[Congressional Record Volume 146, Number 59 (Monday, May 15, 2000)]
[House]
[Pages H3034-H3035]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      MANIPULATING INTEREST RATES

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas (Mr. Paul) is recognized for 5 minutes.
  Mr. PAUL. Mr. Speaker, the national debt is rising at an annual rate 
of $100 billion per year while the Federal Government's obligation to 
future generations is rising even faster. Yet, little concern is shown 
here in Congress as our budgets grow and new programs are added on to 
old. Ordinary political deception has been replaced with the dangerous 
notion of invincibleness as Members claim credit for imaginary 
budgetary surpluses.
  The percent of our income that government now takes continues to rise 
while personal liberty is steadily compromised with each new budget. 
But the political euphoria associated with the ``New Era'' economy will 
soon come to an end.
  Although many have done well during the last 7 years of economic 
growth, many middle income families have had to struggle just to keep 
up. For them, inflation is not dead and the easy fortunes made on Wall 
Street are as far removed as winning the lottery. When the economy 
enters into recession, this sense of frustration will spread.
  Business cycles are well understood. They are not a natural 
consequence of capitalism, but instead result from central bank 
manipulation of credit. This is especially true when the monetary unit 
is undefinable, as it is in a fiat monetary system such as ours. 
Therefore, it is correct to blame the Federal Reserve for all 
depressions, recessions, inflations, and much of the unemployment since 
1913. The next downturn, likewise, will be the fault of the Fed.
  It is true that the apparent prosperity and the boom part of the 
cycle are a result of the Federal Reserve credit creation, but the 
price that must always be paid and the unfairness of inflationism makes 
it is a dangerous process.
  The silly notion that money can be created at will by a printing 
press or through computer entries is eagerly accepted by the majority 
as an easy road to riches, while ignoring any need for austerity, hard 
work, saving, and a truly free market economy. Those who actively 
endorse this system equate money creation with wealth creation and see 
it as a panacea for the inherent political difficulty in raising taxes 
or cutting spending.
  A central bank that has no restraints placed on it is always 
available to the

[[Page H3035]]

politicians who spend endlessly for reelection purposes. When the 
private sector lacks its appetite to lend sufficiently to the 
government, the Federal Reserve is always available to buy Treasury 
debt with credit created outside of thin air. At the lightest hint that 
interest rates are higher than the Fed wants, its purchase of debt 
keeps interest rates in check; that is, they are kept lower than the 
market rate. Setting interest rates is an enormous undertaking. It is 
price fixing and totally foreign to the principle of free market 
competition.
  Since this process is economically stimulating, the politicians, the 
recipients of government largess, the bankers, and almost everyone 
enjoys the benefit of what seems to be a gift without cost. But that is 
a fallacy.
  There is always a cost. Artificially low interest rates prompts lower 
savings, over-capacity expansion, malinvestment, excessive borrowing, 
speculation, and price increases in various segments of the economy. 
Since money creation is not wealth creation, it inevitably leads to a 
lower value for the currency. The inflation always comes to an end with 
various victims, many of whom never enjoyed the benefits of the credit 
creation and deficit spending.
  This silly notion of money and credit gives rise to the conventional 
wisdom that once the economy gets really rolling along, it is time for 
the Fed to stop economic growth. This false assumption is that economic 
growth causes higher prices and higher labor costs, and these evils 
must be prevented by tightening credit and raising interest rates.
  But these are only the consequences of the previous monetary 
expansion, and blaming rising prices or higher labor costs is done only 
to distract from the real culprit, monetary inflation by the Federal 
Reserve.
  In a free market, economic growth would never be considered a 
negative and purposely discouraged. It is strange that so many 
established economists and politicians accept the notion of dampening 
economic growth for this purpose. Economic growth with sound money 
always lowers prices. It never raises them.

                              {time}  1930

  Deliberately increasing rates actually increases the cost of 
borrowing for everyone, and yet it is claimed that this is necessary to 
stop rising cost. Obviously, there is not much to the soundness of 
central economic planning through monetary policy of this sort.
  There are some who see this fallacy and object to deliberately 
slowing the economy but instead clamor for even more monetary growth to 
keep interest rates low and the economy booming. But this is just as 
silly because that leads to even more debasement of the currency, 
rising prices, and instead of lowering interest rates will, in time, 
due to inflationary expectation, actually raise rates.
  Fine-tuning the economy through monetary manipulation is a dangerous 
game to play. We are now completing a decade of rapid monetary growth 
and evidence is now appearing indicating that we will soon start to pay 
for our profligate ways.
  The financial bubble that the Fed manufactured over the past decade 
or two will burst and the illusion of our great wealth will end. In 
time, also the illusion of ``surpluses for as far as the eyes can see 
will end.'' Then the Congress will be forced to take much more 
seriously the budgetary problems that it pretends do not exist.

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