[Congressional Record Volume 144, Number 129 (Thursday, September 24, 1998)]
[House]
[Pages H8603-H8604]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     REVAMPING THE MONETARY SYSTEM

  The SPEAKER pro tempore (Mr. Bass). Under a previous order of the 
House, the gentleman from Texas (Mr. Paul) is recognized for 5 minutes.
  Mr. PAUL. Mr. Speaker, Mr. Speaker, I would like to call the 
attention of fellow colleagues to the issue of three things that have 
happened in the last couple of days.
  Today it was recorded in our newspapers and it was a consequence of a 
meeting held last night having to do with a company that went bankrupt, 
Long-Term Capital Management. I believe this has a lot of significance 
and is something that we in the Congress should not ignore.
  This is a hedge fund. Their capitalization is less than $100 billion, 
but, through the derivatives markets, they were able to buy and 
speculate in over $1 trillion worth of securities, part of the 
financial bubble that I have expressed concern about over the past 
several months.
  But last night an emergency meeting was called by the Federal Reserve 
Bank of New York. It was not called by the banks and the security firms 
that were standing to lose the money, but the Federal Reserve Bank of 
New York called an emergency meeting late last night. Some of the 
members of this meeting, the attendees, came back from Europe just to 
attend this meeting because it was of such a serious nature. They put 
together a package of $3.5 billion to bail out this company.
  Yesterday also Greenspan announced that he would lower interest 
rates. I do not think this was an accident or not coincidental. It was 
coincidental that at this very same time they were meeting this crisis, 
Greenspan had to announce that, yes indeed, he would inflate our 
currency, he would expand the money supply, he would increase the 
credit, he would lower interest rates. At least that is what the 
markets interpreted his statement to

[[Page H8604]]

mean. And the stock market responded favorably by going up 257 points.
  On September 18th, the New York Times, and this is the third time 
that that has come about in the last several weeks, the New York Times 
editorialized about why we needed a worldwide Federal Reserve system to 
bail out the countries involved in this financial crisis.
  Yesterday, on the very same day, there was another op-ed piece in the 
New York Times by Jeffrey Garten, calling again for a worldwide central 
bank, that is, a worldwide Federal Reserve system to bail out the 
ailing economies of the world.
  The argument might go, yes, indeed, the financial condition of the 
world is rather severe and we should do something. But the financial 
condition of the world is in trouble because we have allowed our 
Federal Reserve System, in deep secrecy, to create credit out of thin 
air and contribute to the bubble that exists. Where else could the 
credit come from for a company like Long-Term Capital Management? Where 
could they get this credit, other than having it created and encouraged 
by a monetary system engineered by our own Federal Reserve System?
  We will have to do something about what is happening in the world 
today, but the danger that I see is that the movement is toward this 
worldwide Federal Reserve System or worldwide central bank. It is more 
of the same problem. If we have a fiat monetary system, not only in the 
United States but throughout the world, which has created the financial 
bubble, what makes anybody think that creating more credit out of thin 
air will solve these problems? It will make the problems much worse.
  We need to have a revamping of the monetary system, but certainly it 
cannot be saved, it cannot be improved, by more paper money out of thin 
air, and that is what the Federal Reserve System is doing.
  I would like to remind my colleagues that when the Federal Reserve 
talks about lowering interest rates, like Mr. Greenspan announced 
yesterday, or alluded to, this means that the Federal Reserve will 
create new credit. Where do they get new credit and new money? They get 
it out of thin air. This, of course, will lower interest rates in the 
short run and this will give a boost to a few people in trouble and it 
will bail out certain individuals.
  When we create credit to bail out other currencies or other 
economies, yes, this tends to help. But the burden eventually falls on 
the American taxpayer, and it will fall on the value of the dollar. 
Already we have seen some signs that the dollar is not quite as strong 
as it should be if we are the haven of last resort as foreign capital 
comes into the United States. The dollar in relationship to the Swiss 
frank has been down 10 percent in the last two months. In a basket of 
currencies, 15 currencies by J.P. Morgan, it is down 5 percent in one 
month.
  So when we go this next step of saying, yes, we must bail out the 
system by creating new dollars, it means that we are attacking the 
value of the money. When we do this, we steal the value of the money 
from the people who already hold dollars.
  If we have an international Federal Reserve System that is permitted 
to do this without legislation and out of the realms of the legislative 
bodies around the world, it means that they can steal the value of the 
strong currencies. So literally an international central bank could 
undermine the value of the dollar without permission by the U.S. 
Congress, without an appropriation, but the penalty will fall on the 
American people by having a devalued dollar.
  This is a very dangerous way to go, but the movement is on. As I 
mentioned, it has already been written up in the New York Times. George 
Soros not too long ago, last week, came before the Committee on Banking 
and Financial Services making the same argument. What does he happen to 
be? A hedge fund operator, the same business as Long-Term Capital 
Management, coming to us and saying, ``Oh, what you better do is 
protect the system.''
  Well, I do not think the American people can afford it. We do have a 
financial bubble, but financial bubbles are caused by the creation of 
new credit from central banks. Under a sound monetary system you have a 
commodity standard of money where politicians lose total control. 
Politicians do not have control and they do not instill trust into the 
paper money system.

  But we go one step further. The Congress has reneged on its 
responsibility and has not maintained the responsibility of maintaining 
value in the dollar. It has turned it over to a very secretive body, 
the Federal Reserve System, that has no responsibility to the U.S. 
Congress. So I argue for the case of watching out for the dollar and 
argue for sound money, and not to allow this to progress any further.

                          ____________________