(Full transcript below)
Event: House Financial Services Committee Hearing
Date: July 21, 2009
Bill Posey and Alan Grayson continue questioning Ben Bernanke:
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Transcript of Ron Paul – Ben Bernanke exchange:
Ron Paul: Thank you, Mr. Chairman. In the past, most members of the Federal Reserve Board, including your predecessor when they come before the committee, they endorse in general the idea of transparency. They don’t just say, “We’re against transparency.” It’s the definition that really counts. Most members then would also argue for independence, which generally means that they don’t want the Congress to know exactly what they’re doing.
But I saw the article today in the Wall Street Journal, not your editorial but an article and there are a few quotes there that I wanted to ask you about and I do know that all of us can get misquoted in the newspaper, but I want to clarify this because it’s either misleading or somebody is confused and I wanted to see if I can figure this out.
And the first one had to do with you saying that Mr. Paul’s bill, which is 1207, the transparency bill, would interfere with the Fed’s interest rates decision, and since I wrote the bill, and I know what the intentions are, it has nothing to do with interference with monetary policy or interest rates manipulations. There’s nobody in the Congress who is going to be monitoring the Federal Open Market Committee. It’s after the fact that an audit can occur and find out what transpired. There is no management.
So is that your position that this bill, if it were to be passed, would interfere directly with interest rates, setting interest rates?
Ben Bernanke: Well, Congressman Paul, at some point, as you know, we’re going to have to start raising interest rates to avoid inflation, and people have talked about the politics of that and how whether the Fed will be able to do that without intervention or interference. If we were to raise interest rates at a meeting and someone in the Congress didn’t like that and said, “I want the GAO to audit that decision”, wouldn’t that be viewed as an interference or at least in that expose…
Ron Paul: I wouldn’t think so. This is just reviewing it and you can do what you want. What about today? Interest rates are artificially low. Could there be any political pressure to keep interest rates artificially low? Historically, that’s been well known. It’s been documented and written about how other Federal Reserve chairmen, they’re on the verge of reappointment and they know the president and all of a sudden… so it’s not like it’s not politicized now. Just the fact that they can issue a lot of loans and special privileges to banks and corporations, that’s political. This idea that it would be political, because we know what happened afterwards, just doesn’t seem to add up.
Since time is short, I want to go on to the next quote, which I find fascinating because hopefully I can agree on you on this one. The actual quote is this, “We absolutely will not monetize the debt.” Well, that’s one of the major reforms sometime in the distant future, that would be beautiful because that would stop all this chaotic monetary policy, inflations and depressions and recessions and all the mess that we have, but you say you will not.
At the same time, I quoted the $38 billion that was bought last week and the plan to buy $300 billion of US securities. These securities are bought by dollars you create and if you’re buying US securities, what is that if it’s not [monetizing the debt] and besides, if the markets really believe that, you would absolutely not monetize debt, I think the market will get hysterical. So it’s seems to me like I’d like to understand exactly what you mean by that.
Ben Bernanke: Well, the purpose of our limited program was to address the private credit markets, Congressman. When we complete the $300 billion program that we announced, we will have less treasuries on our balance sheet than we did two years ago because we sold off a lot of treasuries in order to make room for these other things that we’re doing.
Secondly, after we complete that $300 billion, our share of outstanding treasuries will be at one of the lowest points that’s posted in our period. So we’re not taking a significant portion of US treasuries and we are not actively intervening or actively trying to make it easier for the government to issue debt.
Ron Paul: So you’re saying if you buy $300 billion worth of US government debt, that is not inflationary. The true definition of inflation is when you increase the money supply and the immediate consequence is it sends out false bad information to the marketplace, so whether it’s when the bubbles are being formed or afterwards, all you’re doing is inflating constantly; you’ve doubled the money supply, interest rates are artificial, people make mistakes. So it seems to me that you’re in the midst of massive inflation, but I guess you have a different definition. When you double the money supply, that’s not inflation itself? Or are you looking at only prices.
Ben Bernanke: May I respond?
Barney Frank: Briefly.
Ben Bernanke: Inflation is the change in the price of the consumer price level, which is very stable right now and the various measure of money, as you know, in the broad measures of money, the measures that cut the measures of money in circulation like M1 and M2 are not growing quickly.