Location: House Financial Service Committee
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.