[Art_NJr]

The Austrians Were Right
Speech and Statement of Congressman Ron Paul (R-TX)
Before the U.S. House of Representatives, November 20, 2008

Madame Speaker, many Americans are hoping the new administration will solve the economic problems we face. That’s not likely to happen, because the economic advisors to the new President have no more understanding of how to get us out of this mess than previous administrations and Congresses understood how the crisis was brought about in the first place.

Except for a rare few, Members of Congress are unaware of Austrian Free Market economics. For the last 80 years, the legislative, judiciary and executive branches of our government have been totally influenced by Keynesian economics. If they had had any understanding of the Austrian economic explanation of the business cycle, they would have never permitted the dangerous bubbles that always lead to painful corrections.

Today, a major economic crisis is unfolding. New government programs are started daily, and future plans are being made for even more. All are based on the belief that we’re in this mess because free-market capitalism and sound money failed. The obsession is with more spending, bailouts of bad investments, more debt, and further dollar debasement. Many are saying we need an international answer to our problems with the establishment of a world central bank and a single fiat reserve currency. These suggestions are merely more of the same policies that created our mess and are doomed to fail.

At least 90% of the cause for the financial crisis can be laid at the doorstep of the Federal Reserve. It is the manipulation of credit, the money supply, and interest rates that caused the various bubbles to form. Congress added fuel to the fire by various programs and institutions like the Community Reinvestment Act, Fannie Mae and Freddie Mac, FDIC, and HUD mandates, which were all backed up by aggressive court rulings.

The Fed has now doled out close to $2 trillion in subsidized loans to troubled banks and other financial institutions. The Federal Reserve and Treasury constantly brag about the need for “transparency” and “oversight,” but it’s all just talk — they want none of it. They want secrecy while the privileged are rescued at the expense of the middle class.

It is unimaginable that Congress could be so derelict in its duty. It does nothing but condone the arrogance of the Fed in its refusal to tell us where the $2 trillion has gone. All Members of Congress and all Americans should be outraged that conditions could deteriorate to this degree. It’s no wonder that a large and growing number of Americans are now demanding an end to the Fed.

The Federal Reserve created our problem, yet it manages to gain even more power in the socialization of the entire financial system. The whole bailout process this past year was characterized by no oversight, no limits, no concerns, no understanding, and no common sense.

Similar mistakes were made in the 1930s and ushered in the age of the New Deal, the Fair Deal, the Great Society and the supply-siders who convinced conservatives that deficits didn’t really matter after all, since they were anxious to finance a very expensive deficit-financed American empire.

All the programs since the Depression were meant to prevent recessions and depressions. Yet all that was done was to plant the seeds of the greatest financial bubble in all history. Because of this lack of understanding, the stage is now set for massive nationalization of the financial system and quite likely the means of production.

Although it is obvious that the Keynesians were all wrong and interventionism and central economic planning don’t work, whom are we listening to for advice on getting us out of this mess? Unfortunately, it’s the Keynesians, the socialists, and big-government proponents.

Who’s being ignored? The Austrian free-market economists—the very ones who predicted not only the Great Depression, but the calamity we’re dealing with today. If the crisis was predictable and is explainable, why did no one listen? It’s because too many politicians believed that a free lunch was possible and a new economic paradigm had arrived. But we’ve heard that one before--like the philosopher’s stone that could turn lead into gold. Prosperity without work is a dream of the ages.

Over and above this are those who understand that political power is controlled by those who control the money supply. Liberals and conservatives, Republicans and Democrats came to believe, as they were taught in our universities, that deficits don’t matter and that Federal Reserve accommodation by monetizing debt is legitimate and never harmful. The truth is otherwise. Central economic planning is always harmful. Inflating the money supply and purposely devaluing the dollar is always painful and dangerous.

The policies of big-government proponents are running out of steam. Their policies have failed and will continue to fail. Merely doing more of what caused the crisis can hardly provide a solution.

The good news is that Austrian economists are gaining more acceptance every day and have a greater chance of influencing our future than they’ve had for a long time.

The basic problem is that proponents of big government require a central bank in order to surreptitiously pay bills without direct taxation. Printing needed money delays the payment. Raising taxes would reveal the true cost of big government, and the people would revolt. But the piper will be paid, and that’s what this crisis is all about.

There are limits. A country cannot forever depend on a central bank to keep the economy afloat and the currency functionable through constant acceleration of money supply growth. Eventually the laws of economics will overrule the politicians, the bureaucrats and the central bankers. The system will fail to respond unless the excess debt and mal-investment is liquidated. If it goes too far and the wild extravagance is not arrested, runaway inflation will result, and an entirely new currency will be required to restore growth and reasonable political stability.

The choice we face is ominous: We either accept world-wide authoritarian government holding together a flawed system, OR we restore the principles of the Constitution, limit government power, restore commodity money without a Federal Reserve system, reject world government, and promote the cause of peace by protecting liberty equally for all persons. Freedom is the answer.

Paul (TX14) - Speech and Statement - The Austrians Were Right

[amf4399]

Ron was the guy for me. I wrote his name in. I have gotten tired of the "voting for the lessor of two evils" deal. How McCain beat this guy out I have no idea. Some how the media labeled him as a whack job. Damn Media.

[Panthera]

Interesting speach. I take a few exceptions though. He does not go into what exactly the Austrian economics entails, and I disagree with what he says about keynesian economics.

The keynsian theory is sound as part of an overall economic plan, with the major flaw being the politicians that oversee it. The concept is simple, during tough times the government should borrow money to stimulate the economy. During good times the government should pay it back and possibly build a surplus. Politicians seem to forget the second part too easy. Unfortunately, with the electorate in the US always voting for the politicians who promise the most chickens in every pot, it is likely to continue.

[Art_NJr]

Interesting speach. I take a few exceptions though. He does not go into what exactly the Austrian economics entails ...

Visit the Ludwig Von Mises Institute @ Auburn, Alabama:

What is Austrian Economics

About the Mises Institute

See also:

Economic Depressions: Their Cause and Cure - Murray N. Rothbard - Mises Institute

... and I disagree with what he says about keynesian economics.

Keynesian economics is socialism. It also doesn't work - nor can it. Thomas Jefferson summed it up quite well:

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

[Panthera]

Keynesian economics is not socialism. I found a definition on the internet that sums it up quite well:

"Investopedia Says:
A supporter of Keynesian economics believes it is the government's job to smooth out the bumps in business cycles. Intervention would come in the form of government spending and tax breaks in order to stimulate the economy, and government spending cuts and tax hikes in good times, in order to curb inflation."

Some may think that any government intervention is wrong, but that wold be a separate discussion. As I mentioned before, it is a tool in the toolbox of the government, and has been misused many times. Politicians like the borrowing and spending, but don't like the paying back.

I looked up a bit more on the Austrian economics. I have not read deep enough yet to fully grasp the differences in theory, but base perusing makes it appear as an extension of Adam Smiths invisible hand, advocating a complete lack of government oversight.

Many of the tenants of Keynesian economics and the Austrian school could be argued to agree in the current cycle. If the Keynesian idea that during the good times the government should cut expenditures, raise taxes, and pay back debts had been followed, the credit excesses would have been avoided. The Austrian school does have the simplicity to say that the government should not have been intervening in the first place, but in the modern world that would be too simplistic to think it would work completely on it's own.

[Art_NJr]

The Austrian school does have the simplicity to say that the government should not have been intervening in the first place, but in the modern world that would be too simplistic to think it would work completely on it's own.

Actually it's not & that's the direction we're headed, although I can't say how long it will take. But this comment from an Investor's Daily Edge newsletter says one of the things I was fixin' to:

"Will we see inflation in the days ahead ... or deflation?

This is one of the biggest questions on investors' minds these days ... and for good reason. Prepare for one and get the other and your nest egg could evaporate.

But the inflation/deflation debate does not come down to a simple equation that spits out an answer. The answer lies entirely in political willpower.

If there is sufficient motivation ... inflation will ALWAYS break deflation.

After all, there are a potentially infinite supply of paper dollars ... while the goods and services those dollars can buy are finite at any given time.

Here is a better question: Do the government and the monetary authorities have the have the willpower and motivation to destroy the currency through inflation?

Without a doubt, the answer is YES! And they are already doing so ... This week, Bloomberg reports that the U.S. government is prepared to provide more than $7.7 TRILLION to 'rescue the financial system'.

This is half of EVERYTHING produced in the U.S. last year ... and almost 10 times what the U.S. has spent in Iraq and Afghanistan!

And what about the additional TENS OF TRILLIONS the government owes Baby Boomers for Social Security and health care obligations? [$53 trillion (in today's dollars) due in 2017, the year that the ratio of those paying into social security vs. those drawing from gets to 1:1]

Where will all of this money come from? The answer is simple. It will be created from thin air.

There is no debate. Our elected government and monetary officials have already set a course to obliterate the value of the dollar through inflation. There is no turning back from here."

The Gov't. has already committed to spend the dollar into oblivion & since the Federal Reserve (which is neither federal nor a reserve) was delegated Congress' authority "to coin money and regulate the value thereof" in 1913, the dollar has dropped to 4.5 cents. When it gets to -0-, the Austrian school's understanding of market forces will have taken over - things of real value will be money & Gov't. attempts to manipulate the markets will have become irrelvant.

And in reality they already are - more $$$ have been created out of thin air in the last 6 months than since the Fed opened its doors in 1914 & what has that done to "save" the financial system? Nothing. And since those $$$ haven't made it into the Main St. economy yet, we haven't seen the inevitable inflation yet - but we will & probably "hyperinflation" for several years.

Keynesians think that you can manipulate the markets indefinitely but you can't - history clearly teaches that & the fall of the U.S. economy due to Keynesian-based policies will certainly not be the 1st. Trying to keep prices for commodities like food, oil & metals down while flooding the market with worthless paper is like trying to hold a beach ball underwater - makes no difference how strong you are, you can't keep it down. The Austrian school realizes that markets are like water in that they will always find their own level - Gov't. intervention can slow that process down, but it can't stop it.

The smart thing to have done would have been to eliminate the Fed & the fiat money, fractional reserve system it created (which Ron Paul would have tried his best to do), returning to money actually backed by something of real value (doesn't have to be gold & silver but that makes the most sense), but since that didn't happen thru changes in Gov't. policy, the markets will force it to happen. That will make the transition a lot more painful, but it is inevitable. And the worst part is it will no doubt hit our children & grandchildren harder than it does us.