Against the Financial Power Elite
by Ron Paul: The
Fed Twists, the Market Shouts
the US House of Representatives, Committee on Financial Services,
Hearing to Receive the Annual Testimony of the Secretary of the
Treasury on the Annual Report of the Financial Stability Oversight
Council, October 6, 2011
I thank you for holding this hearing with Secretary Geithner to
receive the annual report of the Financial Stability Oversight Council
(FSOC). FSOC has been given a mandate to identify threats to the
American financial system. With all the major financial regulators
as members of FSOC, this new organization is like the Plunge Protection
Team on steroids, and there is no telling what kind of damage FSOC
will end up doing to financial markets.
While our domestic
economy continues to suffer as a result of the Federal Reserve's
intervention into credit markets, the euro increasingly looks likely
to collapse. Here too the federal government has intervened, with
the Federal Reserve promising unlimited dollar liquidity support
to European central banks, and Secretary Geithner traveling to Europe
to castigate the Europeans for moving "too slowly" in
addressing their financial crisis. Whether or not the euro's collapse
leads to the introduction of a new international monetary regime
remains an open question. There is also the newly revived issue
of China's currency, in which it appears that Congress may attempt
to punish China for the alleged artificial weakness of its currency.
The irony of Congress dictating monetary policy to the People's
Bank of China when they would not even dare audit, let alone dictate,
the Federal Reserve's monetary policy seems to be lost on the neo-mercantilist
supporters of the China currency bill.
role FSOC plays in all of these recent developments needs to be
ascertained. The design of the euro seems to have been flawed from
the beginning, and the likelihood of a return to national currencies
seems all the more certain every day. A collapse of the euro would
undoubtedly have ramifications on the American financial system,
but what those effects would be and what the Treasury and Federal
Reserve's response would be is not certain. The Federal Reserve
has already offered unlimited amounts of dollar liquidity to European
central banks, at least according to the Europeans. The Fed has
not yet deigned to provide anyone with the details of these arrangements,
so we have no idea how much money was promised or how this money
will be used. Considering that swap lines peaked during the financial
crisis at $580 billion, it would not be surprising to see that number
reached or exceeded in the event that Europe faces a currency meltdown.
It is imperative that we find out how much the US government has
involved itself in negotiations surrounding the European financial
With the dollar
growing increasingly weak in the past few years, some had feared
that a dollar currency crisis would provide a useful excuse to introduce
a new international monetary regime, one that would replace the
euro, national currencies, and supplant the dollar as the world's
reserve currency. Now the possibility has been raised that the euro's
instability might provide the impetus for such a scheme. This is
a topic which has been neglected in recent years but which is especially
important because of the work the G20 has undertaken on global currency
reform since 2008. What role US representatives have played in these
negotiations is unknown to Congress, nor do we know what global
currency reform initiatives are being discussed. I fear that the
G20 negotiations will result in a fait accompli that will
be forced upon the American people with no opportunity for input
since the closing of the gold window by President Nixon in 1971,
the unbacked US dollar has served as the world's reserve currency.
No longer constrained by being required to exchange dollars for
gold, the US government has been able to fund its fiscal profligacy
with trillions of dollars of new money created out of thin air.
The only constraint on government spending is the willingness of
investors to continue to purchase the Treasury debt issued to fund
the government's massive fiscal deficits.
at this current state of affairs has led to calls to replace the
current global dollar standard with a new global currency system.
Many of the proposals work from the assumption that national governments
cannot be trusted to manage currencies in a responsible manner,
and that only an international organization such as the International
Monetary Fund (IMF) can provide a stable global reserve currency.
These proposals dig back to the roots of the discredited Bretton
Woods system, only instead of resurrecting the flawed gold-exchange
standard they propose a version of John Maynard Keynes' "bancor",
an international fiat currency based on the IMF's current special
drawing rights (SDR).
return to sound money, we need to return to the monetary system
our founders intended. Gold and silver were to be the only types
of currency which the states could declare to be legal tender, the
government was not given a monopoly on currency issuance, and foreign
coin could circulate just as freely as American coin. Rather than
further centralizing currency issuance in an unaccountable international
organization such as the IMF, currency issuance needs to be decentralized.
The free market can provide currency just as it provides every other
good. All that is needed is for government to remove the restrictions
on private mints. Gold is gold no matter who mints it, and unlike
paper money it cannot be created out of thin air. Gold-backed currency
serves as the ultimate check on government spending and debt creation.
Only by returning to commodity-backed currency can we return to
fiscal and monetary sanity and break the cycle of booms and busts
brought upon us by the Federal Reserve.
Mr. Chairman, this Committee has a great role to play in overseeing
the administration's activities in both international and domestic
monetary policy. We need to keep watch over the actions of FSOC
and its members with regard to the Eurozone bailout, bring to light
the administration's negotiations with the G20, and vigorously oppose
any efforts to force the United States into a new global currency,
while simultaneously laying the groundwork for a return to sound
money in this country.
the Ron Paul File
Paul is a Republican member of Congress from Texas.
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