Gold News


A plea for sane monetary policy in the face of runaway financial inflation...

AMID THE CURRENT turmoil in the world's financial markets, I was hoping that new Federal Reserve chairman, Ben Bernanke, would see the big picture and act judiciously.

   Instead, he signaled – with an aggressive 0.5% rate cut – that we can expect a continuation of the very same monetary policies that got us here to begin with.

   Alan Greenspan has just released his memoirs, explaining his policies and decisions in the wake of the "irrational exuberance" they fueled and which he spotted as early as 1996. His successor should see that it is now time for a change of policy that addresses the root of our troubles.

   But instead of seeing an inflation problem, the Federal Reserve sees a liquidity problem. That's a little like extinguishing a forest fire with gasoline.

   In the wake of the Fed's 50-point rate cut in September, the Dow jumped and brokers cheered. Behind the headlines, however, the Dollar quietly fell and was abandoned by more of the world in favor of more solid stores of wealth.

   The US Fed does not act in a vacuum, and Mr.Greenspan rightly criticizes Congress and the administration for abandoning principles of fiscal responsibility. However, monetary policy at the Fed did nothing solve money problems, but merely delayed impending crises by creating bubbles.

   In a very real sense, the Fed and the US government are close to going over the spending limit of our nation's credit card. We rely on foreign investors to buy our debt so our government can maintain its appetite for spending. Yet the market for US Treasury Bonds is rapidly shrinking as yield declines.

   Still the government will need an estimated $100 billion more for every year we "stay the course" in Iraq , not to mention what a possible conflict in Iran could cost.

   Yes, the money has to come from somewhere, but we are running out of sources to tap. Printing more money is the Fed's typical answer, but we are on the verge of runaway inflation.

   The United States has now printed so many Dollars now that we are at parity with the Canadian Dollar for the first time since 1976. Since the Fed stopped publishing M3 data, which tracks the total supply of Dollars in the economy, we can't even be sure how many Dollars they are creating.

   Reported inflation is around 2%, but the method for calculating inflation changed in the 1980s, largely at Mr.Greenspan's urging. Private economists using the original methodology find actual inflation to be over 10%, which matches more closely the pain consumers in the real economy feel. The markets in crude oil, wheat, soya, base metals and the Gold Price all point to a higher cost of living, too.

   The reality is that this type of manipulation of the markets masks where resources, or money, ultimately comes from. It comes from the taxpayer. The government doesn't create Gross Domestic Product; they just limit and control how it is done.

   The government then absorbs much of the value produced in the economy through taxation and inflation, so they can squander our nation's wealth with runaway spending.

   The Fed tries to keep up with government spending habits, but is sending inaccurate signals to mask bad monetary policy. Ultimately, we will get back on track financially only when government spending is held in check and the free market controls monetary policy, not the other way around.

US Congressman Ron Paul of Texas enjoys a national reputation as the premier advocate for liberty in politics today. The leading spokesman in Washington for limited constitutional government, low taxes, free markets, and a return to sound monetary policies based on commodity-backed currency. He is known among both his colleagues in Congress and his constituents for his consistent voting record in the House of Representatives.

Dr. Paul never votes for legislation unless the proposed measure is expressly authorized by the Constitution. In the words of former Treasury Secretary William Simon, Dr. Paul is the "one exception to the Gang of 535" on Capitol Hill.

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