[GJM] Ron Paul on the Federal Reserve System

[marguerite hampton]

 Another Ron Paul message which may be of value. 

 A comment:  The current monetary system is based on production and the
creation of  work.  
 However, it appears that "work" as we know it in the industrialized society
is ending due to 
technological advances which eliminate the need for human labor.  Let me
quote the statistics 
again:  Due to technological advances, only 30% of the worldwide labor force
is needed to produce all the goods and services at present for the six+
billion on the planet.  If we move into sustainability and produce
accordingly, using nanotechnology, biomimicry, etc., only 3 to 4% of 
the available worldwide labor force would be needed to produce all the goods
and services necessary.    
 
Recall also that more money is now made through passive investment into the
stock markets than is made by human labor. 

The U.S. has in the past employed 75% of the available national labor force
in order to keep the echnology, economy rolling along in order to preserve 
the American lifestyle".  This excess of employment has largely been built
on the production of "luxury goods" coupled with "built-in obsolesence", and
"make work" projects.  Make-work projects might be considered in the form of
prisons (without the possibility of reform programs) as the U.S. created the
largest prison population in the world, employing hundreds of thousands of 
people jobs" in the service sector. .  War may be considered another "make
work" project to employ millions of people no longer needed on assembly
lines -- so might the large IRS force.  And, of course, the auto industry
has always been the largest "planned obsolesence" industry with the
appliance industry coming in second. 

Recall again that the U.S. became the most prosperous nation in the history
of the world, while at the same time creating more environmental damage than
at any time in previous recorded history.  And as we now know a greater
divide between the Have's" and the "have-not's" that seems to expand every
year.  

Perhaps the Protestants also sold us a bill of goods when they created the 
work ethic".  Maybe we need to reconsider whether or not work was a
necessary evil. Would the world be a better place if we eliminated both work
and money?  Yet, I cannot help but ask the question:  How many people would
know how to define themselves without a job or money in their pocket today?
Or, know what to do without a "god" to tell them?.But, on the other hand how
did those in the sophisticated matriachial-based peaceful partnership
societies of the Neolithic age  define themselves without a god, money, or a
work ethic?  
 
Perhaps it's me, but something seems to be terribly wrong here.  Anybody
else besides me confused? Somehow I thought we were supposed to be
progressing.  And that things like democracy, guaranteed work in return for
money in one's pocket, God's promise of heaven
in the afterlife for those of us who "walked in fear of God and did his
bidding" were all associated with progress.  Maybe I should have gone to
college so I could understand all the big words
people use today to explain things.  Especially the financiers and the
scientists along with those goverment people.     



 
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  Monetary Policy and the State of the Economy 
http://www.lewrockwell.com/paul/paul370.html 
February 17, 2007 
Dr. Ron Paul is a Republican member of Congress from Texas.  
Statement at Hearing of the House Financial Services Committee, February 15,
2007 
  
Transparency in monetary policy is a goal we should all support.  I've often
wondered why Congress so willingly has given up its prerogative over
monetary policy.  Astonishingly, Congress in essence has ceded total control
over the value of our money to a secretive central bank. 
  
Congress created the Federal Reserve, yet it had no constitutional authority
to do so.  We forget that those powers not explicitly granted to Congress by
the Constitution are inherently denied to Congress – and thus the authority
to establish a central bank never was given.  Of course Jefferson and
Hamilton had that debate early on, a debate seemingly settled in 1913. 
  
But transparency and oversight are something else, and they're worth
considering.  Congress, although not by law, essentially has given up all
its oversight responsibility over the Federal Reserve.  There are no true
audits, and Congress knows nothing of the conversations, plans, and actions
taken in concert with other central banks.  We get less and less information
regarding the money supply each year, especially now that M3 is no longer
reported. 
  
The role the Fed plays in the President's secretive Working Group on
Financial Markets goes unnoticed by members of Congress.  The Federal
Reserve shows no willingness to inform Congress voluntarily about how often
the Working Group meets, what actions it takes that affect the financial
markets, or why it takes those actions. 
  
But these actions, directed by the Federal Reserve, alter the purchasing
power of our money.  And that purchasing power is always reduced.  The
dollar today is worth only four cents compared to the dollar in 1913, when
the Federal Reserve started.  This has profound consequences for our economy
and our political stability.  All paper currencies are vulnerable to
collapse, and history is replete with examples of great suffering caused by
such collapses, especially to a nation's poor and middle class.  This leads
to political turmoil. 
  
Even before a currency collapse occurs, the damage done by a fiat system is
significant.  Our monetary system insidiously transfers wealth from the poor
and middle class to the privileged rich.  Wages never keep up with the
profits of Wall Street and the banks, thus sowing the seeds of class
discontent.  When economic trouble hits, free markets and free trade often
are blamed, while the harmful effects of a fiat monetary system are ignored.
We deceive ourselves that all is well with the economy, and ignore the
fundamental flaws that are a source of growing discontent among those who
have not shared in the abundance of recent years. 
  
Few understand that our consumption and apparent wealth is dependent on a
current account deficit of $800 billion per year.  This deficit shows that
much of our prosperity is based on borrowing rather than a true increase in
production.  Statistics show year after year that our productive
manufacturing jobs continue to go overseas.  This phenomenon is not seen as
a consequence of the international fiat monetary system, where the United
States government benefits as the issuer of the world's reserve currency. 
  
Government officials consistently claim that inflation is in check at barely
2%, but middle class Americans know that their purchasing power – especially
when it comes to housing, energy, medical care, and school tuition – is
shrinking much faster than 2% each year. 
  
Even if prices were held in check, in spite of our monetary inflation,
concentrating on CPI distracts from the real issue.  We must address the
important consequences of Fed manipulation of interest rates. When interests
rates are artificially low, below market rates, insidious mal-investment and
excessive indebtedness inevitably bring about the economic downturn that
everyone dreads. 
  
We look at GDP numbers to reassure ourselves that all is well, yet a growing
number of Americans still do not enjoy the higher standard of living that
monetary inflation brings to the privileged few.  Those few have access to
the newly created money first, before its value is diluted. 
  
For example:  Before the breakdown of the Bretton Woods system, CEO income
was about 30 times the average worker's pay.  Today, it's closer to 500
times.  It's hard to explain this simply by market forces and increases in
productivity.  One Wall Street firm last year gave out bonuses totaling $16
5 billion.  There's little evidence that this represents free market
capitalism. 
  
In 2006 dollars, the minimum wage was $9.50 before the 1971 breakdown of
Bretton Woods.  Today that dollar is worth $5.15.  Congress congratulates
itself for raising the minimum wage by mandate, but in reality it has
lowered the minimum wage by allowing the Fed to devalue the dollar.  We must
consider how the growing inequalities created by our monetary system will
lead to social discord. 
  
GDP purportedly is now growing at 3.5%, and everyone seems pleased.  What we
fail to understand is how much government entitlement spending contributes
to the increase in the GDP.  Rebuilding infrastructure destroyed by
hurricanes, which simply gets us back to even, is considered part of GDP
growth.  Wall Street profits and salaries, pumped up by the Fed's increase
in money, also contribute to GDP statistical growth.  Just buying military
weapons that contribute nothing to the well being of our citizens, sending
money down a rat hole, contributes to GDP growth!  Simple price increases
caused by Fed monetary inflation contribute to nominal GDP growth.  None of
these factors represent any kind of real increases in economic output.  So
we should not carelessly cite misleading GDP figures which don't truly
reflect what is happening in the economy.  Bogus GDP figures explain in part
why so many people are feeling squeezed despite our supposedly booming
economy. 
  
But since our fiat dollar system is not going away anytime soon, it would
benefit Congress and the American people to bring more transparency to how
and why Fed monetary policy functions. 
  
For starters, the Federal Reserve should: 
  
    * Begin publishing the M3 statistics again.  Let us see the numbers that
most accurately reveal how much new money the Fed is pumping into the world
economy. 
    * Tell us exactly what the President's Working Group on Financial
Markets does and why. 
    * Explain how interest rates are set.  Conservatives profess to support
free markets, without wage and price controls.  Yet the most important price
of all, the price of money as determined by interest rates, is set
arbitrarily in secret by the Fed rather than by markets!  Why is this policy
written in stone? Why is there no congressional input at least? 
    * Change legal tender laws to allow constitutional legal tender
(commodity money) to compete domestically with the dollar. 
  
How can a policy of steadily debasing our currency be defended morally,
knowing what harm it causes to those who still believe in saving money and
assuming responsibility for themselves in their retirement years?  Is it any
wonder we are a nation of debtors rather than savers? 
  
We need more transparency in how the Federal Reserve carries out monetary policy, and we need it soon.