[Congressional Record Volume 143, Number 160 (Thursday, November 13, 1997)]
[Extensions of Remarks]
[Page E2354]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                         ASIAN FINANCIAL CRISIS

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                      Thursday, November 13, 1997

  Mr. PAUL. Mr. Speaker, the Asian financial markets are unsteady, and 
for good reasons. Many have correctly anticipated the ongoing financial 
events as a natural consequence of a sustained worldwide credit 
expansion of unprecedented proportions. According to free market/sound 
money economics, all credit expansions set the stage for the 
correction. These corrections are undesired by the dreamers of 
perpetual prosperity generated by loose central bank monetary policy.
  The source of the problem, the world financial markets currently 
face, is unwise monetary policy--plain and simple. Although the 
business cycle has been fully understood by the Austrian free market 
economists throughout most of this century, they have been ignored by 
our government-run universities, the major media, and the politicians. 
And since the now-collapsing financial bubble was the largest ever, due 
to an unprecedented globalization of credit expansion, the implications 
for the world economy should gain the attention of everyone concerned 
about public policy.
  The world has been functioning with total fiat currencies for more 
than a quarter century--a first. Even with continuous adjustment in the 
international exchange markets, artificial relationships develop 
between currencies. These imbalances are subject to market forces, 
demanding new exchange rates, and as we are witnessing, they occur with 
shocks to the entire financial system. More huge IMF bailouts as are 
currently planned will not solve the problems.
  The suspension of standard lending limits only sends the wrong signal 
of fiscal and monetary irresponsibility and sets the stage for a larger 
financial crisis. According to normal IMF lending standards, a country 
can only borrow up to 150 percent of its quota with the fund. However, 
the Mexican peso crisis created a new precedent and allowed a country 
to borrow more than the rules allowed. Thailand will get $3.9 billion 
from the IMF which is 505 percent of its quota while Indonesia will 
receive $10.1 billion amounting to 490 percent of its quota. Mexico was 
offered $17.8 billion, 688 percent of its quota, in 1995.
  Governments can instill value in a paper currency only temporarily; 
but markets ultimately dictate real worth at great cost to the currency 
stability the money managers pretend to achieve. More bailouts at the 
expense of the American taxpayers are wrong.
  Monetary inflation and credit expansion of paper currencies mislead 
all financial participants. Fictitious interest rates promote mal-
investment, over capacity, excessive debt, false confidence and rampant 
speculation. The longer the misdirected economy functions, the more 
widespread the credit expansions and the bigger the bubble and 
unfortunately the more serious the correction. And this current 
expansion has been a big one.
  The principal engine of this inflation has been the Federal Reserve, 
fueled by its misperception about the dollar's influence on worldwide 
credit expansion. Without the benefit of a commodity standard of money 
and with a fiat dollar being retained as the reserve currency of the 
world, our excesses have been paid for by foreigners willing to sell us 
goods for our paper, buy our treasury bills, hold them in reserve and 
use them to expand their own currencies and credit, thus feeding their 
own domestic booms.
  Congress does have a role in and responsibility for all of this. 
Instead of conceding monetary policy to a highly secretive, unaudited, 
off-budget, without oversight, central bank, our responsibility, under 
the Constitution, is to guarantee a sound convertible currency. There 
is no authority whatsoever for reckless credit expansion to be used as 
a tool for managing the economy. This illegal power to do so has given 
us everything from the Great Depression to the inflation of the 1970's 
and all the recessions in between. Inflationism has permitted excessive 
welfare spending and the accumulation of a $5.4 trillion national debt, 
by a central bank's ever-willingness to monetize the debt generated by 
the Congress.
  As financial conditions continue to adjust, and probably worsen, we 
here in the Congress must give serious consideration to monetary 
policy, our constitutional responsibilities to maintain a sound economy 
and assume rigid oversight of the Federal Reserve. Placing blame 
elsewhere for the turmoil would be a rejection of our responsibilities.
  If we fail to address this problem correctly, the dollar and the U.S. 
economy will one day come under siege similar to what is currently 
happening in Asia. We should work diligently to prevent that from 
happening.

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