[Congressional Record Volume 144, Number 148 (Friday, October 16, 1998)]
[Extensions of Remarks]
[Pages E2216-E2217]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                            MONETARY POLICY

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                        Friday, October 16, 1998

  Mr. PAUL. Mr. Speaker, a world-wide financial crisis is now upon us.
  For 2 years, I have called attention to this predictable event hoping 
the Congress would deal with it in a serious manner.
  Although many countries are now suffering more than the United 
States, in time, I am sure our problems will become much greater
  A world-wide system of fiat money is the root of the crisis. The 
post-World War II Bretton Woods gold-exchange system was seriously 
flawed, and free market economists from the start predicted its demise. 
Twenty-seven years later, on August 15, 1971, it ended with a bang 
ushering in its turbulent and commodity-driven inflation of the 1970's.
  Now, after another 27 years, we are seeing the end of the post-
Bretton Woods floating rate system with another bang as the financial 
asset inflation of the 1980's and 1990's collapses. A new system is now 
required.
  Just as the Bretton Woods system was never repaired due to its flaws, 
so too will it be impossible to rebuild the floating rate system of the 
past 27 years. The sooner we admit to its total failure, and start 
planning for sound money, the better.
  We must understand the serious flaw in the current system that is 
playing havoc with world markets. When license is given to central 
banks to inflate (debase) a currency, they eventually do so. 
Politicians love the central bank's role as lender of last resort and 
their power to monetize the steady stream of public debt generated by 
the largesse that guarantees the politician's reelection.
  The constitutional or credit restraint of a commodity standard of 
money offers stability and non-inflationary growth but does not 
accommodate the special interests that demand benefits bigger and 
faster than normal markets permit. The only problem is the financial 
havoc that results when the unsound system is forced into a major 
correction which are inherent to all fiat systems.
  That is what we are witnessing today. The world-wide fragile 
financial system is now collapsing and tragically the only cry is for 
more credit inflation because the cause of our dilemma is not 
understood. Attempts at credit stimulation with interest rates below 1 
percent is doing nothing for Japan's economy and for good reasons. it 
is the wrong treatment for the wrong diagnosis.

[[Page E2217]]

  If the problem were merely that there were not enough money, then 
money creation alone could make us all millionaires and no one would 
have to work. But increasing the money supply does not increase wealth. 
Only work and savings do that. The deception comes because, for a while 
for the luck few, benefits are received when government inflate the 
currency and pass it out for political reasons.
  But in time--and that time is now--it comes to an end. Even the 
beneficiaries suffer the inevitable consequences of a philosophy that 
teaches wealth comes from money creation and that central banks are 
acceptable central economic planners--even in countries such as the 
United States where many pay lip service to free markets and free 
trade.
  The tragedy in the end is far more damaging to the innocent than any 
benefit that was supposed to be delivered to the people as a whole. 
There is no justifiable trade-off. The costs far exceed the benefits. 
In addition, the economic chaos leads too frequently to a loss of 
personal liberty.
  A program to prevent this from happening is necessary.
  First, the Federal Reserve should be denied the power to fix interest 
rates and buy government debt. It should not be central economic 
planner through manipulation of money and credit.
  Second, Congress should legalize the Constitutional principle that 
gold and silver be legal tender by prohibiting sales and capital gains 
taxes from being placed on all American legal tender coins.
  Third, we must abandon the tradition of bailing out bad debtors, 
foreign and domestic. No International Monetary Fund and related 
institution funding to prop up bankrupt countries, and no Federal 
Reserve-orchestrated bailouts such as Long Term Capital Management LP. 
Liquidation of bad debt and investments must be permitted.
  Fourth, policy elsewhere must conform to free markets and free trade. 
Taxes, as well as government spending, should be lowered. Regulations 
should be greatly reduced, and all voluntary economic transactions in 
hiring practices should be permitted. No control on wages and prices 
should be imposed.
  Following a policy of this sort could quickly restore growth and 
stability to any filing economy and soften the blow for all those about 
to experience the connections that have been put in place by previous 
years of mischief, mismanagement and monetary inflation.
  Short of a free market, sound money approach will guarantee a 
sustained attack on personal liberty as governments grow more 
authoritarian and militaristic.

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