Regulations Won’t Help as Long as There’s a “Lender of Last Resort”

Ron Paul attacks the Federal Reserve’s price fixing activities in his opening statement at the House Financial Services Committee hearing on bank supervision and monetary policy.

Location: House Financial Service Committee
Date: 03/17/2010


Ron Paul: This is an important day because this is the day that FOMC met and the markets were hanging in there, finding out what will be said at 2:15 and practically they were looking for two words, whether or not two words would exist: “extended period”. Whether this process would continue for an extended period.

And this to me demonstrates really the power and the control that a few people have over the entire economy. The economy is virtually the market’s a standstill and immediately after the announcement, billions of dollars can be shifted, some lost and some profits made. But it’s a system that I think doesn’t have a thing to do with free market capitalism. It has to do with a managed economy and central economic planning. It’s a form of price fixing. Interest rates fixed by the Federal Reserve is price fixing and it should have no part of a free market economy. It’s the creation of credit and causing people to make mistakes, and also it facilitates the deficits here.

Congress really doesn’t want to challenge the Fed because they spend a lot. And without the Fed, interest rates would be very, very much higher. So to me, it is a threat to those of us who believe in personal liberty and limited government. And hardly does the process help that average person. Unemployment rates stay up at 20 percent, the little guy can’t get a loan, and yet Wall Street is doing quite well.

But ultimately, with all this power, the Fed is still limited. It is limited by the market place. They can inflate like crazy, they can have financial bubbles, they can have housing bubbles, but eventually the market says it’s too big, and it has to be corrected. The mistakes have already been made. So they come in, and the market demands deflation, and of course Congress and the Fed does everything conceivable to maintain these bubbles. It also, it’s out of control of the Fed. Once the change of attitude comes, when that inflated money supply decides to go into the market, then prices are going up once again, the Fed will have difficulty handling that.

The inflationary expectations and the velocity of money are subjectively determined. No matter how objective you are about money supply, conditions and computers, you can’t predict that. So we don’t know what tomorrow will bring or next year. All we know is that the engine is there, the machine is there, the high powered money is there, and of course we will have to face up to that some day.

The monetary system is what breeds the risky behavior, and that is what we’re dealing with here. Today we’re going to be talking about how to regulate this risky behavior. But you can’t touch that unless we deal with the subject of the risky behavior comes from easy money, easy credit, artificially low interest rates, and the established principle for 1913 on that the Federal Reserve is there to be the lender of last resort. And as long as the lender of last resort is there, all the regulations in the world won’t touch it and solve that problem.

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  • & Fled can’t you realize that the Feds are playing monopoly and russian roulette with our money? I guess not! Seeing we are a debtor nation.

    • Fred the Protectionist

      How does one play Monopoly AND Russian Roulette at the same time?

  • Wade

    To Fred th Protectionist,

    The devalued dollar leads to inflation everywhere the dollar is in play. Though more expensive than usual, imports are still cheaper than domestic products because of no tariffs and lower production costs.

    This is what FDR fought Churhill over. Once FDR died Truman submitted to the wishes of the crown (Free Trade) and moved away from the sovereign nation state philosphy which is the model that the Queen wants destroyed.

    • Fred the Protectionist

      A) Imports are more expensive because the rich global oligarchs (your Libertarian masters) took all the profits and didn’t reduce prices for the American consumers, in addition to the fact that there is 7 trillion in cumulative trade deficit which makes imports more expensive.

      B) The devalued dollar is international dollar, not local dollar. If it were local than wages would also be inflated.

      C) Free Traitors claim American goods and American labor and American products are substandard. Why do Free Traitors hate America? That’s not right.

      • Wade

        The devalued dollar is domestic as well and wages have never kept pace with inflation.

        A trade deficit means that we import more than we export again proving my point. Less capital coming in and more going out to cheaper products.

        The Fed has depreciated the dollar by 97 percent since 1913. A century of failed economic policy. Albert Einstein said that insanity is doing the same thing over and over again and expecting a different result.

        Congress is insane for not revoking the Federal Reserve charter.

        • Fred the Protectionist

          “The devalued dollar is domestic as well and wages have never kept pace with inflation.”

          Wrong, the devalued dollar is international, not domestic. One clue is that wages haven’t inflated.

          “A trade deficit means that we import more than we export again proving my point. Less capital coming in and more going out to cheaper products.”

          A trade deficit means that there are dollars going out, and substandard products coming in that aren’t cheaper to the consumer. In fact 15 years of cumulative trade deficit means more expensive imports because the international dollar is devalued.

          “The Fed has depreciated the dollar by 97 percent since 1913.”

          The Fed is tasked with keeping the amount of dollars in the United States constant, for United States citizens. So when 700 billion dollars leaves the country every year in trade deficits the FED is forced to print more money, less we are forced to barter in Euros or Pesos. Why do you hate America?

  • Wade

    What good are lower prices to the unemployed? Where is the balance?

    Free trade facilitates cheap imports which reduces domestic market share resulting in downsizing. Artificially low interest rates historically lead to domestic inflation further highlighting cheap imports and eventually grinding to a hault an already sluggish economy.

    Why doesn’t Ron Paul run for Govenor? At least Texas would be the one haven state in the Union. He would probably get more done and then other states could follow his lead. He needs to be in a decision making position.

    • Fred the Protectionist

      “Free trade facilitates cheap imports”

      No it doesn’t, everything we import is more expensive because the trade deficit has devalued the international dollar.

      So not only does “Free Trade” destroy the middle class here by pissing jobs away, it also makes imports more expensive for the Consumer. What happened to all that blathering about “rights of the consumer”? Hmmm? Dumbasses.

  • Fred the Protectionist

    “Fed’s Price Fixing Not Compatible With a Free Economy” Well we all know where the “Free Economy” led to.

    Wade in the water.
    Wade in the water children.
    Wade in the water.
    God’s gonna trouble the water.

  • Fred the Protectionist

    Don’t know what to make of the video, but anyways, this ‘Great Recession’ is caused by destroying most manufacturing in the country with free trade, and destroying more jobs with open borders.

    I guess when you destroy the middle class then bad things happen, like aggregate demand goes down. Duh.

    • Ragnar

      It’s not as simple as that, Mr. Protectionist. Free trade does lead to cheaper prices for consumers. Look at computers, cellphones, everywhere the government isn’t involved. Prices are going down. But costs for education and healthcare, which are heavily controlled and manipulated by the government (i.e. no free trade) are skyrocketing.

      I agree with you about the open borders, you have a point there. Illegals that offer to work for low wages (only because they would earn even less at home) outcompete middle-class Americans and that’s not fair for these particular Americans. But on the other hand, cheaply hired illegals allow American businesses to lower their expenses, which indirectly leads to lower consumer prices, so the overall effect should be neutral. (In other words, the Americans who temporarily lose their jobs, and all other Americans as well, will still benefit from lower prices.)

      The recession is a good thing and it just means that businesses that overextended themselves and produced more goods and services than people could ever possibly buy, have to become more realistic. They saw all the cheap money out there thrown around by banks and thought it was real wealth, real savings saved by wealthy consumers, but in reality it was just funny money printed by the Fed. So they built and built and it had to end when everyone realized it was just a fantasy.

      Reinflating the bubble just recreates the same problem over and over again. So let the recession do its job and allow the free market to reallocate resources to their best possible use and we’ll all be better off! While you’re at it, end the Fed so they can no longer create all these bubbles.

      • Fred the Protectionist

        “It’s not as simple as that, Mr. Protectionist. Free trade does lead to cheaper prices for consumers.”

        AAAH! Wrong, there has been price inflation in everything but…

        “Look at computers, cellphones, everywhere the government isn’t involved.”

        …items made in the 1st world, not with cheap foreign slave labor which you anarcho capitalists love.

        INTEL makes their processors in the good old USA, AMD makes their processors in the good old fatherland (Germany). A processor (the most complex to manufacture part of the computer) cost as much as the power supply (made in China), and it costs far less than the monitor (made in Japan who stole our television industry).

        Every which way you turn, you free traders have failed.

        • longshotlouie

          Free Traders ‘R U, Fled. Twas tour heroes that brought this abominatiion. Now you want to deflect the blame on the folks that have been fighting against this since the days of Perot.

          Similarly, you and yours drive the GOP off of a cliff and want to point at someone else to blame.

          Pathetic. Now you know why we call you Fled The Deflectionist.

          • Fred the Protectionist

            A) You Libertarians usurped and destroyed the Republican Party with your anarco-capitalism.

            B) You Libertarians are worse than NAFTA: zero tariffs, no retaliation, let other nations have their markets closed with no trade treaties while we have zero tariffs or other trade barriers. You’re all nuts.

          • Dfens

            Free trade does not require coordination with another government to benefit citizens here. Just like domestic businesses don’t pay taxes, foreign businesses do not pay tariffs – consumers do, in the form of higher prices. If foreign governments want to hurt their own citizens with protectionist tariffs, let them. But let us set a good example here, and show the world an honest example of true free trade. – Texas Straight Talk by Ron Paul

            Maybe Longsnotloogie should figure out what Ron Paul stands for before he starts worshiping him? If you supported Perot and now support Ron Paul, then you have flipped sides, bozo. How can that not be clear by now? You can read, can’t you?

          • Fred the Protectionist

            “If you supported Perot and now support Ron Paul…”

            They have no idea what is going on.

        • longshotlouie

          Free Traders ‘R U, Fled. Twas your heroes that brought this abominatiion. Now you want to deflect the blame onto the folks that have been fighting against this since the days of Perot.

          Similarly, you and yours drive the GOP off of a cliff and want to point at someone else to blame.

          Pathetic. Now you know why we call you Fled The Deflectionist.

          • Fred the Protectionist

            “Fled”, is that my nickname?

            What’s the matter, can’t insult me by calling me a “protectionist”? HAHAHA! I embrace what I am, you can’t shame me.

          • Fred the Protectionist

            Doublethink=believing in 2 mutually exclusive concepts.

            That’s you Libertariano’s, you’re constantly using doublethink. Opposing Free Trade while simultaneously believing in Free Trade.

            This Doublethink also extends to immigration, abortion, global warming, any issue you can imagine. Libertariano’s are fruitloops.