Last week I held a hearing to examine the various proposals that have been put forth both to mend and to end the Fed. The purpose was to spur a vigorous and long-lasting discussion about the Fed’s problems, hopefully leading to concrete actions to rein in the Fed.
First, it is important to understand the Federal Reserve System. Some people claim it is a secret cabal of elite bankers, while others claim it is part of the federal government. In reality it is a bit of both. The Federal Reserve System is the collusion of big government and big business to profit at the expense of taxpayers. The Fed’s bailout of large banks during the financial crisis propped up poorly-run corporations that should have gone under, giving them a market-distorting advantage that no business in the United States should receive. The recent news about JP Morgan is a case in point. JP Morgan, a recipient of $25 billion in bailout money, recently announced it lost another $2 billion. If a corporation shows itself to be a bottomless money pit of “errors, sloppiness and bad judgment,” the Fed shouldn’t have expected $25 billion in free money to change that or teach anyone a lesson in fiscal discipline. But it determined that this form of deliberate capital destruction was preferable to one business suffering bankruptcy. Clearly, some changes need to be made.
Several reforms for the Fed were discussed at the hearing. One was a call for the full employment mandate to be repealed, in order to allow the Fed to focus solely on stable prices.
Another reform calls for changes to the composition of the Federal Open Market Committee. Still another proposal was for outright nationalization of the Fed or of its functions. But if what the Fed does now is bad and inflationary, allowing the Treasury to print and issue money at-will would be even worse, and could possibly lead to a Weimar-like hyperinflation.
The problems and advantages of the gold standard were discussed at the hearing. The era of the classical gold standard was undoubtedly one of the greatest eras in human history. For a period of several decades in the late 19th century, the West made enormous advances. However, the gold standard was still run by government. The temptation to suspend gold redemption reared its head again with the outbreak of World War I. Once the tie to gold was severed and fiscal restraint thrown to the wind, undoing the damage would have required great fiscal austerity. Instead, the Western world proceeded to set up a gold-exchange standard which lasted not even a decade before easy money led to the Great Depression.
While returning to the gold standard would certainly be far better than maintaining the current fiat paper system, as long as the government retains the power to go off gold we may end up repeating the same mistakes.
The only viable solution is to get government out of the money business permanently. The way to bring this about is through currency competition: allow parallel currencies to circulate without receiving any special recognition or favor from the government. Fiat paper monetary standards throughout history have always collapsed due to their inflationary nature, and our current fiat paper standard will be no different.
It is imperative that the American people be educated on the dangers of the Fed and the importance of restoring sound money. The laying of the groundwork must begin today, so that the American people will be prepared for the day when the mirage the Fed has created evaporates completely. The full hearing footage is available on my website and I would encourage every American to take a look.
Congressman Ron Paul, Chairman of the Domestic Monetary Policy and Technology Subcommittee, announced today that the subcommittee will hold a hearing to examine the Federal Reserve’s assistance to the Eurozone and the impact of that assistance on the U.S. monetary system and the dollar.
“The Federal Reserve has been creating money out of thin air for forty years now,” Chairman Paul stated, “and they’ve ramped up the printing presses during these five years of crisis—all in the name of economic stability. But there are consequences to massive amounts of money creation, consequences when central banks print money, consequences when they loan it, and consequences when banks get this money and create even more money and credit through fractional reserve banking. Indeed, these Fed actions helped cause the very crisis we’re suffering from today.”
Congressman Paul continued, “It is important for Congress to acknowledge this and to hold the Fed accountable for its actions, since they affect the value of the dollars in our wallets. This isn’t just about the Fed trying to bailout Europe; there is a fundamental question here about what fiat money does to the economy. I am pleased that President Dudley, a permanent voting member on the FOMC, will be appearing before the subcommittee so we can ask some important questions about the Fed’s involvement in Europe and what that means for the dollar and our fiat monetary regime.”
The hearing, entitled “Federal Reserve Aid to the Eurozone: Its Impact on the U.S. and the Dollar,” will be held on Tuesday, March 27, at 10:00 a.m. in Room 2128 of the Rayburn House Office Building.
Witnesses scheduled to testify:
William Dudley, President & CEO, Federal Reserve Bank of New York
Steven B. Kamin, Director, Division of International Finance, Board of Governors of the Federal Reserve System
Chairman: At this time, Mr. Paul is recognized for three minutes; your thorn in the flesh.
Ron Paul: Thank you, Mr. Chairman, and welcome, Chairman Bernanke. You know, I guess over the past 30 or 40 years, I have criticized the Fed on occasion, but the Congress deserves some criticism, too. The Federal Reserve is a creature of the Congress, and if we don’t know what the Fed is doing, we have the authority and we certainly have the authority to pursue a lot more oversight, which I would like to see. So although the Fed is on the receiving end, and I think rightfully so when you look at the record; I mean, the Fed has been around for 99 years, almost a few years before you took it over, and 99%, 98% of the dollar value is gone from the 1913 dollar. So that’s not really a very good record, and I think what we’re witnessing today is the end-stages of a grand experiment, a philosophic experiment on total fiat money. Yes, they’ve been debasing currencies for hundreds, if not thousands, of years, and they always end badly, they always return to market-based money, which is commodity money, gold and silver.
But this experiment is something different than we’ve ever had before, and it started in 1971 when we were actually given an opportunity in many ways to be the issuer of the fiat currency, and we had way too many benefits from that than people realized. But it’s gone on for 40 years and people keep arguing from the other side of this argument that it’s working, it’s doing well. And yet, from my viewpoint, and the viewpoint of the free market economist, all it’s doing is building a bigger and bigger bubble. And the free market economist are the ones who predicted the NASDAQ bubbles, the housing bubbles, but we never hear from the Keynesian liberal economist and the central bankers saying, “Watch out, there’s a bubble out there, there’s too much credit, too many problems there. There’s a housing bubble, we have to deal with it.” Usually we get reassurances from the Fed on that. But I believe there’s a logical reason for this, because the Federal Reserve is given responsibility to protect the value of the dollar, that’s what stable prices are all about. But we don’t even have a definition of a dollar.
You know, we ask about the definition of a dollar, and they say, “It’s whatever it buys”. Well, every single day, it buys less than the previous day. To me, it’s sort of like building the economy and having economic planning like a builder has a yardstick that changes value every single day, just think of the kind of the building we would have. This is why we have this imbalance in our economic system. But it was a system designed to permit debt, we have a debt-based system. The more debt we have, and the more they debt the Federal Reserve buys, the more currency they can print. And they monetize this debt, and no wonder we’re in a debt crisis. It’s worldwide, I think it’s something that we’ve never experienced before. And I think the conclusion will be a vindication either for sound money, or you win the argument and say, “Yes, we are great managers, we know how to do it, we want the credit for the good times and we want the credit for getting us out of the bad times.” I think within a few years we’re going to know. Of course, I’m betting that the market is smarter, commodity money is smarter, nobody is smart enough to have central economic planning. So I’m anxiously waiting for the conclusion, because reforms have to come. When you see Robert Zoellick talking about monetary reforms and talking about gold, our time has come for serious discussion on monetary reform. Thank you, Mr. Chairman.
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This is a rush transcript. If you notice any errors please report them using the “Help improve this post” link at the bottom of this post.
Ron Paul: Thank you, Mr. Chairman. Mr. Bernanke, if you don’t mind, would you tell me whether or not you do your own shopping at the grocery store?
Ben Bernanke: Yes, I do.
Ron Paul: Okay, so you’re aware of the prices. You know, nobody believes this argument about the prices going up by about 2%. The old CPI says prices are going up at 9%, they believe this. The people are really hurting, the middle class are really hurting, because their inflation rate is very much higher than the government tries to tell them, and that’s why they lose trust in government. But this whole idea about prices and the debasement of currency, if you loan me $100 and in 2 years from now I gave you $90 back, you’d be pretty upset. But we pan bad money back, and it’s worth 10% or 15% or 20% less, and nobody seems to be able to do anything about it, and it’s very upsetting. But it’s theft, if I don’t give you your $100 back if you loan me a $100, I’m stealing $10 from you. So somebody is stealing wealth, and this is very upsetting.
But in January, in one of your press conferences, you sort of poked a little bit of fun at people to downplay the 2% inflation rate. But if you say it’s 2% and I say it’s 9%, let’s compromise for the sake of argument that it’s 5%. You said that it doesn’t hurt you unless you’re one of those people who stick their money in the mattress. But where are you going to put it, are you going to put it in a CD and not make any money at all? So this doesn’t make any sense, it doesn’t encourage savings and it just discourages people. But I do want to make a point about prices, because when prices go up, that to me, is not the inflation; it is one of the bad consequences of the inflation which comes from the increase in the money supply and that’s one of the bad affects. But you took over the Fed in 2006. I have a silver ounce here, and this ounce of silver back in 2006 would buy over [14] gallons of gasoline. Today, it will buy almost 11 gallons of gasoline; that’s preservation of value, and that’s what the market has always said should be money. Money comes into effect in a natural way, not in an edict, not by fiat or by governments declaring it is money. But why is it that the two of us can’t consider an option? You allow paper money, I think money should be honest, constitutional, (it’s still in the books), gold and silver legal tender. Why don’t we use it? But why don’t we allow currencies to run parallel, they do it around the world? One of my options, as much as I’d like to do something with the Fed, I say, “The Fed is going to self destruct eventually anyway when the money is gone”. But why wouldn’t we legalize competing currencies, why can’t people save and put this in the mattress and get 4, 5 times as much of the value in a few years? So the record of what you’ve done in the last 6 years is destroying the value of paper money, and, at the same time, real money is preserved. But, as for a competing currency, we already have a silver eager, it’s legal tender for a dollar, and some people say, “Well, it’s legal tender, it’s a dollar, it’s on the books”, and if they use it, they get into being trouble. The government comes and closes them down and they can get arrested for that. But what would be wrong with talking about parallel currencies, competing currencies? This is something that Hayek talked about, something that I think would be a compromise and we could work along those views.
Ben Bernanke: First of all, good to see you again, Congressman Paul. Just one word on the inflation, of course, those numbers constructed by the Bureau of Labor Statistics, not by the Fed, they’re independently constructed and I think they’re done in a very serious and thoughtful way. On alternative currencies, nobody prevents you from holding the silver of gold if you want to, it’s perfectly legal to do that. And it’s also perfectly fine to hold other currencies; Euros or Yen or whatever else. So, in that respect, you can do that, and I’d be happy to talk to you about …
Ron Paul: But, Mr. Chairman, that’s not money. I mean, when you pay taxes to buy a coin, or you have a capital gains tax. If you have to settle a lawsuit, it’s always settled in depreciating Federal Reserve notes, it’s never settled in the real contract. So that’s nobody near money when it’s illegal to use it. But to do it, you’d have to repeal the legal tender laws, you would have to legalize this, you’d have to get rid of the sales taxes, you’d have to get rid of capitals gains taxes. Even in Mexico they’re talking about this, they’re trying to have competing currencies, they’ve been wiped out too many times with inflation wiping out the middle class. They’re allowing people to start to save in a silver currency. So I hope we move along in that direction, because there shouldn’t be any overwhelming changes all of a sudden. There could be a transition and you could vote on it, maybe they’ll give up on a Federal Reserve note and vote for real money.
Ben Bernanke: I’d be very happy to talk to you about it.
Ron Paul: Thank you very much.
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This is a rush transcript. If you notice any errors please report them using the “Help improve this post” link at the bottom of this post.
Madam Speaker: And being the wise legislature that he is, Dr. Paul elected to stay here, and so he gets to ask his question. Congressman Paul of Texas is recognized. I’ve learned not to say anything negative about Ron Paul.
Ron Paul: Welcome, Madam Secretary. I do want to get your comments about the stir that was caused by the apology over the Quran. And the administration has received a lot of criticism about this, and I think you’ve expressed some point that maybe this doesn’t help your job any by stirring up the resentment. But the whole issue about apology I think is an interesting one from a national level, and I recall what happened after Mac Demurer wrote his memoirs and he was apologetic about what happened and about how he orchestrated the Vietnam War. And a reporter asked him if he should apologize, and he said, “What good is an apology if the policies are wrong. You have to learn something from it and change the policy”. So a lot of emotions come out on this issue of an apology.
And I keep thinking that those who didn’t criticize him, I don’t think they criticized the last administration when President apologized for using the Quran as a target. So, sometimes apologizes aren’t always all equal. But with even that said, there were torture photograph before and they were very aggravating. Recently, there was urinating on bodies, on corpses, we didn’t particularly apologize for those, did we? I mean, there weren’t apologies there. But some of these things are emotional. But what about the whole idea of invading a country and occupying a country and disturbing their country, creating hundreds of thousands of refugees and suffering. Does it ever get to a point where apologizing about the Quran is rather minor to some of the other problems that we have created in these countries, could can comment on that?
Hillary Clinton: Well, Congressman, first I appreciate the very measured comments you’ve made about our presidents, not only this one, but prior presidents offering apologizes when we are deeply sorry for unfortunate incidents that occurred, that were not intentional, and which we know have emotional resonance with people. The larger question you ask, I think it’s also important to put into context that President Obama promised to wind down the Iraq War, he has done so. He’s in the process of transitioning out of Afghanistan in a manner that is done appropriately in keeping with the very large decisions that have to be made about helping the afghans defend themselves, working with our partners and allies in that effort. And, I think the underlying premises, certainly one that can be debated among Americans of good faith, I believe that we were justified in going to Afghanistan, which is …
Ron Paul: I want to apologize because I don’t want to get on that subject.
Hillary Clinton: And I accept your apology.
Ron Paul: Okay, there you go. But I do want to touch on something else to get a little different perspective on the nuclear enrichment in Iran. Because we hear different stories, even in Israel there are debates. Tamir Pardo actually said that if they get a weapon, it’s not an existential threat to Israel, so I’m sure there’s probably a more nuanced debate in Israel than there is here sometimes. But isn’t it true that Iran has the right to enrich up to 20% for peaceful purposes? The way we talk and hear discussions, most people believe that they have absolutely no right to enrich. And don’t they have that protection under the Nuclear Non-Proliferation Treaty? But it never seems to have a balanced approach to that. And the best I can tell from what I read, there’s no evidence that they have a bomb, there’s no evidence that they’re on the verge of getting it, and even the administration, whether it’s the Clapper or general Dempsey, are saying, “It won’t make any sense to have a preemptive attack on there”. Could you give us a sense of a proper balance here, because a lot of people are convinced it’s Syria and then it’s Iran, and I’m personally concerned about that, because the last thing the American people need is another war. We don’t have the money, we don’t have the resources, and the military is not ready for another war.
Hillary Clinton: Congressman, I would direct your attention to the most recent Director-General’s report from the International Atomic Energy Agency, it’s not an American document, which outlines the concerns about the non-peaceful use of civilian nuclear power. There is increasing evidence that what the Iranians do is not consistent with their right to have the peaceful use of nuclear power. And I’ll be happy to get you a copy of that, because I think you asked a very important set of questions.
Madam Speaker: Thank you so much, Congressman. Thank you, Madam Secretary.
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This is a rush transcript. If you notice any errors please report them using the “Help improve this post” link at the bottom of this post.
Back in 2010, Ron Paul gave a rousing speech against the TSA and introduced legislation (the American Traveler Dignity Act) to protect Americans from physical and emotional abuse by federal employees conducting screenings at the nation’s airports:
To ensure that certain Federal employees cannot hide behind immunity.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. NO IMMUNITY FOR CERTAIN AIRPORT SCREENING METHODS.
No law of the United States shall be construed to confer any immunity for a Federal employee or agency or any individual or entity that receives Federal funds, who subjects an individual to any physical contact (including contact with any clothing the individual is wearing), x-rays, or millimeter waves, or aids in the creation of or views a representation of any part of an individual’s body covered by clothing as a condition for such individual to be in an airport or to fly in an aircraft. The preceding sentence shall apply even if the individual or the individual’s parent, guardian, or any other individual gives consent.
Ron Paul introduced the “American Traveler Dignity Act” with the following words. (This is a transcript of his actual speech.)
Ron Paul: Thank you, Mr. Speaker. I rise this evening to announce that I introduced some legislation today dealing with the calamity that we have found at our airports with TSA. Something has to be done. Everybody is fed up. The people are fed up, the pilots are fed up, I’m fed up.
You know, I’ve come to this floor many times over the past many years and complained about the terrible foreign policy we’ve had, the terrible monetary policy we’ve had, the excessive spending and the debt and also the tax policy. But what we’re doing and what we’re accepting in putting up with at this airport is so symbolic of us just not standing up and saying, “Enough is enough”.
I know the American people are starting to wake up, but our government, those in charge – Congress as well as the executive branch – are doing nothing. Yes, they’re talking about maybe backing off and allowing the pilots to go through. But can you think how silly the whole thing is? The pilot has a gun in the cockpit, and he’s managing this aircraft, which is a missile, and we make him go through this groping x-ray exercise, having people feeling their underwear. It’s absurd, and it’s time we wake up.
The bill I’ve introduced will take care of this. But we have to realize that the real problem is that the American people have been too submissive, we have been too submissive. It’s been going on for a long time, and this was to be expected even from the beginning of the TSA and it’s deeply flawed. Private property should be protected by private individuals, not bureaucrats.
But the bill that I’ve introduced will take care of it. It’s very simple, it’s one paragraph long. It removes the immunity from anybody in the federal government that does anything that you or I can’t do. If you can’t grope another person and if you can’t x-ray people and endanger them with possible x-rays, you can’t take nude photographs of individuals, why do we allow the government to do it? We would go to jail. He’d be immediately arrested if an individual citizen went out and did these things, and yet we just sit there calmly and say, “Oh, they’re making us safe”.
And, besides, the argument from the executive branch is that when you buy a ticket, you have sacrificed your rights, and it is the duty of the government to make us safe. That isn’t the case. You never have to sacrifice your rights. The duty of the government is to protect our rights, not to abuse them and do what they have been doing to us. The pilots hopefully will be exempted from this.
But another suggestion I have that might help us: let’s make sure that every member of Congress goes through this. Get the x-ray and make them look at the pictures, and then go through one of those groping pat downs. And then I think there will be a difference. Have everybody in the executive branch, anybody who is a cabinet member, make them go through it and look at it. Maybe they would pay more attention.
But this doesn’t work, this is not what makes us safer, this is preposterous to think that the TSA has made us safer.
You know, when you think about it, if you look at what’s happened over the past 10 years, during this last decade, we lost 3000 on a terrible, terrible day for America. But since that time in this last decade, we have also lost 6,000 of our military personnel going over there and trying to rectify this problem. We have lost 400,000 people on our government-run highways. We have lost 150,000 individuals from homicides. So I think there’s reason to be concerned, reason to deal with this problem. We’re not dealing with it the right way, we’re doing the wrong thing, and groping people at the airport doesn’t solve our problems.
What has solved our problems, basically, has been that they put a good lock on the door and they put a gun inside the cockpit. That’s been the greatest boon to our safety. Safety should be the responsibility of the individual and the private property owner. But right now, we assume the government’s always going to take care of us and we’re supposed to sacrifice our liberties. I say that is wrong, we are not safer and we also know there are individuals who are making money of this. Michael Chertoff; I mean, here’s a guy who was the head of the TSA – selling the equipment. And the equipment is questionable; we don’t even know if it works, and it may well be dangerous to our health.
You know, the way I see this; if this doesn’t change, I see what has happened to the American people is we have accepted the notion that we should be treated like cattle. “Make us safe, make us secure, put us into barbed wire, feed us, fatten us up”, and then they’ll eat us. And we’re a bunch of cattle if we have to wait and say, “We’ve had it”. I think this whole idea of an opt-out day is just great. We ought to opt-out and make the point, get somebody to watch it and take a camera, it’s time for the American people to stand up, shrug off the shackles of our government and TSA at the airport.
These are Ron Paul’s prepared remarks:
Ron Paul: Mr. Speaker, today I introduce legislation to protect Americans from physical and emotional abuse by federal Transportation Security Administration employees conducting screenings at the nation’s airports. We have seen the videos of terrified children being grabbed and probed by airport screeners. We have read the stories of Americans being subjected to humiliating body imaging machines and/or forced to have the most intimate parts of their bodies poked and fondled. We do not know the potentially harmful effects of the radiation emitted by the new millimeter wave machines.
In one recent well-publicized case, a TSA official is recorded during an attempted body search saying, “By buying your ticket you gave up a lot of rights.” I strongly disagree and am sure I am not alone in believing that we Americans should never give up our rights in order to travel. As our Declaration of Independence states, our rights are inalienable. This TSA version of our rights looks more like the “rights” granted in the old Soviet Constitutions, where freedoms were granted to Soviet citizens — right up to the moment the state decided to remove those freedoms.
The incident of the so-called “underwear bomber” last Christmas is given as justification for the billions of dollars the federal government is spending on the new full-body imaging machines, but a Government Accountability Office study earlier this year concluded that had these scanners been in use they may not have detected the explosive material that was allegedly brought onto the airplane. Additionally, there have been recent press reports calling into question the accuracy and adequacy of these potentially dangerous machines.
My legislation is simple. It establishes that airport security screeners are not immune from any US law regarding physical contact with another person, making images of another person, or causing physical harm through the use of radiation-emitting machinery on another person. It means they are subject to the same laws as the rest of us.
Imagine if the political elites in our country were forced to endure the same conditions at the airport as business travelers, families, senior citizens, and the rest of us. Perhaps this problem could be quickly resolved if every cabinet secretary, every member of Congress, and every department head in the Obama administration were forced to submit to the same degrading screening process as the people who pay their salaries.
I warned at the time of the creation of the TSA that an unaccountable government entity in control of airport security would provide neither security nor defend our basic freedom to travel. Yet the vast majority of both Republicans and Democrats then in Congress willingly voted to create another unaccountable, bullying agency– in a simple-minded and unprincipled attempt to appease public passion in the wake of 9-11. Sadly, as we see with the steady TSA encroachment on our freedom and dignity, my fears in 2001 were justified.
The solution to the need for security at US airports is not a government bureaucracy. The solution is to allow the private sector, preferably the airlines themselves, to provide for the security of their property. As a recent article in Forbes magazine eloquently stated, “The airlines have enormous sums of money riding on passenger safety, and the notion that a government bureaucracy has better incentives to provide safe travels than airlines with billions of dollars worth of capital and goodwill on the line strains credibility.” In the meantime, I hope we can pass this legislation and protect Americans from harm and humiliation when they choose to travel.
Statement Introducing Repeal of Sec. 1021 of National Defense Authorization Act for Fiscal Year 2012
18 January 2012
Mr. Speaker, I rise today to introduce a very simple piece of legislation to repeal the infamous Section 1021 of the National Defense Authorization Act, quietly signed into law by the president on New Year’s Day.
Section 1021 essentially codifies into law the very dubious claim of presidential authority under the 2001 Authorization for the Use of Military Force to indefinitely detain American citizens without access to legal representation or due process of law. Section 1021 provides for the possibility of the US military acting as a kind of police force on US soil, apprehending terror suspects – including Americans — and whisking them off to an undisclosed location indefinitely. No right to attorney, no right to trial, no day in court.
This is precisely the kind of egregious distortion of justice that Americans have always ridiculed in so many dictatorships overseas. A great man named Solzhenitsyn became the hero of so many of us when he exposed the Soviet Union’s extensive gulag system. Is this really the kind of United States we want to create in the name of fighting terrorism?
Some have argued that nothing in Section 1021 explicitly mandates holding Americans without trial, but it employs vague language radically expanding the detention authority to include anyone who has “substantially supported” certain terrorist groups or “associated forces.” No one has defined what those two terms mean. What is an “associated force”?
Sadly, too many of my colleagues are too willing to undermine our Constitution to support such outrageous legislation. One senator even said about American citizens picked up under this section of the NDAA, “When they say, ‘I want my lawyer,’ you tell them, ‘Shut up. You don’t get a lawyer.’” Is this acceptable in someone one who has taken an oath to uphold the Constitution?
Mr. Speaker, of course I recognize how critical it is that we identify and apprehend those who are suspected of plotting attacks against Americans. But why do we have so little faith in our justice system? Have we not tried in civilian court and won convictions of hundreds of individuals for terrorist or related activities? I fully support our continuing to do so, but let us not abandon what is so unique and special about our system of government in the process.
I hope my colleagues will join my effort to overturn the shameful Section 1021.
