Liberty Forged

the State has no money of its own, so it has no power of its own. ` Nock

Posts Tagged ‘fed funds rate’

America’s Monetary Policy. Easy credit n bailouts = moral hazard.

Posted by Jesse on March 4, 2008

Financial Services Committee Hearing

Monetary Policy and the State of the Economy
by Ron Paul

A Statement to the House Financial Services Committee, February 27, 2008

Mr. Chairman,

A topic that is on the lips of many people during the past few months, and one with which I have greatly concerned myself, is that of moral hazard. We hear cries from all corners, from politicians, journalists, economists, businessmen, and citizens, clamoring for the federal government to intervene in the economy in order to forestall a calamitous recession. During the boom, many of these same individuals called for no end to the Fed’s easy credit. Now that the consequences of that easy money policy are coming home to roost, no one wants to face those ill effects.

We have already seen a plan from the administration to freeze mortgages, a plan which is alleged to be only a temporary program. As with other programs that have come through this committee, I believe we ought to learn from history and realize that “temporary” programs are almost anything but temporary. When this program expires and mortgage rates reset, we will see new calls for a rate-freeze plan, maybe for two years, maybe for five, or maybe for more.

Some drastic proposals have called for the federal government to purchase existing mortgages and take upon itself the process of rewriting these and guaranteeing the resulting new mortgages. Aside from exposing the government to tens of billions of dollars of potentially defaulting mortgages, the burden of which will ultimately fall on the taxpayers, this type of plan would embed the federal government even deeper into the housing market and perpetuate instability. The Congress has, over the past decades, relentlessly pushed for increased rates of homeownership among people who have always been viewed by the market as poor credit risks. Various means and incentives have been used by the government, but behind all the actions of lenders has been an implicit belief in a federal bailout in the event of a crisis.

What all of these proposed bailouts fail to mention is the moral hazard to which bailouts lead. If the federal government bails out banks, investors, or homeowners, the lessons of sound investment and fiscal discipline will not take hold. We can see this in the financial markets in the boom and bust of the business cycle. The Fed’s manipulation of interest rates results in malinvestment which, when it is discovered, leads to economic contraction and liquidation of malinvested resources. But the Fed never allows a complete shakeout, so that before a return to a sound market can occur, the Fed has already bailed out numerous market participants by undertaking another bout of loose money before the effects of the last business cycle have worked their way through the economy.

Many market actors therefore continue to undertake risky investments and expect that in the future, if their investments go south, that the Fed would and should intervene by creating more money and credit. The result of these bailouts is that each successive recession runs the risk of becoming larger and more severe, requiring a stronger reaction by the Fed. Eventually, however, the Fed begins to run out of room in which to maneuver, a problem we are facing today.

I urge my colleagues to resist the temptation to call for easy fixes in the form of bailouts. If we fail to address and stem the problem of moral hazard, we are doomed to experience repeated severe economic crises.

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The Dollar is a Big Element of U.S. Security (2/29/08)

The following letter to the editor from Dr. Paul ran in today’s Wall Street Journal:

“I was delighted to read in Judy Shelton’s op-ed, “Security and the Falling Dollar” (Feb. 15), that at long last the security implications of the dollar’s collapse have made their way into the mainstream media. The dollar’s strength (or lack thereof) has been of paramount concern to me, and the subject of many of my statements over the past several years. Decades of manipulation by the Federal Reserve have benefited the government and certain politically-connected firms, while gradually destroying the purchasing power of middle-class Americans. Despite numerous warnings in the past, it is only now at a point of acute crisis that Washington insiders are beginning to awaken to the reality of the end of dollar hegemony.

“While I desire reform of our current monetary system, my own proposals have not been as all-encompassing as Ms. Shelton’s suggestion to return to a Bretton Woods-style system. Her recommendation, though, that gold backing should make up a component of a future monetary system, is one that we would all do well to heed. My own legislative proposals focus around eliminating the taxes and laws that dissuade individuals and institutions from using gold as currency or as a backing for currency. By allowing market processes to determine the issuance of currency, we can allow individuals to decide for themselves what currency they wish to use. This would lead to a gradual reintroduction of sound money and avoid the market shocks that occur when monetary decisions are mandated by government fiat.”

Rep. Ron Paul (R., Texas)
Washington

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Gov’t schools equal gov’t spending and war. (and the myth of FDR)

Posted by Jesse on March 3, 2008

The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and assistance to foreign lands should be curtailed, lest Rome become bankrupt.”
~ Marcus Tullius Cicero (106–43 B.C.)

Tim Case writes Devils:
In a recent conversation among friends concerning the present crop of presidential candidates, a close friend emphatically stated that if Ron Paul wasn’t the Republican candidate then, “I will vote for the worst possible candidate with the hope he/she will speed up the implosion of this unconstitutional government…”

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From Antiwar.com Radio with Scott Horton

Interview on March 3, 2008

Jacob Hornberger, founder and president of the Future of Freedom Foundation, discusses the debasement of the dollar to finance out of control government spending and empire, the history of inflation, how it works as a hidden tax, how Bernanke’s admission that it was The Fed who caused the Great Depression, the Republican fake patriots lead by fear monger Bill Kristol, the the chickenhawk, draft-dodgers attempts to live vicariously through the boys they send to war, the White Rose in WWII Germany, Barack Obama, the Bill of Rights, Bush’s handing of Baghdad over to Tehran, and don’t forget the Future of Freedom Foundation’s upcoming conference: “Restoring the Republic: Foreign Policy & Civil Liberties” in Virginia, June 6-8.

MP3 here. (46:12)

He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at The Foundation for Economic Education in Irvington-on-Hudson, New York, publisher of The Freeman. Freedom Daily. Fluent in Spanish and conversant in Italian, he has delivered speeches and engaged in debates and discussions about free-market principles with groups all over the United States, as well as Canada, England, Europe, and Latin America, including Brazil, Cuba, Bolivia, Mexico, Costa Rica, and Argentina. He has also advanced freedom and free markets on talk-radio stations all across the country as well as on FOX New’s Neil Cavuto and Greta van Susteren shows. His editorials have appeared in the Washington Post, Charlotte Observer, La Prensa San Diego, El Nuevo Miami Herald, and many others, both in the United States and in Latin America. He is a co-editor or contributor to the eight books that have been published by the Foundation.

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Outstanding Statement to Bernanke

Posted by Jesse on February 27, 2008

This is what a leader is supposed to do.
A leader is not supposed to micromanage every aspect of human life.
A leader is supposed to lend guidance. Set examples and preach principle.
This is what Ron Paul does.

Below is Ron Paul’s opening statement

Ron Paul is right! Bernanke concede the point!

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