Ron Paul – The Revolution: A Manifesto – Page 146 through Page 150

Page 146: Rising interest rates will reveal that some projects must be abandoned. This will lead to temporary economic problems such as unemployment and losses. The interest rate is an indicator to business people. It lets them know whether there are ample savings available for investment. If there are a lot of savings, the interest rate will be lower. If very little savings are available the interest rate will be higher. When the interest rate is determined by the market, based on real savings, long term investment projects are sustainable. Only projects that make sense based on reality will be undertaken. When the Federal Reserve artificially lowers the interest rate, more projects seem like good investments even though they cannot be sustained by actual savings. F.A. Hayek won the Nobel Prize in economics in 1974 for proving that business cycles are set in motion by the central bank’s artificial lowering of interest rates. If the Federal Reserve continues to cut rates in the face of a recession, they can temporarily postpone the day of reckoning. However, such a policy only makes the inevitable crash worse when it finally arrives. If the central bank continues to print money to fight off the recession, hyperinflation may result.   

Page 147: In some cases central bank policy will no longer stimulate the economy, even temporarily. This was the case with Japan in the 1990s. Their central bank cut interest rates all the way to zero percent and left it there for many years. Their economy showed no improvement as a result. Alan Greenspan was recently interviewed by Jon Stewart. Stewart asked him why the market couldn’t set interest rates without a central bank. Shockingly, Greenspan struggled to give a good answer as to why the Federal Reserve should exist. If we reject central planning of the economy, we must reject a central bank. Money is involved in almost every economic transaction. It is impossible for a single individual to determine the correct interest rate. Before becoming the chairman of the federal reserve, Greenspan was an advocate of the gold standard.     

Quote: “Even though we point to our devotion to the free market, at the same time we centrally plan our monetary system, the very heart of the economy.”

Page 148: Ron Paul and Alan Greenspan once ran into each other at an event where Greenspan was giving a talk. Ron Paul brought a copy of an old article with him in which Greenspan had vigorously defended the gold standard. Greenspan said that he wouldn’t change a word of it. However, during a subsequent committee meeting Ron Paul confronted Greenspan with the article. In front of the commitee, Greenspan stated that he no longer held the opinions put forth in the article. He even went so far as to say that the Federal Reserve plays no part in financing government deficits. It is ridiculous for any Federal Reserve chairman to blame congress, and congress alone, for deficit spending. It would be impossible for congress to continue borrowing at such low interest rates if it wasn’t for the Federal Reserve. The whole system is flawed.

Quote: “Congress could not get away with spending beyond our means year after year if we did not have a Federal Reserve System ready to finance it all by purchasing bonds with money it creates out of thin air.”

Page 149: The question that Americans need to ask themselves is whether they want a system under which politicians can simply print money to support their schemes. The great benefit of the gold standard is that more gold cannot be created out of nowhere. If politicians want to increase government spending they have to take gold from the people. The money supply under a gold standard remains relatively stable. As an economy becomes more productive due to increased investment in capital equipment, it can produce more and more goods. With the money supply stable and the quantity of goods increasing, gold’s purchasing power becomes greater. People’s money becomes worth more and the standard of living increases. Since 1913, the year the Federal Reserve Act was passed, money has lost nearly all of its value. An item that cost $100 in 2006 would have cost $4.96 in 1913. Yet somehow the Federal Reserve has been immune to criticism.   

Quote: “There is a great dispersion of power in a gold standard system. That is the strength of the system, for it allows the people to check any monetary excesses of their rulers and does not allow the rulers to exploit the people by debasing the money.”

Page 150: Under the gold standard the value of money did actually increase. An item that cost $100 in 1820 cost $63.02 in 1913. The Federal Reserve has recently stopped publishing certain statistics about the money supply. The reason given for ceasing to publish the statistics is that its too expensive to collect the data. However, given the fact that they can create money at will, its more likely an attempt to keep the American people from understanding what Federal Reserve is up to.  If a government continues to create money without end, it risks hyperinflation. This is exactly what happened in Germany in 1923. The French occupied the Ruhr Valley, one of Germany’s main industrial centers at the time. The government told workers in that region to stop working. The German government simply printed money to pay their salaries. Things got out of control and the money began to lose its value very quickly. People rushed out to buy whatever they could get their hands on before the value of money sank even further.

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