threatened by the loss of a job in the 
next downturn.
  Currently right now, Wall Street, are they suffering from this 
financial bubble that I see? No. If you are in the

[[Page H1906]]

stock market or the bond market or borrowing overseas, they are doing 
quite well. People say: You worry too much. There is no inflation. No 
matter what you say about the money supply and all of these things you 
talk about, there is no inflation, do not worry about it. Inflation 
deals with money, not prices.
  So as I said earlier, I believe prices are going up much faster than 
people will admit; but at the same time, the supply of money and credit 
continues to expand. So we will have to eventually address these 
problems. I think it will be up to us as Members of Congress to at 
least make some plans. Because if we do not, if we do not make the 
plans, I see this as a serious, serious threat to our personal 
liberties.
  Mr. Speaker, it will not be a simple reform that we need. We have to 
do something more than that. We have to start thinking about what do we 
need to do to really change the course. Is there anything wrong with 
addressing the subject of individual liberty? Is there anything wrong 
with talking about the value and the importance of sound money? I claim 
there is nothing wrong with that, but there is very little debate. 
There is very little debate among our committee members and in our 
committees to address this. It is usually, how do we tide ourselves 
over? How do we modify this so slight a degree?
  But the time will come, the time will come, because we will go 
bankrupt, because no country has ever done this before. No country can 
live beyond its means endlessly. No country can spend and inflate and 
destroy its money. There will be this transfer of wealth. It happened 
in many, many countries in this century. Of course, one example of the 
20th century was the German inflation, and then there has to always be 
a scapegoat. The middle class suffers the most. Somebody has to be 
blamed.
  Currently today, I see a trend toward those of us who advocate 
limited government, those who detest big government as becoming the 
scapegoat saying, oh, you individuals who are against big government, 
you are the people who cause trouble, you cause unhappiness. That is 
not the case. People are unhappy. I meet them all the time because they 
are having a difficult time making it in this day and age. Who knows 
who the next scapegoat will be, but there will be one.
  Mr. Speaker, the middle class in America will have to eventually join 
in the reforms that we need. The reforms can be all positive. There is 
nothing wrong with advocating limited government. There is nothing 
wrong in the American spirit to advocate the Constitution. There is 
nothing wrong with the American tradition that says work is good. And 
there is something wrong with a system that endorses and encourages and 
pushes the idea that we have the right to somebody else's life and 
somebody else's earnings. I do not believe that is the case. I think 
that is morally wrong. I do not believe it has been permitted under the 
Constitution, and it also leads to trouble. If it led to prosperity, it 
would be a harder argument for me. But if it leads to trouble and it 
leads to people being undermined in their financial security and in 
their economic security, then we have to do something else.
  I would like to invite those who expressed deep concern about the 
poor and those who advocate more programs, more welfare programs, I 
would like to suggest they need to look at monetary policy. They need 
to look at deficits, and they need to realize that wealth has to be 
created. And if we truly do care about the poor people in this country, 
and if we do care about the people trying to build homes, public 
housing obviously has not worked. We have been doing public houses now 
and spent nearly $600 billion, and there is no sign that we have done 
much for the people that we have given public housing to.
  We have spent $5 trillion on welfare. There are more homeless than 
ever. The educational system is worse than ever. Yet we do not really 
say, well, what should we do differently? Sometimes we will say, well, 
let us take the management and change the management. Let us take the 
bureaucrats from Washington and put them in the States. Let us do block 
grants. Let us make a few minor adjustments and everything is going to 
be OK, and it will not be.

  We will not make it OK until we address the subject of what kind of a 
society we want to live in. I want to live in a free society. 
Fortunately for me, as a Member of Congress, and as one who has sworn 
to uphold the Constitution, this is an easy argument. It should be an 
easy argument for all of my colleagues who would say, yes, I have sworn 
to uphold the Constitution, I believe in America, I believe in hard 
work. But why do you vote for all of these other programs? Why do you 
vote for all of the deficits? Why are we getting ready to vote for more 
taxes soon? Why are we voting a supplemental appropriation? Why are we 
doing these things if we really are serious? I have not yet seen any 
serious attempt to cut back on spending and cut back on taxes.
  Mr. Speaker, someday we will have to do it. The sooner, the better. 
If we do it in a graceful manner, there is no pain and suffering. The 
American people will not suffer if we cut their taxes. The American 
people will not suffer if we lower the amount of regulations. The 
American people will not suffer if we get out of their lives and not 
give them 100,000 regulations to follow day in and day out. The 
American people will not suffer if the Federal Government gets out of 
the management of education and medicine. That is the day I am waiting 
for and the day I am working for. Hopefully, I will get other Members 
of Congress here to join me in this effort to support the concepts and 
the principles of individual freedom.

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