At today’s House Financial Services Hearing, Ron Paul spoke for millions of outraged Americans when he accused the Federal Reserve of conducting its business in secret and of hiding important facts, such as the contents of its meetings with other central banks, from Congress and the public. He called on the banking cartel to stop engaging in harmful price fixing and central planning, and instead allowing the free market to adjust prices so we can “all go back to work again”.
Ben Bernanke replied that the Federal Reserve is working to avoid the collapse of the banking system and to allow the “free market” to resume functioning in a “normal” (i.e. debt-based) way. Ron Paul’s concerns about the Fed’s discussions with other central banks, and whether they are planning a new Bretton Woods or new international monetary system, remained unanswered.
Event: House Financial Services Committee Hearing
Channel: C-SPAN 2
Ron Paul: I want to thank you for calling this hearing because the issue of transparency of the Federal Reserve System is something that is of crucial value to us. I rather enjoy the fact that the Federal Reserve has been in the limelight lately because that is the source of our problems. That’s where the inflation comes from, that’s where the distortion comes from, that’s where the mal-investment comes from and it’s a shame that we don’t know more about it. But I don’t blame the Chairman of the Federal Reserve System for this, because it’s already been quoted that 1303 is in the law. So a lot of responsibility falls on us here in the Congress.
Also in Title 31 Chapter 7 Subtitle 1, says that the GAO has authority to audit the Federal Reserve board, the Federal Reserve banks, as well as the FDIC and the Comptroller of the Currency.
Sounds good except you go to the next paragraph it says except for you can’t audit the Federal Reserve or any of these organizations for the things that matter, such as transactions with foreign banks, transactions with foreign governments, transaction with international banking organizations. We can’t have real access to knowing what’s happening at the discount whether in detail, as well as how reserves are used as well as […] what really transpires at the FOMC.
Audits of the Federal Reserve Board and Federal reserve banks may not include – (1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization; (2) 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; (3) transactions made under the direction of the Federal Open Market Committee; or (4) a part of a discussion or communication among or between members of the Board of Governors and officers and employees of the Federal Reserve System related to clauses (1)-(3) of this subsection.
The fact that we have information dribbling out to us, that’s one thing. But you know, for instance, in the last about two years we’ve been denied the information that a lot of people consider rather important and that is the total money supply. What is M3 doing? And that of course for some of us think that is important but it indicates that transparency is not always the goal.
The question we in the Congress have to ask is, why is it that the Congress is so eager to give up their prerogatives and their responsibilities, whether it’s in foreign policy, whether it’s giving the executive branch the authority to go to war without the Congress saying much, or whether it’s turning over the monetary system to somebody they can operate essentially in secrecy, and deal not with a few hundred billion dollars, like 800 billion dollars here and there, but tens of trillions of dollars when it adds up. Yet the Congress seems to do very little. So if we’re concerned about transparency, if we’re concerned about what’s happening with monetary policy, believe me, the code has to be changed.
But I’m delighted that the Chairman of the banking committee is interested in this at least to put some pressure, and we do get bits and pieces and dribbles out of information. But why we turn over this tremendous power to actually run the economy; central economic planning through the manipulation of prices? The whole problem we’re facing today is that the Treasury and Congress and the Federal Reserve’s trying to price things they’re incapable of pricing. That is the toxic assets, the illiquid assets, so if we’d only allow the market to operate we might clean up the mess that we have brought upon ourselves.
Ron Paul Questions Ben Bernanke
Ron Paul: Thank you, Mr. Chairman. In my opening remarks, I mentioned that Title 31 is the GAO authority to audit the Fed except in the final conclusion they exempt the Federal Reserve and the FDIC and the Comptroller of the Currency so there is no authority. Congress never wants to know what’s going on; we’d have to change the code. For instance, right now I think it would be important for us to know what our monetary authorities are thinking about and talking about and planning internationally, because this system isn’t working, and a new system is going to be devised, and I’m sure it’s been discussed. I’d like to know if there are plans for another pseudo Bretton Woods agreement. It’s very, very important to us, it’s important to our sovereignty, it’s important to our well-being, but we don’t even have the right to know that as members of Congress.
In Section 1303, it gives you the authority and you cite the authority to make loans and bail out individuals, partnerships and corporations, and it hasn’t been used much but it’s there and that again is Congressional responsibility. But you know, transparency is one thing and I want that because I think it would expose the system to how it operates, but there’s more to it than that. To me it’s the power and the authority that gravitates into the hands of a small group of people to create money out if thin air. This is an ominous power, it’s the most powerful tool for Central Economic planning around and that really has to be the issue as much as transparency. Once you have this power to control money and credit and central plan, you can distort contracts. So we’re talking about distorting contracts, rewriting contracts when we get involved in these bailouts like we have been.
But you know, Chairman, you have written a lot about the depression and of course there was a famous quote that you made once to Milton Friedman, apologizing about the Federal Reserve bringing on and creating and prolonging the Depression but you assured that it wouldn’t happen again. You know, the free market people agree with you entirely: the Federal Reserve is responsible. But the irony of all this and the key to this discussion has to be, was it too much credit in the 20s that created the conditions that demanded a recession/depression? Or was it lack of credit in the Depression that caused the prolongation? And that is the debate.
Obviously the free market people will say the Fed brought it on by too much credit in the beginning. But the question I have is, the adjustment of real value assets. The Federal Reserve brings on this crisis by interfering with the cost of money and through interface on the supply of money. But here we’re working frantically to keep prices up, housing prices up, we want to stimulate housing. To me, from a free market perspective, we’re doing exactly the opposite of what we should do. The prices of houses should drop; we have 90 million unoccupied houses. Now, why should we in Congress stimulate housing? So, what is so terribly wrong with the market? We’re frantic today, we’re offering a new 1.5 billion dollar program to buy up toxic assets and that is propping up prices. That’s illiquid, they’re worthless, let’s get rid of them, get it over with, get the pain and suffering behind us. How long are we going to be locked into this idea that we have to be involved in this price fixing? What’s wrong with allowing the market to allow these prices to adjust and go down quickly so we can all go back to work again?
Ben Bernanke: Congressman, that was very interesting. Could I respond to a couple of points you made? First of all on the Great Depression, Milton Friedman’s view was that the cause was the failure of the Federal Reserve to avoid excessably tight monetary policy in the early 30s, that was Friedman and Schwartz’s famous book. And with that lesson in mind, the Federal Reserve has reacted very aggressively to cutting interest ratres in this current crisis. Moreover, we also tried to avoid the collapse of the banking system which was another reason for the depression in the 1930s.
On prices of housing and the like, we’re not trying to prop up the prices of housing. What we’re trying to do is get the credit markets working again and so that the free market can begin the function in the normal way instead of in this ceased up way in which it’s currently acting.
And finally, on price fixing of so-called toxic or legacy assets, the plan that Secretary Geithner described this morning would have as an important component, private asset managers making purchases based on their own profit maximizing analysis. So that would be true market prices that would free up what is now a frozen market and get transactions slowing again and should restore real price discovery to those markets.
Ron Paul: But so far every one of these suggestions from the past year was more money, more credit, more government involvement; nothing seems to be working. Even today the markets weren’t very with these announcements. I think the market is still pretty powerful.