Congressman Ron Paul questioned Federal Reserve Chairman Ben Bernanke at the Joint Economic Committee hearing “The Economic Outlook”. Topics of discussion included debt monetization, the Greece bailout, and where all that money is coming from.
Event: Joint Economic Committee Hearing
Ron Paul: Thank you, Madam Chairman. And welcome, Chairman Bernanke. I want to make a brief comment and then I want to ask you a question about the IMF. My brief comment is a comment about the answer you gave Mr. Brady about monetizing debt. Because you balance sheet remains relatively stable with treasury bills, it doesn’t mean the Fed can’t monetize debt.
You mentioned in your statement that you bought mortgage-backed securities and agency debt, and that’s over $1.3 trillion. Well, where did you get the money? You created this money. So you did monetize debt, and that went into the banking system. The banking system can buy treasury bills and they can borrow money at 0% and that’s why they’re making a lot of money right now because they can buy other debt and make little bit more.
And it looks like magic, except for the people who’re losing their mortgages, losing their houses right now. But one other quick question is: the thousand examiners that you are training, are any of those new or are these people already on the payroll?
Ben Bernanke: On the payroll, and they include both Federal Reserve and state examiners.
Ron Paul: Okay. Because my comment there is probably 10,000 won’t do much good. Because it isn’t a lack of examination if you don’t deal with the problem, and the problem really comes from a monetary policy of low interest rates. As long as low interest rates rig the market and gives bad information to the investor, all the examiners in the world can’t compensate for this.
This whole idea that capital can come from a printing press rather than savings, I still have a terrible time trying to understand how an economy can thrive on that, because it rejects every notion of free-market capitalism.
But the question I have on the IMF is, this week the IMF has announced that they are going to open up a new arrangement to borrow or expand. There is a commitment of $50 billion, that is now going to go up to around $560 billion. And it coincides with the crisis going on in Greece in Europe and how they’re going to be bailed out. The irony of this promise is that in the new arrangement, this increase, Greece is going to put $2.5 billion in there. I think that’s [something that] only a fiat monetary system worldwide could come up with and have Greece help bailout Greece, and be prepared to bail out even other countries.
But we’re going to go from $10 billion up to $105 billion. So that’s a $105 billion we’re going to commit to bailing out the various countries of the world, and who knows what. But I think this does two things and I want to get your comments on this. 1) Why does it coincide with Greece, what are they anticipating, why do they need $560 billion? Do we have a lot more trouble? And 2) When it comes to that time where we have to make this commitment, who pays for this? Where does it come from? Will this all come out of the printing press once again? And we are expected to bail out the world? Are you in favor of this increase in the IMF funding and our additional commitment to a $105 billion?
Ben Bernanke: Well, the source of this was going back in the G20 meetings in the crisis. And I think one of the agreements that the G20 leaders came up with was sort of a mutual commitment to put more money into the IMF as a way of addressing the financial crisis around the world, and that’s why it happened. The Federal Reserve wasn’t involved in those meetings. So that was before Greece. If money is put out to any country, it will be done first of all with specific approval from the executive board which includes, of course, the U.S. in a veto position, and with conditionality that this country has to meet certain conditions. So it’s the G20 leadership apparently that has agreed that this is a way to provide credit to avoid fiscal or exchange rate crises in countries around the world.
Ron Paul: But do you think this is a good idea? Do you agree that we should make this commitment?
Ben Bernanke: I think in general that having the IMF available to try to avoid crises is a good idea, yes.
Ron Paul: Again, where will the money come from? This is our problem in this country. We’re bankrupt, too. And also, along this line, do you feel like if you go along with this commitment, what are we going to do when a state gets under the gun, like California and others? I mean, they’re approaching the state that Greece is in. We can’t turn down California. I mean, if we can bailout all these banks and they get off the hook and now they’re making billions and their executive officers are cleaning up, do you think we would ever turn down California or any other state that gets in the same situation?
Ben Bernanke: Well, that’s Congress’s decision.
Ron Paul: You’ve bailed out a lot of people from the IMF. You have the capability of buying up some debt and doing all these kinds of things. We can’t even audit you to find out what you do. So you can do anything you want, and you can create as much money as you want.
Ben Bernanke: You can see any transaction or loan we make, we’re happy to provide that information to you. And we’re not involved with lending to the IMF. The IMF is a separate institution which has American executives; part of the executive board.
Ron Paul: Where would the money come from?
Ben Bernanke: It’s a loan, but it would come from the U.S. government.
Ron Paul: Eventually we would create it out of thin air. Because we don’t have any money.
Ben Bernanke: Well, it’s a loan. If it’s not paid back, then we would take our share of the loss.
Ron Paul: I yield back.