[Congressional Record Volume 146, Number 60 (Tuesday, May 16, 2000)]
[House]
[Pages H3150-H3151]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               THE DOLLAR AND OUR CURRENT ACCOUNT DEFICIT

  The SPEAKER pro tempore (Mr. Sherwood). Under a previous order of the 
House, the gentleman from Texas (Mr. Paul) is recognized for 5 minutes.
  Mr. PAUL. Mr. Speaker, fiat money, that is, money created out of thin 
air, causes numerous problems internationally as well as domestically. 
It causes domestic price inflation, economic downturns, unemployment, 
excessive debt, corporate, personal and government, malinvestment and 
overcapacity, all very serious and poorly understood by many of our 
officials.
  But fluctuating values in various paper currencies cause all kinds of 
disruptions in international trade and finance as well. Trade surpluses 
and deficits when sound money conditions exist are of little concern, 
since they prompt changes in policy or price adjustments in a natural 
or smooth manner. When currencies are non-convertible into something of 
real value, they can be arbitrarily increased at will.

[[Page H3151]]

  Trade deficits, and especially current account deficits, are of much 
greater significance. When trade imbalances are not corrected, sudden 
devaluations, higher interest rates and domestic inflation are forced 
on the country that has most abused its monetary power. This was seen 
in 1997 in the Asian crisis, and precarious economic conditions 
continue in that region. Japan has yet to recover from its monetary 
inflation of the seventies and eighties and has now suffered with a 
lethargic economy for over a decade. Even after this length of time, 
there is no serious thought for currency reform in Japan or any other 
Asian country.
  Although international trade imbalances are a predictable result of 
fiat money, the duration and intensity of the cycles associated with it 
are not. A reserve currency, such as is the dollar, is treated by the 
market quite differently than another fiat currency. The issuer of a 
reserve currency, in this case, the United States, has greater latitude 
for inflating, and can tolerate a current account deficit for much 
longer periods of time than other countries not enjoying the same 
benefit.
  But economic law, although at times it may seem lax, is ruthless in 
always demanding that economic imbalances arising from abuse of 
economic principles be rectified. In spite of the benefits that reserve 
currency countries enjoy, financial bubbles still occur, and their 
prolongation, for whatever reason, only means the inevitable 
adjustment, when it comes, is much more harsh.
  Our current state of imbalance includes a huge U.S. foreign debt of 
$1.5 trillion, a record 20 percent of our GDP, and is a consequence of 
our continuously running a huge monthly current account deficit that 
shows no signs of soon abating. We are now the world's greatest debtor.
  The consequence of this deficit cannot be avoided. Our current 
account deficit has continued longer than many would have expected, but 
not knowing how long and to what extent deficits can go is not unusual. 
The precise event that starts the reversal in the trade balance is also 
unpredictable. The reversal itself is not.
  Japan's lethargy, the Asian crisis, the Mexican financial crisis, 
Europe's weakness and uncertainty surrounding the Euro, the demise of 
the Soviet system and the ineptness of the Russian bailout, all 
contributed to the continued strength in the dollar and prolongation of 
our current account deficit.
  This current account deficit, which prompts foreigners to loan back 
dollars to us and to invest in our stock and bond markets, has 
contributed significantly to the financial bubble. The perception that 
the United States is the economic and military powerhouse of the world 
helps perpetuate an illusion that the dollar is invincible and has 
encouraged our inflationary policies. By inflating our currency, we can 
then spend our dollars overseas, getting products at good prices which, 
on the short run, raises our standard of living, but on borrowed money. 
All currency account deficits must be financed by borrowing from 
abroad. It all ends when the world wakes up and realizes it has been 
had by the U.S. printing press. No country can expect to inflate its 
currency at will forever.
  Since cartels never work, OPEC does not deserve credit for getting 
oil prices above $30 per barrel. Demand for equivalent purchasing power 
for the sale of oil can. Recent commodity price and wage price 
increases signals accelerating price inflation is at hand. We are 
likely witnessing the early stages in a sea change regarding the 
dollar, inflation and the stock market, as well as commodity prices. 
The nervousness in the stock and bond markets, and especially in the 
NASDAQ, indicates that the Congress may soon be facing an entirely 
different set of financial numbers regarding spending, revenues, 
interest costs on our national debt and the value of the U.S. dollar.
  Price inflation of the conventional type will surely return, even if 
the economy slows. Fiscal policy and current monetary policy will not 
solve the crisis we will soon face. Only sound money, money that cannot 
be created out of thin air, can solve the many problems appearing on 
the horizon. The sooner we pay attention to monetary policy as the 
source of our international financial problems, the sooner we will come 
up with a sound solution.

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