Ron Paul on Freedom Watch: HR 1207 Will Not Dictate Monetary Policy

This Wednesday afternoon, Ron Paul joined Peter Schiff, Nick Gillespie, Jesse Kelly, Tom Mullen and Judge Andrew Napolitano to discuss the latest political and economic developments.

Part 1: (Ron Paul)
Part 2: (Ron Paul)
Part 3:
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Part 5:
Part 6:

Audio only:Download the show as an MP3 file here (54:55 min).

Channel: Fox News Strategy Room
Show: Freedom Watch
Host: Judge Andrew Napolitano
Date: 9/9/2009

Transcript of Ron Paul’s appearance (Part 1 | Part 2)

Judge Andrew Napolitano: It is now my great pleasure as usual to introduce one of America’s great defenders of freedom and liberty in the United States Congress and anywhere today. Congressman Ron Paul joins us live from our nation’s capitol. Congressman Paul, welcome back to Freedom Watch.

Since you and I spoke last it now appears – first of all welcome back to Washington, welcome back to Freedom Watch. You and I spent a little bit of time together since last we were on. It was very, very pleasant time. I’ve had a little time off. Time off for you means visiting with the constituents back in Texas. But now that you’re back in the capital, things have changed a little bit since last we spoke. Please correct me if I’m wrong: Has Congressman Barney Frank, who is the chair of the House Financial Services Committee, indicated to you that it is now more likely than not that your bill or a bill which contains language similar to yours which would mandate the auditing of the Federal Reserve Bank is likely to be voted on and passed by the House of Representatives?

Ron Paul: Yes, but he’s never been explicit to say that it would be done separately. He has always implied that it would be – probably – thrown in with reforms. The other reforms that they’re going to introduce would probably not be very favorable. But the final answer isn’t out yet. I think we still have to work. We are trying to get an up or down vote in the House of Representatives. It is a possibility. I think in his mind, without his saying explicitly that he intends to put it with some other reform packages and other new regulations. I’ve talked to him since I’ve been back and I said, “Will our meetings still be on?” And he said, “Yeah, yeah. We’re going to get together.” He is well aware that we’re going to sit down and talk about strategy as well as final wording.

Judge Andrew Napolitano: Does this mean that what he intends to bring to the floor will be a watered-down version of what you have proposed and well over half the members of the House of Representatives have co-sponsored? In other words, will the audit – if this passes the Senate and the President signs it – will the audit come about as you intended it to be when you authored this legislation, or are they taking the sting out of it?

Ron Paul: There’s two things: I do not believe Barney Frank is going to deliberately water down so that we don’t get anymore information because he wants the same information I want. He wants to know who had benefited by behind the scenes operations of the Federal Reserve, which corporations benefited. I really believe that is the case. But there are individuals who are adamantly opposed to the whole process. The only thing that we have talked about, that we want to clarify, and I’ve agreed to, is that this bill in itself is not the bill to take over monetary policy and day-to-day management of monetary policy. He and I have agreed to that. The bill doesn’t do that. But I may look at some language to make that very, very clear that we are not going to be sitting in and dictating the political way the FOMC meetings and dictate monetary policy. But we have every right in the world to know what happens as a consequence of those meetings: who they bail out, who they extend loans to, what assets they buy, what kind of arrangements they’ve made overseas. I do not believe that Barney wants to water that down. Already, though, I’ve had calls from some senators on our side who intend to water it down a bit. So we have the Senate to contend with as well.

Judge Andrew Napolitano: You just referred to the FOMC. I assume by that you mean the Federal Open Market Committee. And correct me if I’m mistaken: the bill that you have drafted that has these well over 300 co-sponsors would audit the Federal Open Market Committee as well as the Federal Reserve as well as the regional banks – the regional Federal Reserves.

Ron Paul: Right: It would. But it doesn’t say that it would manage monetary policy, but we should know, because under the FOMC – the Federal Open Market Committee – they dictate policies dealing with the discount window. The discount window is when a bank or a corporation gets into trouble they can extend loans. And these aren’t under the TARP fund program, these are just creation of credit out of thin air and the Federal Reserve extends these loans. No, I would not give up on that because they might just shift the name and say, “Oh, that’s all under FOMC and therefore you don’t have the right to audit.” Anything that they do where they make deals and buy up assets should be available to us. It’s just that on the day-to-day management of setting an interest rate – even though we shouldn’t have the Fed setting interest rates anyway – this bill is not designed to deal with that problem.

Judge Andrew Napolitano: Before we leave this topic, is whatever is going to happen – that is whenever this gets to a committee hearing or a vote – is this likely to happen this year, say before the Christmas recess?

Ron Paul: I expect it to but you know in D.C. you can’t promise anything. I believe it is the intent of Barney Frank to bring it up and bring it to the committee and have a vote and possibly to the floor. But if he is dead set on putting it with a package and that’s not ready before the end of this year, then I could see that he would frustrate us all by delaying the vote. I am working with a positive attitude but I think that we can get some type of a vote by the end of this year.

Judge Andrew Napolitano: Switching gears a bit. Since you returned to Washington do you sense any different attitude amongst different members of congress with respect to the President’s health care proposal? My own view from my vantage point here in the Northeast and at Fox News and all the emails that we get and polls that we see is that the tide of public opinion has turned decidedly against the concept of Medicare for people under 65 – the so-called federal option. How do you see this a few hours before the president makes this address to a joint session of congress?

Ron Paul: I haven’t talked to a whole lot of Democrats, I don’t really have any inside information about the Democrats. I have talked to some Republican colleagues and only thing I can see is that they are more optimistic now than they were six weeks ago. They are optimistic that they are more on the offensive and that they have slowed Obama up and that maybe we can stop this train towards socialized medicine, but I don’t think they are going to slow up they are going to have to give up some of their original plans. They are still going to work very hard to get the government more involved, not less involved. It is destined to make medicine cost more. It’s destined to frustrate more patients and more doctors than ever. I can see no real benefit coming out of this debate at this point.

Judge Andrew Napolitano: I need to end with one of my favorite topics and one of yours, too, which is the Constitution. I interviewed one of your colleagues yesterday on my radio show, Brian and the Judge, Congressman Jim Clyburn, Democrat from South Carolina, who is the number three ranking Democrat in the house and I said to him, “Where in the Constitution, Congressman Clyburn, is there a federal power, is there any authorization for the federal government to manage healthcare?” Do you know what he said to me? He said, “Judge, most of what we do in Congress is not authorized by the Constitution.” I was sort of startled by this rather candid admission that they don’t care what the Constitution says. They’ll write whatever laws they want and just let courts worry about it.

Ron Paul: It’s a surprisingly honest answer that he gave you. That is the general attitude. Most of them rationalize a little bit differently. They say, “The general welfare clause gives us that,” or “the Interstate Commerce Clause gives us that,” or “any law that is necessary and proper,” and you know how they abuse that phrase, that’s usually what they say. But to say that almost everything we do here is unconstitutional, he’s absolutely correct. But his attitude – what difference does it make? I mean, they do it both on international affairs as well as domestic affairs. And of course if we had it our way, our government would be a lot smaller and we wouldn’t have to have the ordinary taxes, nor would we have to have any inflation, or the depending on the Fed to create money to pay for all these meals.

Judge Andrew Napolitano: Nor would we have to worry about auditing a Fed because the Fed wouldn’t exist. By the way, congratulations on your new bookEnd the Fed,” which we’ll talk to you about hopefully when we start as a daily show next week. Congressman Paul, always a pleasure. Thanks for joining us on Freedom Watch.

Ron Paul: Thanks a lot.

Judge Andrew Napolitano: My next guest, Peter Schiff is a regular on Freedom Watch, the President of Euro Pacific Capital, one of the brightest people I know in understanding the economy, domestic and international. Peter, welcome back, good to be with you. I saw something you wrote, or heard something you said recently which startled me. You’re concerned about the value of the dollar, and about the way the Chinese government views the dollar. Can you explain, please?

Peter Schiff: Well, I mean, they obviously view it as an albatross that they wish they can get off from around their neck. But we stopped them with our monetary policy. We exported Alan Greenspan and then Ben Bernanke’s reckless monetary policy to China. China recently commented that they wanna raise interest rates, but they can’t. They have to wait until we raise rates. Meanwhile, they’re creating a lot of inflation and they’re printing too much money. That’s why the Chinese government has now advised their own citizens to go out and buy gold and silver. Because they realized how destructive their monetary policies are to their currency – and they know the dollar’s going to collapse.

Judge Andrew Napolitano: It is the Chinese government selling bonds. Meaning, is the Chinese government borrowing money from Chinese banks and Chinese individuals?

Peter Schiff: Well, they’re just gonna start to do that but, you know, they don’t have to. The Chinese government isn’t operating at a deficit.

Judge Andrew Napolitano: I always thought that they had so much cash that they didn’t have to do that.

Peter Schiff: They don’t need to. They don’t need to borrow money, they’re lending us money. They’re buying up all our debt, they’re our biggest creditor. That is their main problem right now. The problem for the average Chinese citizen is how much of his wealth is being confiscated in order to support some American that he doesn’t even know. We are living off the backs of Chinese labor. They’re working hard, they’re producing the stuff that we consume, and then they’re lending us the money to buy it.

Judge Andrew Napolitano: Would you buy, or would you recommend that your clients buy bonds of the Chinese government? Is that a safer investment than a bond in the US government?

Peter Schiff: Well, I got two emails today from clients asking if they should buy those bonds. I see no reason why not. I mean, I think they’re still RNB denominated. Their currency’s gonna rise. You know, I prefer to buy Chinese shares. We buy a lot of Chinese utilities. But I would much rather lend money in RNB to the Chinese government than lend dollars to the US government because they’re not gonna pay you back.

Judge Andrew Napolitano: Just clarify for us, Peter Schiff, what you mean by RNB.

Peter Schiff: That’s Renminbi. That’s the currency or the Chinese Yuan, that’s the currency they use.

Judge Andrew Napolitano: Okay.

Peter Schiff: And eventually that currency is gonna go way up. When you’re a lender, when you lend somebody money, you want to be paid back in the equivalent purchasing power that you loan.

Judge Andrew Napolitano: Something the US government never does.

Peter Schiff: No, you’re never gonna get that. And a lot of people, they look at the price of gold going up, and they say, “Well, but there’s no inflation, look at the bond market.” The bond market’s got it wrong. And the reason the bond market’s got it wrong is it’s manipulated. Because you have foreign Central Banks and the Fed buying treasuries. Nobody is putting their own money. I don’t know about you, but I wouldn’t buy a 10-year US government bond or a 30-year US government bond for a 4.5% coupon. I don’t know anybody who would do that.

Judge Andrew Napolitano: Except that isn’t that number higher than it’s been in the recent past? And if so, why, Peter?

Peter Schiff: It’s a little bit higher.

Judge Andrew Napolitano: Is it higher because the government needs to offer more of a return in order to get people to loan it money?

Peter Schiff: Well, I don’t think people are loaning money, I think it’s government. I think it’s Central Banks taking taxpayer money and loaning it to the US government. Maybe there are some hedge funds in there, maybe there are some people arbitraging or spreading off these bonds. But I don’t think there is any real investor demand. I don’t anybody can sit back and look at a trillion dollar a year deficit – year after year after year, as far as the eye can see – and think that the US government is not going to inflate this debt away.

Judge Andrew Napolitano: Okay. What do the Chinese government officials want to do with respect to the dollar? Do they want the dollar to be the international standard of currency that it is today?

Peter Schiff: I don’t think so. I think they want out of the dollar, but they think that they’re in a box because they own so many of them. It’s like when you loan somebody a lot of money, now you’re in trouble, because if they can’t pay you back you take a big loss. But there’s an expression in investing where you throw good money after bad.

Judge Andrew Napolitano: Right.

Peter Schiff: And that’s what the Chinese are doing right now, they’re throwing good money after bad. At some point they’re gonna have to come to terms with those mistakes and act rationally and just get out of this position, take their losses and move on. But I think the longer they do this, actually the worse they make it for us, because as the Chinese government loans money to our government, they’re enabling all the bailouts. They’re enabling the stimulus. They’re letting our government grow. They’re providing our government with the means to expand. If we get some kind of national health care, it’s because the Chinese are funding it. And if they stop, they can force our government to live within its means and put an end to this.

Judge Andrew Napolitano: Don’t they understand that they’ll be paid back in inflated dollars and dollars that are worth a lot less than the ones they loaned us? And isn’t this the thing that they would want to guard against?

Peter Schiff: Well, they do understand that. They’re talking about it. They’re saying that, “We need to stop the debt from expanding and we need to get this under control.” But we can’t do it and what the Chinese have to understand is that the more they lend us money, the more they enable the very activity that’s going to undermine the value of the dollar. If they really want the US government to stop printing money, then stop buying our bonds. Stop giving us the rope to hang ourselves.

Judge Andrew Napolitano: Alright. Why did they give the rope to hang ourselves? Is there a geopolitical reason there? Are they looking for security on their loans? Do they want to own Yellowstone National Park? Do they want a mortgage on it?

Peter Schiff: I don’t think so. Look, we won’t let them buy it. We could stop the Chinese, we just don’t authorize the purchases. But I think there is a mentality – this vendor financing – there is a myth out there that – well, what would all the Chinese workers in all these factories do if America was too broke to buy their products? Well, the reality is we are too broke to buy their products. We can’t buy them, they’re giving us the money to buy them. And if they just can understand the concept that if they only allowed their own currency to rise, if they just let that RNB appreciate, then the value of the wages of their own workers will rise dramatically, and their own people will be able to buy their products. They have no shortage in demand. They have all the supplies.

Judge Andrew Napolitano: Correct me if I’m wrong – and I love this conversation with you because I learn every time we have one like this, as do the many good people that are listening to us now. Are the Chinese money managers of the same big government borrow and spend mentality as ours are, or do they understand the basics of economics 101 as you and I do and as we wish our government practiced too?

Peter Schiff: Well, I don’t know what they understand. I haven’t had any conversations with them. But I certainly see and read some of the quotes coming out from some of their ministers, and it certainly seems that they do understand that if you look at what they’ve done with their reserves – they have doubled the percentage of gold reserves and they’re accumulating more gold. They’re trying to ease their way out of the dollar. They’re certainly shortening up on their maturities. Meaning, they’re not buying the 10 and the 20-year, but they’re buying short term.

Judge Andrew Napolitano: What are they buying – 3 and 5?

Peter Schiff: Well, shorter – shorter. And I think the reason you do that is so that you can get out. Remember if they had a lot of 30-year government bonds and they wanted to sell, they would have to find a buyer in order to get their money out. But if you have a short term note, just let it mature.

Judge Andrew Napolitano: If the government sells $200 million worth of bonds to the Chinese government on January 1, and those things are due on June 1, what is the government going to do on May 31st – sell $200 million to somebody else?

Peter Schiff: They’re going to do exactly what Bernie Madoff used to do. They’re going to look for new money. So what the US government hopes is that when those bonds mature the Chinese would just roll it over and say, “Okay, we’ll take that money, and we’ll buy another maturity, a longer maturity.” The problem is when the Chinese say, “You know what, we want our money back. I don’t want to buy another treasury from you. I’ll just take my dollars to somebody or do something else with them.” That’s when there’s a problem. Just like that’s how Bernie Madoff got a problem. He got a bunch of redemption requests and he couldn’t find new money, and the whole thing unravels.

Judge Andrew Napolitano: I argued with Neil Cavuto, our mutual friend, on the Fox News Channel not too long ago that Social Security was the biggest ponzi scheme in history. Maybe the Treasury Department is a bigger ponzi scheme than Social Security after the explanation you just gave.

Peter Schiff: Well, we’ve got a ponzi economy. I mean, as I said — that was my joke. I don’t know why Bernie Madoff’s in jail. He should be the secretary of the Treasury. Everything we do is patterned. But Neil Cavuto didn’t understand the Social Security is a ponzi scheme?

Judge Andrew Napolitano: No, Neil Cavuto agreed. I was kidding when I said he argued. Before I let you go – and we’re going to go to Nick Gillespie from Reason Magazine in Washington DC, who’s standing by. Is there anything new in Connecticut politics? I’ve been on vacation for a couple of weeks, and if you drive a bus for a living you don’t go on the bus when you’re on vacation, so I didn’t watch any television for the two weeks that I was off. Is there anything new in Connecticut politics that I should know about?

Peter Schiff: Well, everybody knows that I’m very close to potentially making an announcement that I would be –

Judge Andrew Napolitano: Close to and potentially.

Peter Schiff: I will be running for US Senate.