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Opening Statement: The Federal Reserve Created the Crisis

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Ron Paul: Thank you, Mr. Chairman. Good morning, Chairman Bernanke. 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’s financial and political institutions. Real unemployment is now 20 percent 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 corrections. Doubling the money supply didn’t work; quadrupling it won’t work either. The problem of debt MUST be addressed. Expanding debt, when it was the principal cause of the crisis, is foolhardy. Excessive government and private debt is a consequence of loose Federal Reserve monetary policy. Once a debt crisis hit, the solution must be paying it off or liquidating it. We’re doing neither. Net US debt is now 372 percent of GDP and in the crisis of the 1930s, it peaked at 301 percent. Household debt services require 14 percent of disposable income and is at historic high. Between 2000 and 2007, credit debt expanded five times as fast as GDP. With no restraint on expending and revenues dropping due to the weak economy, raising taxes will be poison to the economy. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile. Monetizing government debt as the Fed is currently doing as desired is destined to do great harm. In the past 12 months, the national debt has risen over $2 trillion dollars. Future entitlement obligations are now reaching $100 trillion dollars. US foreign indebtedness is $6 trillion. Foreign purchase of US securities in May were $7.4 billion, down from a monthly peak of $95 billion in 2006. The fact that the Fed had to buy $38 billion worth of government securities last week indicates that it will continue its complicity with Congress to monetize the rapidly expanding deficit. The policy is used to pay for the socialization of America and for the maintenance of an unwise American foreign policy and to make up for the diminished appetite of foreigners for our debt. Since the attack on the dollar will continue, I would suggest that the problems that we have faced so far are nothing compared to what it will be like when the world not only rejects our debt, but our dollar as well. That’s when we’ll witness political turmoil, which will be to no one’s benefit.

Video Details

Duration: 2 minutes and 58 seconds
Country: United States
Language: English
Producer: KramerDSP
Director: KramerDSP
Views: 104
Posted by: kramerdsp on Jul 23, 2009

Ron Paul's opening statement to Ben Bernanke, Chairman of the Federal Reserve, and the House during the House Financial Services Committee Hearing (July 21, 2009).

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