Inflation

Statement at Financial Services Committee Hearing, by US Rep. Ron Paul

The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit, created out of thin air, can provide sustained economic growth has delivered this crisis to us. Instead of economic growth and stable prices it has given us a system of government and finance that now threatens the world financial and political institutions.

Real unemployment is now 20% and there has not been any economic growth since the onset of the crisis in the year 2000, according to non-government statistics. Pyramiding debt and credit expansion, over the past 38 years, has come to an abrupt end—as predicted by free-market economists. Pursuing the same policy of excessive spending, debt expansion, and monetary inflation, can only compound the problems and prevent the required correction. Doubling the money supply didn’t work; quadrupling it won’t work either. The problem of debt must be addressed.

Budget Expands Government as Economy Contracts, by US Rep. Ron Paul

Last week the House passed another budget that increases federal power, raises taxes, and increases the national debt. I voted against it, and was pleased to see that not a single Republican representative voted for it. Legislators often see bipartisanship as constructive, but I disagree especially where the destruction of our economy or our liberty is concerned. There has been too much bipartisan consensus on expanding government far beyond the bounds of the Constitution which we all swore to defend and uphold. Because of this, I have never been able to vote for a budget. However, it was good to see Republicans come together on this important vote, even if their alternative budget was almost as bad.

Despite the deterioration of our economy, this is the largest budget ever passed, at $3.6 trillion. Gross domestic product and tax receipts are shrinking. The government has less money to spend this year, and so it spends more - $1.5 trillion more - than it has. When the economy expands, the government expands. Worse, when the economy contracts, the government expands more. Even more troubling is that even though the size of the budget boggles the mind, it is never the final word on federal spending. No allowance has been made for future bailouts and stimulus plans that are highly likely. There are always supplemental bills passed later in the year. War spending is one of those. Spending on Afghanistan is only partially included in budget, with a supplemental request expected in the future. History shows that true costs far exceed estimates. So even though these numbers sound appalling enough, I predict spending will top $4 trillion this year, raising the national debt by over $2 trillion when all is said and done.

Before the JEC, on Regulation, by US Rep. Ron Paul

I have never been opposed to regulation, although my idea of regulation differs from that of many people in Washington. The free market and its forces of supply and demand are the most effective regulator of the private sector, and have never been known to fail absent government intervention. But piling more public sector regulation on the private sector will have a detrimental effect on the health of our financial system and sow the seeds for the next financial meltdown.

On Money, Inflation and Government, by US Rep. Ron Paul

These past few weeks have provided an unfortunate opportunity to discuss inflation. The dollar index has reached new all-time lows. The total money supply, M3, as calculated by private sources, is growing at a disturbing 17% rate. The Fed is pumping dollars into the economy at an alarming rate. Just recently the Fed announced new loan auctions totaling $100 billion. That is new money created from thin air. If these money auctions, combined with the bailout of Bear Stearns, continue to be the trend, we are in for some economic stormy weather. The explanation lies in understanding the basics of money, and why it is dangerous to give government and big banks control over it.

First, money is not wealth, in and of itself. You cannot create more wealth simply by creating more money. Wall Street bankers cry out for more liquidity, but what is really needed is more value behind the dollar. But the value, unfortunately, isn't there.

Foreign Government Investment in the U.S. Economy and Financial Sector, by US Rep. Ron Paul

many Americans have expressed concern over the growing role played by sovereign wealth funds in the U.S. economy. Such fears are to a large extent misplaced, however, as we should be more concerned with the underlying causes that have allowed sovereign wealth funds to accumulate as much capital as they have.

The two major types of sovereign wealth funds are those which are funded by proceeds from natural resources sales, and those funded by accumulation of foreign exchange. The former category includes sovereign wealth funds in Saudi Arabia, Kuwait, and the UAE. Flush with dollars due to the high price of oil, they are looking for opportunities to make that money work for them. The high price of oil is due in large part to our inflationary monetary policy. We have literally exported inflation across the globe, spurring malinvestment and a subsequent commodities boom.

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