This video originally aired at the Ron Paul Liberty Report.
By Ron Paul
Former Dallas Federal Reserve Bank President Richard Fisher recently gave a speech identifying the Federal Reserve’s easy money/low interest rate policies as a source of the public anger that propelled Donald Trump into the White House. Mr. Fisher is certainly correct that the Fed’s policies have “skewered” the middle class. However, the problem is not specific Fed policies, but the very system of fiat currency managed by a secretive central bank.
Federal Reserve-generated increases in money supply cause economic inequality. This is because, when the Fed acts to increase the money supply, well-to-do investors and other crony capitalists are the first recipients of the new money. These economic elites enjoy an increase in purchasing power before the Fed’s inflationary policies lead to mass price increases. This gives them a boost in their standard of living.
By the time the increased money supply trickles down to middle- and working-class Americans, the economy is already beset by inflation. So most average Americans see their standard of living decline as a result of Fed-engendered money supply increases.
Some Fed defenders claim that inflation doesn’t negatively affect anyone’s standard of living because price increases are matched by wage increases. This claim ignores the fact that the effects of the Fed’s actions depend on how individuals react to the Fed’s actions.
Historically, an increase in money supply does not just cause a general rise in prices. It also causes money to flow into specific sectors, creating a bubble that provides investors and workers in those areas a (temporary) increase in their incomes. Meanwhile, workers and investors in sectors not affected by the Fed-generated boom will still see a decline in their purchasing power and thus their standard of living.
Adoption of a “rules-based” monetary policy will not eliminate the problem of Fed-created bubbles, booms, and busts, since Congress cannot set a rule dictating how individuals react to Fed policies. The only way to eliminate the boom-and-bust cycle is to remove the Fed’s power to increase the money supply and manipulate interest rates.
Because the Fed’s actions distort the view of economic conditions among investors, businesses, and workers, the booms created by the Fed are unsustainable. Eventually reality sets in, the bubble bursts, and the economy falls into recession.
When the crash occurs the best thing for Congress and the Fed to do is allow the recession to run its course. Recessions are the economy’s way of cleaning out the Fed-created distortions. Of course, Congress and the Fed refuse to do that. Instead, they begin the whole business cycle over again with another round of money creation, increased stimulus spending, and corporate bailouts.
Some progressive economists acknowledge how the Fed causes economic inequality and harms average Americans. These progressives support perpetual low interest rates and money creation. These so-called working class champions ignore how the very act of money creation causes economic inequality. Longer periods of easy money also mean longer, and more painful, recessions.
President-elect Donald Trump has acknowledged that, while his business benefits from lower interest rates, the Fed’s policies hurt most Americans. During the campaign, Mr. Trump also promised to make audit the fed part of his first 100 days agenda. Unfortunately, since the election, President-elect Trump has not made any statements regarding monetary policy or the audit the fed legislation. Those of us who understand that changing monetary policy is the key to making America great again must redouble our efforts to convince Congress and the new president to audit, then end, the Federal Reserve.
The Wells Fargo bank account scandal took center stage in the news last week and in all likelihood will continue to make headlines for many weeks to come. What Wells Fargo employees did in opening bank accounts without customers’ authorization was obviously wrong, but in true Washington fashion the scandal is being used to deflect attention away from larger, more enduring, and more important scandals.
What Wells Fargo employees who opened these accounts engaged in was nothing more than fraud and theft, and they should be punished accordingly. But how much larger is the fraud perpetrated by the Federal Reserve System and why does the Fed continue to go unpunished? For over 100 years the Federal Reserve System has been devaluing the dollar, siphoning money from the wallets of savers into the pockets of debtors. Where is the outrage? Where are the hearings? Why isn’t Congress up in arms about the Fed’s malfeasance? It reminds me of the story of the pirate confronting Alexander the Great. When accused by Alexander of piracy, he replies “Because I do it with a small boat, I am called a pirate and a thief. You, with a great navy, molest the world and are called an emperor.”
Over two thousand years later, not much has changed. Wells Fargo will face more scrutiny and perhaps more punishment. There will undoubtedly be more calls for stricter regulation, notwithstanding the fact that regulators failed to detect this fraud, just as they have failed to detect every fraud and financial crisis in history. And who will suffer? Why, the average account-holder of course.
This video originally appeared at the Ron Paul Liberty Report.
From the latest edition of the Ron Paul Liberty Report.
On April 5, 1933, President Franklin D. Roosevelt issued Executive Order 6102, requiring all gold coin, gold bullion, and gold certificates to be surrendered to the Federal Reserve Banks or to banks that were members of the Federal Reserve System. With very limited exceptions, it was now illegal for Americans to own gold. This state of affairs lasted until 1975. It was the movement to legalize gold ownership in the United States that influenced a young doctor in Texas to make his first forays into politics. That young doctor is known and beloved by millions today: Dr. Ron Paul. Even out of something as evil as outright gold confiscation, something good came about.
Full text of the Executive Order is below.
Today we bring you Part VIII of “A Brief Monetary History of the United States” from the Ron Paul Monetary Policy Anthology. The full series can be found at the following links:
The 1980s to the Great Recession
Economic conditions became so bad by the late 1970s that calls to return to the gold standard increased. Congress established a Gold Commission in 1980 to examine the possibility of a return to gold. Although President Reagan was publicly sympathetic to the gold standard, he did not restrain the anti-gold members of his administration. As a result, the Gold Commission was packed with supporters of the existing unbacked fiat monetary system. Despite the Commission’s ultimate endorsement of the fiat paper money system, the Commission’s work did provide some impetus towards the eventual adoption of legislation to authorize the minting of Gold Eagle coins by the U.S. Mint—the first gold coins minted by the United States since 1933.
The role played by ingots in the gold reserves of the banks is proof that the monetary standard consists in the precious metal, and not in the proclamation of the authorities.
-Ludwig von Mises, Theory of Money and Credit
This still holds true today, as governments, central banks, and the IMF continue to hold onto thousands of tons of gold. They know that once the experiment with irredeemable fiat money ends, it will end badly. And when that happens, they will still be sitting pretty with their vaults full of real money, loath as they are to admit it publicly.
Today we bring you Part VII of “A Brief Monetary History of the United States” from the Ron Paul Monetary Policy Anthology. The full series can be found at the following links:
Bretton Woods and Gold
In the aftermath of World War II, the United States cemented its position as the world’s largest and most powerful economy. The new international monetary order created at Bretton Woods, New Hampshire in 1946 was based in part on the gold-exchange standard of the 1920s, only with the dollar as the sole international reserve currency—since it was as good as gold. All countries tied their currencies to the dollar at fixed exchange rates, with the dollar being defined as FDR had left it, at 1/35 ounce of gold (i.e. $35 per ounce of gold). While individuals in the United States were still unable to own gold or to redeem their dollars for gold, foreign governments were able to cash in their dollars to the U.S. government and receive gold in return, a process that became known as the “gold window.” While the United States would pyramid its dollar issue on top of its gold reserves, other countries were supposed to hold dollars, and not gold, as their primary foreign exchange holdings.