Ron Paul at the Financial Services Committee Hearing

Date: 11/4/2009
Venue: Financial Services Committee Hearing


Ron Paul: I thank you, Mr. Chairman. Earlier this year, Secretary Geithner had an interview and he said that the main source of our problem with this economic crisis was that we kept interest rates too low too long. And I certainly agree with him on that. And I also agree with the authors of this bill that we don’t have enough regulations. But that doesn’t mean that I endorse the notion that we need more bureaucrats and more written regulations of that sort.

A lot of people think that if you don’t support the bureaucratic approach, that you don’t endorse regulations. But the free market provides a lot of regulations and those who the regulations that we have ignored, as a matter of fact we have actually allowed them to go forward. A major regulation we should have is “always enforce contracts.” The government has a responsibility to ensure contracts are enforced.

But also the issue of fraud. Just because we are unregulated in the sense of not having bureaucrats do it, it does not mean that fraud should be tolerated. And yet now it’s coming out that companies like Goldman Sachs may well have been involved in something that could be construed as fraud. They were selling AAA securities – the credit default swaps – and at the same time they were shorting the market. They knew there was a housing bubble, but they were telling their investors that they had these wonderful bonds to buy. Now that, to me, is fraud. And that should be handled by people like this going to prison. But there are free market alternatives to pretending that every single transaction and almost preemptively prevent things. To me it’s sort of like trying to protect against slander from anybody saying or writing anything that harms somebody. We don’t believe in that. If somebody commits it then we, of course, penalize them for it. But in the marketplace we assume that we can preempt it, we can have prior restraint, and that’s where the chaos comes from. So, in that sense, I don’t believe in prior restraint. The people in the media have their limits; they cannot lie and they cannot get away with defaming people.

But this “too low and too long” on the interest rates, I think, is the key to it. The free market explains the business cycle better than anybody else. Because they understand that the cycles come from artificially low interest rates. So Geithner admits they were too low too long. The reason why this is so damaging is that the interest rate level is key; it’s key to the investor. It’s key to the developer and the builder. If the interest rates are low, the signal that they’re hearing is that there is a lot of savings, and therefore there is capital available to them. But we went through a period of them when there was zero savings and interest rates were low. So it was very confusing. The savers don’t save anymore because there are so called too much savings. At the same time the developers and builders think, “Hey, there is a lot of capital out there”. But it really wasn’t capital; it was artificial. It was credit created out of thin air and it was a fraudulent approach to the issue of providing capital. And someday we’ll get to that. We’re not going to get to that whole idea in this bill because that deals with monetary policy and understanding of how that system works.

But systemic risk is very, very serious and it is the nature of money that creates the systemic risk that we’re trying to deal with. The Federal Reserve came into existence in 1913 and they were given a dollar that was worth 1/20th of an ounce of gold. Today it’s worth 1/1100th of an ounce of gold. Which means that our measuring stick is unstable; it continually loses value. And you can’t build a healthy economy domestically, or especially internationally, if that dollar or that currency becomes the reserve standard of the world. And we’re doing this constantly. Right now it’s not only the Fed’s fault; we’ve run up the deficits. There is a limit to what we can tax, there is a limit to what we can borrow. And at the same time we turn it over to the Fed and the Fed prints the money and artificially lowers interest rates, and that is where the systemic risk comes from.

So someday we’ll have to address that subject of exactly where this comes from. I will offer my amendment, which is the HR1 207, dealing with the Federal Reserve, but that deals only with transparency and we have broad bi-partisan support for this bill and I hope there will be a consensus on supporting that bill.

Thank you very much.