[Congressional Record (Bound Edition), Volume 147 (2001), Part 5]
[Extensions of Remarks]
[Page 7201]
[From the U.S. Government Publishing Office, www.gpo.gov]



                       INFLATION IS STILL WITH US

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                         Thursday, May 3, 2001

  Mr. PAUL. Mr. Speaker, almost on a daily basis, government officials 
reassure us there is no inflation to worry about. But, today's 
definition of inflation of rising prices as measured by an artificial 
CPI and PPI is seriously flawed. Rising prices are but one of the many 
consequences of true inflation--which is an increase in the supply of 
money and credit.
  To understand the perversities of inflation one must look to the 
money supply. The money supply, as measured by M3, rose an astounding 
$42 billion last week and is up a whopping $210 billion in the past ten 
weeks. MZM, another important measure of inflation, is rising at the 
rate of 27%. Now that's monetary debasement!
  But rising prices, a reflection of monetary inflation, should not be 
dismissed as so many government economists have done. The current first 
quarter GDP report shows a 3.3% rise in the personal consumption price 
index, well above the 1.9% recorded in last year's fourth quarter.
  And what about the record prices for gasoline? To pretend that 
gasoline prices pose little threat to American consumers is naive--not 
to mention the skyrocketing electricity bills they also face.
  The most serious economic myth that Federal Reserve economists 
perpetuate is that a booming economy causes prices to rise and a 
slowing economy will hold ``inflation'' in check. Ever since 1971, when 
the fiat dollar was established, records show that during each of our 
economic slumps, prices rose even faster than they did during periods 
of economic growth, supporting the argument that rising prices are a 
consequence of monetary policy.
  Although the economy is now slowing, and fuel prices are skyrocketing 
for the airlines, Delta pilots are receiving salary increases of 
between 24 and 34%. Other evidence of labor cost increases is now 
available even with the large and growing number of announced layoffs. 
Wage prices pressure is more often than not a consequence of monetary 
policy, not a tight labor market.
  Rising prices and the economic slowdown must be laid at the feet of 
the Federal Reserve. Likewise, the existing financial bubble is a 
consequence of the same policy of monetary expansion and artifically 
low interest rates. Although the NASDAQ bubble has already partially 
deflated, the entire world financial system suffers from the same 
distortion; and a lot more adjustment is required. Merely re-inflating 
with monetary expansion and manipulating interest rates will not solve 
the problems of debt, mal-investment and overcapacity that plague the 
system.
  Mismanaging world fiat currencies and working to iron out the trade 
imbalances that result, through a worldwide managed trade organization, 
will not suffice. We must one day address the subject of sound money 
and free market interest rates, where interest rates are not set by the 
central banks of the world.
  A sad consequence of today's conditions is that monetary policy 
encourages transfer of wealth and power to the undeserving. The victims 
of bad monetary policy then blame capitalism for the inequities. The 
leftist demonstrators at recent WTO, IMF, and World Bank meetings make 
a legitimate point that the current system has resulted in accumulation 
of wealth and power in the hands of some at the expense of others.
  But this is an expected consequence of monetary debasement, which 
generally leads to social unrest. But, blaming capitalism and freedom 
for the harm done by inflationism, special interest corporatism, and 
interventionism presents a danger to us all, since the case for 
commodity money and individual liberty is lost in the shouting. Unless 
this message is heard and distinguished from the current system, 
freedom and prosperity will be lost. Leaders of the current worldwide 
system that has evolved since the collapse of the Soviet empire pay lip 
service to free trade and free markets, but tragically they are moving 
us toward a fascist system of partnerships with government, big 
businesss, and international banking at the expense of the middle class 
and the poor.

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