Inflation is a Monetary Phenomenon

Lake Jackson, Texas

Later this month Congress will have an unprecedented opportunity to force the Federal Reserve to provide meaningful transparency to lawmakers and taxpayers. HR 459, my bill known as “Audit the Fed,” is scheduled for a vote before the full Congress in July. More than 270 of my colleagues cosponsored the bill, and it has the support of congressional leadership. But its passage in the House of Representatives is only the beginning of the battle, as many Senators and the President still don’t see the critical need to have a national discussion about monetary policy.

The American public now senses that the Fed’s actions, especially since 2008, are enormously inflationary and will cause great harm to the American economy in the long run. They are beginning to understand what so many economists still don’t understand, which is that inflation is a monetary phenomenon, and rising prices are merely a symptom of that phenomenon.  Prices eventually rise when the supply of US dollars (paper or electronic) grows faster than the available goods and services being chased by those dollars.

This fundamental truth has been thoroughly explained by Milton Friedman and many others, so today’s Keynesian economists have no excuse for their claims that “inflation is under control.”  Ordinary Americans don’t need a PhD simply to look at the Fed’s balance sheet and understand the staggering amount of money creation that has occurred in recent years. They know it will have harmful consequences for all of us eventually.

I've spoken at length about inflation, and how Fed money creation is effectively a tax. Every dollar created out of thin air dilutes the value of the dollars in your pocket and your savings in the bank. But the truth is that we are only beginning to see the results of the Fed’s dramatic increase in the money supply. As former Fed Chair Alan Greenspan himself explained last week to Larry Kudlow, most of the dollar deposits created by the Fed via successive rounds of “quantitative easing” remain on the balance sheet of Fed member banks. Because of very rational economic fears, banks are not lending, businesses are not expanding, and individuals are shedding debt. So, the trillions of dollars created by the Fed since 2008 remained largely undeployed. When those dollars eventually make their way into the world economy, prices across all sectors of the economy are likely to rise dramatically.

The true evil of inflation is that newly created money benefits politically favored financial interests, especially banks, on the front end. Over time, however, the net result of monetary inflation is always the devaluation of savings and purchasing power. This devaluation discourages saving, which is the key to capital accumulation and investment in a healthy economy. Inflation also tends to hurt seniors and those living on fixed incomes the most.

For decades the Fed has operated without any meaningful oversight whatsoever, resulting in the loss of savings, loss of purchasing power, and loss of quality of life for all Americans. It causes individuals and businesses to make bad decisions, misallocating their capital because market signals have been distorted. It causes financial ruin by engineering the inevitable boom and bust cycles that so many erroneously blame on capitalism. And it does all this in secrecy, to the benefit of the financial and political classes. It is time to Audit the Fed, as a first step toward ending its unchecked power over our money and economic fortunes.

Congressman Ron Paul of Texas

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Twin Falls Republicans Post Sunshine Report

Twin Falls, Idaho

Twin Falls Republican Central Committee CAMPAIGN FINANCE REPORT

Audit the Fed Headed for the House Floor!

Washington, DC

Last week supporters of Federal Reserve transparency had a major victory when the House Committee on Government Oversight and Reform passed my Audit the Fed bill, HR 459 unanimously with all major audit provisions intact.  This clears the way for a House floor vote expected sometime in late July, and with a whopping 263 cosponsors, the chances of it passing have never looked better!  This is an unprecedented opportunity for transparency into how the currency of the United States is handled, and mishandled by the Federal Reserve.  It is more important than ever that my colleagues in the House and Senate understand what this legislation does and why it is so important.

The Federal Reserve is an enormously destructive and unaccountable force in both the U.S. economy and the greater global economy. Federal Reserve policies affect average Americans far more than fiscal, spending, and tax policies legislated by Congress; indeed the Fed "spends" more than Congress when it creates trillions of new dollars on its balance sheet to bail out favored financial institutions.

For several decades the Fed has relentlessly increased the supply of U.S. dollars (both real and electronic) and kept interest rates artificially low. These monetary policies punish thrift, erode the value of savings, and harm older Americans living on fixed incomes and the poor. The Fed's expansion of the money supply, combined with artificially low interest rates, creates destructive cycles of malinvestment. This results in housing, stock market, and employmentbooms and busts that destroy lives.

While the Fed was created by Congress, current law prohibits Congress from fully auditing the Fed's monetary policy - the Fed actions that impact Americans the most. The Fed's financial statements are audited annually, but the Fed's monetary policy operations are exempt from audit. Congress' investigative arm, the Government Accountability Office (GAO), currently is prohibited by law from examining discount window and open market operations; agreements with foreign governments and central banks; and Federal Open Market Committee (FOMC) directives. It is precisely this information that should be made public.

The audit mandated in the Dodd-Frank Act focused solely on emergency credit programs, and only on procedural issues rather than focusing on the substantive details of the lending transactions. Most of the data on its other activities, such as open market operations and discount window lending, have only been published as a result of lawsuits—not because of Congressional action.  Dodd-Frank requires this information to be disclosed going forward, but with a two year time lag and with GAO restricted to auditing only the procedural components of any programs. H.R. 459 grants GAO and Congress access without special exemptions and ensures that ALL of the Fed's lending actions will be subject to oversight.

Also, given the Fed's establishment of dollar swap agreements with foreign central banks (which lent up to $600 billion at a time in 2008), and the increasing economic uncertainty surrounding Spain, Greece and the European Union, the Fed's continued financial assistanceto Europe should not be exempt from public accountability and Congressional oversight. H.R. 459 brings transparency to the Fed's agreements with the European Central Bank and other foreign entities.

H.R. 459 does not limit the focus of the audit, making a full audit finally possible. An entity that controls the value and purchasing power of the dollar should not be permitted to operate in the dark without oversight by Congress and accountability to the people. The Fed needs transparency and H.R. 459 would provide it. We now have this opportunity to ensure solid passage of HR 459 on the House floor, then the Senate floor and have it promptly signed into law.

Congressman Ron Paul of Texas

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Government is Already Too Involved in Healthcare

Lake Jackson, Texas

This week the Supreme Court is expected to issue its long-awaited decision regarding the constitutionality of the "Obamacare" law. I recently discussed absurd legal arguments by Obamacare advocates that Congress can compel the purchase of health insurance, and the dismal record of federal courts applying so-called "judicial review" in protecting liberty. It is obvious that Obamacare's legal apologists either are wholly ignorant of constitutional principles, or wholly lawless in their blatant disregard for those principles.

Likewise, supporters of Obamacare are willfully ignorant of basic economics. The fundamental problem with health care costs in America is that the doctor-patient relationship has been profoundly altered by third party interference. Third parties, either government agencies themselves or nominally private insurance companies virtually forced upon us by government policies, have not only destroyed doctor-patient confidentiality. They also inescapably drive up costs because basic market disciplines-- supply and demand, price sensitivity, and profit signals-- are destroyed.

Obamacare, via its insurance mandate, is more of the same misdiagnosis.

Gabriel Vidal, Chief Operating Officer of a U.S. hospital system, sees this problem squarely in his daily work. As he explains, Obamacare will only make matters worse because it fails to recognize that "costs are out of control because they do not reflect prices created by the voluntary exchange between patients and providers... like every well-functioning industry."

Instead, "health costs reflect the distortions that government regulators have introduced through reimbursement mechanisms created by command-and-control bureaucracies at federal and state levels," he continues. "But it is theoretically and practically impossible for a bureaucrat- no matter how accurate the cost data, how well-intentioned and how sophisticated his computer program- to come up with the correct and just price. The (doctor-patient) relationship... has been corrupted by the intrusion of government and its intermediaries (HMOs, for example) to such an extent that we can no longer speak of a relationship that can produce meaningful pricing information."

Absent such pricing information, our system increasingly resembles socialist systems with centralized price setting, shortages, rationing, apathy, and declining quality of care. As the situation deteriorates, fewer bright young people want to practice medicine and fewer foreign doctors seek to immigrate.

The problem is acute and worsening. Obamacare's third party insurance mandate is only the first step toward what the political left really wants: a single payer government healthcare system.

Meanwhile, conservatives seem resigned to a third party insurance system and therefore fail to present a viable alternative to the American people. They continue to speak in terms of saving the healthcare "system," when in fact what America needs is a rejection of all government systems in favor of free market mechanisms.

In a free market, most Americans would pay cash for basic services and maintain inexpensive high-deductible insurance for catastrophic injury or illnesses only. Health insurance would be decoupled from employment, which would unleash entrepreneurs who now fear quitting their jobs and losing their health insurance. Costs would plummet due to real competition among doctors, price sensitivity among patients, and elimination of enormous paperwork costs. Doctors would be happier, spending their time treating patients rather than managing their practices.

Congress needs to let markets work by aggressively repealing healthcare laws, including: the HMO Act of 1973; the Medicare Part D prescription drug benefit passed in 2003; and the Obamacare bill passed in 2010. Furthermore, we must begin scaling back Medicare coverage altogether for younger generations so they will not rely on a system that cannot remain solvent in future decades. Only by taking these steps now can we begin to undo the harm done by government to the once noble field of medicine.

Congressman Ron Paul of Texas

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