Ron Paul on Federal Reserve, banking and economyShow Video Details ↓ Ron Paul: I consider the Federal Reserve Act to create the Federal Reserve as being unconstitutional. It gave the government then the power to create legal tender out of thin air - that is to create paper money. And although they didn't do that overnight, between 1913 and 1971 that is exactly what happened. But the notion of a central bank does not fit into the constitution. The congress has the authority to coin money and only gold and silver should be legal tender and this is an absolute contradiction of the constitution, having a Federal Reserve system and a central bank. Not a lot of American people understand that and I would add that probably not too many people here in congress understand it either. I think they see it as a convenience and I think a lot of other people see it as a convenience because they think they are protected by the type of system that we have. But a fiat monetary system or a paper money system is merely a system where the government has this power and authority to dictate and insist that a piece of paper is legal tender. And even members of the banking committee have come up to me and they said. You mean our dollar isn't backed by gold anymore? Not realizing that the Federal Reserve really accommodates big government bureaucrats and politicians. When you think about the significance of the Federal Reserve Act being passed under those conditions, the American people then know that it was banking interests behind it. Powerful banking interests because they wanted their assets protected. They wanted the Federal Reserve to be the lender of last resort. So if they had been loaning out and risking the money, these loans go bad, instead of having the market take care of this, they wanted a bailout. And this is why it was a tremendous popular thing to do for the banks and of course the big business people who were borrowing money. So it's very, very special interest directed and it was designed for the elite. And even today, a lot of people don't quite understand that. It's an educational job as well outside of Washington that hopefully someday people here in Washington, especially the members of the banking committee, will gain some interest in this subject because ultimately we will have to address it. The inflation isn't rising prices, the inflation is the government's program of increasing the supply of money which devalues the currency and that causes the prices to go up. Inflation, that is the destruction of money, eventually wipes out the middle class. The best example in the 20th century being what we saw happen in Germany as the run-away inflation came the middle class got wiped out. In the early stages, of course, somebody benefited. Eventually it hurts everybody but in this country right now, we have constant insidious inflation. So there is a transfer of wealth from the poor and the middle class to the wealthy. But because it effects the business cycle, it causes prices to go up in general. Who suffers the most? The people who can afford it the least, the people on fixed-incomes, low middle income people, poor people. I think it especially hits hard low-middle income people who are trying to make it on their own and won't go on the dole because their prices go up more and they are the first ones to lose their job when the business cycle turns down. The Federal Reserve by increasing the credit creates the boom part of the cycle but then there is always the resulting downturn of the cycle when unemployment rises. It's hard to predict but I certainly think it's possible because I think the financial bubble world-wide is something that we have never experienced before. We've had tastes of that but Alan Greenspan in one way is a genius and in another way he is an unbelievable threat to us. He's a genius in a sense that in a technical fashion, he's been able to keep this system of inflation together longer than anybody else has been able too, especially in this last go around from 2000 on. With the collapse of the Nasdaq bubble, we didn't really have much of a recession because he immediately started inflating, massively taking interest rates down to 1% and now of course, he is a little bit frightened about the bubble and he's curtailing credit to some degree. But the dollar has become the gold of the world. The world central banks have accepted the dollar as if it were gold. Greenspan claims that they have gotten the paper money to act as if it is gold which I strongly disagree with and all the hard money people disagree with. But I believe he's been capable of creating this huge financial bubble and the world has not yet seen what may come of this. So I suspect that depending on when it comes and what we do, it could very well end up into a much worse situation than the great depression. But if the country decided something has to be done and we went to a gold standard and limited the creation of credit, curtailed the power of the fed, I think it would iron out all our difficulties. With Argentina, periodically would just quit inflating and maybe tie their currency to even the dollar... Price inflation went from hundreds of percent per year down to 2% or 3%. So it's rather rapid. So you would see an immediate benefit to iron out the severe swings in the business cycle, the price problems would be diminished. One thing we'd have to give up, which to me would be a benefit, government would have to curtail spending because they can't tax the people enough to pay for all those bills. So we would have to curtail our spending. So that would be, to me, a tremendous boost to the American people and to the economy. At the same time, we gave sound money. I mean this would be fantastic within months. There would be some people who would suffer from the adjustment period but it might be the people who have benefited so much over the years that to the average person, the poor person, the jobs would become available. So it would not take a long, long time. What would take a long time if we refuse to consider it and the problems get worse and we have a severe recession or depression and huge inflation and we do all the wrong things. That is what we should work so hard against. People realize that the government is creating this money creating this money out of thin air and you use the term loosely, printing, because they actually create credit which is essentially the same as printing money. Most people realize well how can they do that? And most people know that counterfeiting is wrong and immoral and illegal. But here we have a system of money where we have permitted the politician in collusion with the central banker can create unlimited amounts of money. Some weeks they create $30 billion in 1 week to accommodate this system. And Murray Rothbarn in particular argued for the case for 100% gold coin standard, emphasizing the coinage of gold, which doesn't... a lot of people think well does that mean that to go to the store you have to carry heavy coins? Well no, but 100% gold coin standard means that if you carry certificates, they have to be 100% redeemable in gold. And this is what holds the government in check. If government tends to cheat and start printing too many certificates, then the people hold the government in check by turning into their certificates and say we don't trust you. We want the gold. This is what happened in the 30s and exactly what happened was that the government was called on it and what did the government do? They made the holding of gold illegal because it embarrassed the government and they did it precisely to make government large. The Federal Reserve system introduced this notion that banks had to only hold a fraction of reserves in order to create credit so that is another way where the government debases the currency. Not only do they print the money and create the credit, as they go through the banking system. Through fractional reserve banking we further expand the supply of money, diluting the value of money which is the inflation. The inflation isn't rising prices. The inflation is the government's program of increasing the supply of money which devalues the currency and that causes the prices to go up. There is a lot of examples where you have runaway inflation, prices are soaring and the economy is in shambles. And that is what I fear will come to this country if we don't quit printing the money and creating credit. Whether it's to fight wars that we shouldn't be fighting or to bail everybody out in this country that needs something. And that's the way this place operates. They sort of like it. You know, they like it because, you know I don't have to raise taxes and somehow another these bills get paid, not understanding when you dilute the value of money, it's really an immoral, deceitful tax on the people. But it will come to an end. If you study monetary history throughout thousands of years you will find out that paper money has been tried many many times and it never succeeds. It always ends badly. The question is, when will the dollar end badly? Will it be next year? 5 years or 10 years? I'm convinced it will end. |