Remarks delivered at the End the Fed rally in Washington, DC, November 22, 2008, across the street from the headquarters of the Federal Reserve Board of Governors.
Welcome, and thank you all for braving the cold weather to make it out here to today’s rally. My name is Paul-Martin Foss, and I am representing the office of US Congressman Ron Paul. Like many people in this country, I made it all the way through college without any knowledge at all of economics. While preparing for grad school, I began taking economics courses at George Mason University, where I received my first exposure to Ludwig von Mises, Murray Rothbard, and the Austrian School of economics. Through my study of Austrian economics, I grew aware of the grave danger posed to this country by the Federal Reserve.
Many of you here are undoubtedly familiar with the workings of the Federal Reserve, but for those of you who may be here out of curiosity, I will give a brief description of the Fed. Created in 1913, the Federal Reserve System is a government-chartered but privately owned national banking monopoly, with a presidentially-appointed Board of Governors, headquartered across the street. The Fed issues the paper currency we use in day-to-day transactions, which currency is given legal tender status. The Fed influences market interest rates by making purchases of Treasury bonds, mortgage-backed securities, and other assets on the open market, attempting to keep interest rates at a certain targeted level. It acts as a lender of last resort to failing banks, offering money through its discount window. It engages in currency swap operations with foreign central banks. It serves as a clearinghouse and regulator for the banks in its system. And, as we have seen over the past several months, it increasingly operates as the guarantor of the stability of the entire American financial system.
Because of its hybrid government/private nature, decisions regarding monetary policy are not subject to effective oversight. The Federal Open Market Committee, a government-created committee, makes monetary policy decisions, which are then implemented by the Federal Reserve Bank of New York, a private institution. For the past few decades, based on Keynesian thinking, the Fed has been tasked by Congress with maintaining full employment and a stable price level. However, a cursory examination of money supply and price level data shows that the Fed has failed miserably in that regard.
Inflation is an increase in the supply of money, and the effect of inflation, all other things being equal, is a rise in prices. Something that cost one dollar only 10 years ago would cost $1.32 today. And that is based on the official data published by the Fed, the accuracy of which over the past 25 years is subject to dispute, since price level data has been manipulated to produce lower inflation numbers in order to conceal the true damage of inflation from the American people. Looking at the long term, over the 95-year history of the Federal Reserve System the dollar has lost 95 percent of its value. Any company that had mismanaged its assets in such a manner would have gone out of business long ago.
Inflation has two very pernicious effects, the first being that it benefits debtors and punishes savers, since debtors are able to repay their debts with devalued dollars. Thrift is punished because savings see their purchasing power eroded every year. The second effect of inflation is that those who receive new money first are able to purchase assets before prices rise, while those who receive the money last have had to deal with high prices before receiving the benefit of the new money.
Who are the largest debtors in this country? The federal government, of course, with a national debt quickly approaching $11 trillion, but also large finance companies and corporations such as General Motors, General Electric, and Lehman Brothers, because of the preferential tax treatment afforded to debt financing over equity financing.
Who receives newly inflated money first? The federal government, the Federal Reserve, major national banks, and government contractors. It is no surprise then that those who benefit the most from inflation are those who collude to continue the cycle of inflation, weakening the dollar and raising prices. The rich get richer, and the middle class and the poor grow poorer.
The Fed’s manipulation of interest rates creates the boom-and-bust business cycle that we have become all too accustomed to in this country. At present we find ourselves moving toward the bottom of a particularly destructive business cycle. Our policymakers unfortunately do not understand the role of the Fed in the creation of business cycles. Instead of ending the Fed’s manipulation of interest rates, the Fed is encouraged to embed itself ever deeper in the economy, involving itself in bailouts, creating new lending facilities, and acting as the guarantor of financial market stability. Until the Fed ceases its loose monetary policy, there will be no economic correction. There may be short-term improvements in the economy, but once the Fed’s policy tools are shown to be ineffective, the end result will be a cataclysmic economic depression.
Recently the Fed has been heavily involved with the actions surrounding the Wall Street bailout, injecting trillions of dollars of credit into the financial system. Reserve bank credit is up almost 150% over the past two months, while the monetary base has increased 75% in that same time frame. If the people across the street don’t get their act in gear, this country could face a hyperinflationary crisis the likes of which has not been seen in the First World since Germany in the 1920s. You all have undoubtedly seen photographs of people filling their wheelbarrows with paper bills in order to go grocery shopping. Well, I have two wheelbarrows already, so I’m ahead of the curve.
Since we know what the problem is, how do we fix it? To address the Fed’s shortcomings, Dr. Paul has introduced a number of legislative proposals.
HR 2754, the Sunshine in Monetary Policy Act, would force the Fed to republish M3, the broadest measure of money supply, which would allow a more accurate gauge of potential price inflation. Reporting of M3 was suspended in early 2006, as M3 was beginning to increase at an ever-faster rate. How convenient that the broadest measure of money supply was dropped as the housing boom began to bust, and not long before the turmoil in financial markets began.
HR 2756, the Honest Money Act, would repeal federal legal tender laws. Why should worthless, unbacked paper issued by a private banking monopoly have legal tender status? With legal tender laws in place, bad money forces out good. Our Founding Fathers intended for gold and silver to act as money, not unbacked paper.
In the next Congress, Dr. Paul will be introducing a bill to audit the Federal Reserve. The Fed currently is audited by GAO, but there are certain areas of Fed activity that GAO is forbidden from auditing. These include, and I quote here from US Code:
- transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
- deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations; and
- transactions made under the direction of the Federal Open Market Committee
Well, if you can’t audit any of those areas, what is left to audit? These unauditable areas comprise the core methods through which the Fed distorts the proper functioning of the market. Why should transactions with foreign governments or foreign central banks be free from legal scrutiny and oversight? What is to keep the Federal Open Market Committee, a majority of whose members are presidential appointees, from siphoning funds to politically connected firms? What other agency of government receives such carte blanche to operate completely independently, spending money willy-nilly and entering into agreements with foreign governments, without any oversight? Were this the Department of Defense or Department of State, we would rightly categorize it as a rogue agency. To fully reign in the Fed there is only one solution.
That brings us to the last, but not least, piece of legislation, HR 2755, the Federal Reserve Board Abolition Act. This bill would repeal the Federal Reserve Act and abolish the Federal Reserve Board of Governors and the entire Federal Reserve System. Everything I have just described shows that Fed is unaccountable, unconstitutional, and contrary to every principle upon which this country was founded. Until the Federal Reserve System is abolished, true freedom and prosperity will elude us.
It is incumbent upon us to educate ourselves and to spearhead educational efforts, to speak to family, friends, and coworkers, to get the word out about the Fed, what it is, what it does, and its detrimental effect on the financial standing of this country and its people. I’ve managed to convince my parents of the Fed’s destructiveness, and it never ceases to amaze me how many people we talk to who have at least some knowledge of the Fed’s destructive power. We are not alone, and we need to ensure that our Congressmen know that. Educational websites, Meetup groups, and rallies need to result in a flood of letters, phone calls, and emails to Congressional offices, lobbyists, and think tanks. Congressmen and their staffers need to know that the Fed should be reined in and abolished, and that the legislation to accomplish that already exists. Official Washington needs to understand that we know what the Fed does, and we’re fed up. Freedom is not easy, and it requires an educated, active, and aware populace. It won’t happen quickly, it won’t happen easily, but once it does, the groundswell of opposition will ensure a real change. The Fed must go. End the Fed.
November 28, 2008