Ron Paul questioned former Chairman of the Federal Reserve, Paul Volcker, at a Joint Economic Committee (JEC) hearing ominously titled “Wall Street to Main Street: Is the Credit Crisis Over and What Can the Federal Government Do to Prevent Unnecessary Systemic Risk in the Future?”
Ron Paul expressed his disapproval of reserve requirements going down to zero, and criticized the Fed not just for buying rapidly declining housing securities, but also for talking about using credit card securities, car loan securities and student loan securities to back the creation of new “money”:
One thing I don’t think we ever do is define “capital”. We talk about “capital”, but in capitalism, in the free markets, capital comes from savings. Well, we don’t have any savings! Capital [now] comes out of thin air and we’ve had the luxury of creating as much so-called capital as we want because we were able to issue the reserve currency of the world. You mentioned the problem that we have is overconsumption. Well, that wouldn’t occur if we had a commodity standard in money, because it holds you in check.
Ron Paul went on to state that bailouts just make the problem worse and that while he does believe in regulation, it was government regulation that distorted the market and caused malinvestment:
Everybody said, “Well, bailing out Bear Stearns was just wonderful”. Well that to me is sort of like saying, if you have a drug addict having a withdrawal symptom you give him another fix and he feels good, then everything is going to be okay. So I don’t think that can be that reassuring to us because we have so many, many problems that we still face.
And, I believe in regulation. But I don’t believe for a minute that it’s a lack of government regulation that is our problem. It was the fact that the government had licensed the Federal Reserve to distort the market, create capital out of thin air, distort interest rates, cause the malinvestment, the excessive debt.
The market is a good regulator. The market, through interest rate changes, gives us signals that we should follow, but we don’t have that anymore. But just to say “all we need is more regulation”, I think it’s sort of like saying that we need regulations for something that is unregulatable, because the system is so artificial. It has nothing to do with the market economy.
So I really fear when I hear statements “well it’s the free market that is the problem”, rather than asking, “where did the bubble come from?”. And I think it’s very, very precise and very clear where financial bubbles come from and we have to deal with that.
Watch the rest of Ron Paul’s statement, the questions he asked, and Paul Volcker’s response in the video at the top of this post, or watch the full hearing here.