More of the Same at the Federal Reserve, by Ron Paul
[align=left]http://www.house.gov/paul/tst/tst2005/tst112805.htm[/align]
[align=center]More of the Same at the Federal Reserve [/align]
November 28, 2005
Benjamin Bernanke, a former member of the Board of Governors at the Federal Reserve, is all but certain to be confirmed by the Senate as the next Chairman of that institution. He may find that the adulation given to Mr. Greenspan does not carry over into his tenure so easily, especially if he continues to help Congress run up huge deficits.
Mr. Bernanke is a consummate Fed insider, widely seen by the financial press as the logical heir to Alan Greenspan. In fact, judging by his public statements he may be more like Greenspan than Greenspan himself.
What I mean is that Mr. Bernanke appears to have embraced the idea that the Federal Reserve can create prosperity more than Mr. Greenspan ever did. Like his predecessor, Mr. Bernanke views our system of fiat currency as a tool for creating wealth out of thin air by producing more dollars, whether paper or electronic. But he seems to take things further than Greenspan by refusing even to consider the destructive consequences of monetary expansion. In fact, he earned dubious notoriety for this quote in a 2002 speech discussing the supposed threat of deflation in the American economy: "The U.S. government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost."
But there is a cost, and it's a heavy one. It's called monetary inflation, which destroys the value of the dollar and punishes those who save and invest. The money supply, as measured by the Fed's own M3 figure, has increased about 5 times since 1980. Yet for years officials at the Fed have insisted that inflation is firmly in check.
Inflation is not in check, as anyone who examines the cost of housing, energy, medical care, school tuition, and other basics can attest. In one sense the remarkable rise in housing prices over the last decade really just represents a drop in the value of the dollar. The artificial boom in the 1990s equity markets, engineered by Mr. Greenspan's relentless monetary expansion and interest rate cutting, ended badly for millions of Americans holding overinflated stocks. What will happen when the same thing happens with housing?
The fundamental question is whether a central bank can manage the supply of money and credit better than the free market otherwise would. We shouldn't kid ourselves about the true nature of the Fed, which is inherently incompatible with real free market capitalism. Centralized planning of the money supply is a form of economic control that significantly affects prices, wages, and production levels. Remember how market economists once criticized central planning of prices, wages, and production levels in the former Soviet Union?
I encourage all Americans to learn more about the Federal Reserve system and what it means for our economic future. An excellent resource is economist Murray Rothbard's book "What Has Government Done to our Money," which provides a brief yet devastating critique of centralized banking and the reckless government spending it enables. We need to demystify the Federal Reserve to understand the enormous political and economic impact of a system that essentially allows government to print money at will to pay its bills.
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More of the Same at the Federal Reserve, by Ron Paul
HON. RON PAUL OF TEXAS
BEFORE THE US HOUSE OF REPRESENTATIVES
November 18, 2005
Statement on So-Called "Deficit Reduction Act"
Mr. Speaker, as one who has long urged my colleagues to cut spending, and who has consistently voted against excessive and unconstitutional expenditures, I am sure many in this body expect me to be an enthusiastic supporter of HR 4241, the Deficit Reduction Act. After all, supporters of this bill are claiming it dramatically reforms federal programs and puts Congress back on the road to fiscal responsibility.
For all the passionate debate this bill has generated, its effect on the federal government and taxpayers are relatively minor. HR 4241 does not even reduce federal expenditures! That??s right--if HR 4241 passes, the federal budget, including entitlement programs, will continue to grow. HR 4241 simply slows down the rate of growth of federal spending. The federal government may spend less in the future if this bill passes then it otherwise would, but it will still spend more than it does today. To put HR 4241 in perspective, consider that this bill reduces spending by less than $50 billion over 10 years, while the most recent ??emergency? supplemental passed by this Congress appropriated $82 billion dollars to be spent this year.
HR 4241 reduces total federal entitlement expenditures by one half of one percent over the next five years. For all the trumpeting about how this bill gets ??runaway entitlement spending? under control, HR 4241 fails to deal with the biggest entitlement problem facing our nation--the multi-billion dollar Medicare prescription drug plan, which actually will harm many seniors by causing them to lose their private coverage, forcing them into an inferior government-run program. In fact, the Medicare prescription drug plan will cost $55 billion in fiscal year 2006 alone, while HR 4241 will reduce spending by only $5 billion next year. Yet some House members who voted for every expansion of the federal government considered by this Congress will vote for these small reductions in spending and then brag about their fiscal conservatism to their constituents.
As is common with bills claiming to reduce spending, the majority of spending reductions occur in the later years of the plan. Since it is impossible to bind future Congresses, this represents little more than a suggestion that spending in fiscal years 2009 and 2010 reflect the levels stated in this bill. My fiscally responsible colleagues should keep in mind that rarely, if ever, does a Congress actually follow through on spending reductions set by a previous Congress. Thus, relying on future Congresses to cut spending in the ??out years? is a recipe for failure.
One provision of the bill that undeniably would have benefited the American people, the language opening up the ANWR region of Alaska and expanding offshore drilling, was removed from the bill. As my colleagues know, increased gas prices are a top concern of the American people. Expanding the supply of domestically produced oil is an obvious way to address these concerns, yet Congress refuses to take this reasonable step.
Mr. Speaker, some of the entitlement reforms in HR 4241 are worthwhile. For example, I am hopeful the provision allowing states to require a co-payment for Medicaid will help relieve physicians of the burden of providing uncompensated care, which is an issue of great concern to physicians in my district. Still, I am concerned that the changes in pharmaceutical reimbursement proposed by the bill may unfairly impact independent pharmacies, and I am disappointed we will not get to vote on an alterative that would have the same budgetary impact without harming independent pharmacies.
I also question the priorities of singling out programs, such as Medicaid and food stamps, that benefit the neediest Americans, while continuing to increase spending on corporate welfare and foreign aid. Just two weeks ago, Congress passed a bill sending $21 billion overseas. That is $21 billion that will be spent this fiscal year, not spread out over five years. Then, last week, Congress passed, on suspension of the rules, a bill proposing to spend $130 million dollars on water projects--not in Texas, but in foreign nations! Meanwhile, the Financial Services Committee, on which I sit, has begun the process of reauthorizing the Export-Import Bank, which uses taxpayer money to support business projects that cannot attract capital in the market. Mr. Speaker, the Export-Import Bank??s biggest beneficiaries are Boeing and communist China. I find it hard to believe that federal funding for Fortune 500 companies and China is a higher priority for most Americans than Medicaid and food stamps.
HR 4241 fails to address the root of the spending problem--the belief that Congress can solve any problem simply by creating a new federal program or agency. However, with the federal government??s unfunded liabilities projected to reach as much as $50 trillion by the end of this year, Congress no longer can avoid serious efforts to rein in spending. Instead of the smoke-and-mirrors approach of HR 4241, Congress should begin the journey toward fiscal responsibility by declaring a ten percent reduction in real spending, followed by a renewed commitment to reduce spending in a manner consistent with our obligation to uphold the Constitution and the priorities of the American people. This is the only way to make real progress on reducing spending without cutting programs for the poor while increasing funding for programs that benefit foreign governments and corporate interests.
