[Congressional Record (Bound Edition), Volume 148 (2002), Part 9]
[Extensions of Remarks]
[Pages 12569-12570]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           TRICKY ACCOUNTING

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                             HON. RON PAUL

                                of texas

                    in the house of representatives

                        Wednesday, July 10, 2002

  Mr. Paul. Mr. Speaker, I am inserting into the Record an article from 
yesterday's Financial Times written by Jude Wanniski which properly 
identifies our policy of fiat money as the underlying cause of most of 
our current market concerns as well as the true source of the worst 
sort of ``tricky accounting'' now occurring in the United States.
  While Mr. Wanniski and I may not exactly agree on definitional issues 
relative to deflation and the gold standard I believe that he is 
completely accurate in his assessment of the approach leading to the 
tremors we have witnessed recently in the markets and throughout our 
economy. I strongly commend this article to my colleagues.

                [From the Financial Times, July 9, 2002]

          Accounting Misery Is Down to Lack of a Gold Standard

                        (From Mr. Jude Wanniski)

       Sir, Martin Wolf's ``Rescue plan for capitalism'' (July 3) 
     begins with the observation that ``the trickiest question in 
     capitalism is how precisely companies can be controlled''. 
     Perhaps--but the question becomes trickiest in a capitalist 
     system with a floating unit of account. The floating dollar 
     is at the core of the problem in the US today.
       The simple reason for the accounting miseries now surfacing 
     with Enron and WorldCom et al is that we are not on a gold 
     standard--and for the past 30 years have been struggling 
     through inflations and deflations.

[[Page 12570]]

       The US Savings & Loan crisis of the 1980s was the result of 
     inflation, which made it impossible for creditors to recover 
     their assets. An S&L needs a gold footing so it can borrow 
     short and lend long.
       When those who made the worst loans faced bankruptcy, they 
     made riskier and riskier loans, trying to make up for the 
     losses. Those who were caught went to jail. Those were caught 
     went to jail. Those who survived then benefited from the 
     deflation that followed, where customers were required to 
     give the S&Ls more in real terms than they had borrowed.
       This is what has happened in the current monetary 
     deflation, which has emerged over the past five years, with 
     gold falling from $383 to as low as $253, now at $310. For 
     the economy to recover, gold would have to be at $350--and it 
     cannot get there as long as the Federal Reserve is not (and 
     has no means) to target gold. At the margin, those debtors 
     who could not pay their debts juggled the books, hoping for 
     economic recovery that was promised by the Bush tax cuts and 
     the Greenspan interest rate cuts, neither of which can solve 
     the monetary deflation.
       When the recovery did not come, the jugglers at Enron and 
     WorldCom and so on had to come clean. It is something like 
     the otherwise honest bank teller promising to return the cash 
     as soon as his luck improves at the race track.
       Note that the gold price has been in decline these past few 
     weeks. This, I believe, is the result of the lower risks of 
     political terrorism, as there has been progress towards 
     diplomatic solutions in the Middle East and on the 
     subcontinent. When there is increased risk of doing business, 
     there is less demand for dollar liquidity; and if the Fed 
     does not drain it off, the gold price rises. When the risk 
     declines there is more demand for liquidity and if the Fed 
     does not supply it, the gold price falls.
       This is a nonsensical way to manage a domestic monetary 
     regime, let alone a global capitalist system. No amount of 
     new rules and accounting procedures can keep pace with such 
     monetary turbulence in the unit of account.
       Unless the US takes the lead in re-establishing a dollar/
     gold foundation to the world economy, it will have to be done 
     elsewhere. Both Europe and Greater China have the economic 
     mass required to anchor the world monetary system to their 
     currencies, as the UK once did.

     

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