Here is a video of my Federal Reserve and International Monetary speech from the FreedomWorks grassroots bootcamp over the past weekend:
I’m first going to address the Federal Reserve. Monetary policy is an extremely important issue. I think we’re in huge trouble. I do believe that we will be facing a dollar crisis in the near future if we don’t return to sound money. Many notable Austrian economists such as Peter Schiff and Jim Rogers are saying we haven’t seen anything yet. Just so we’re on the same page, the Austrian school of economics is a free market school of economics. Some of its founders were from Austria but it has nothing to with the economics of the country Austria. These Austrian economists say that an even worse crisis is on the horizon.
I do have some hope though. The American people are waking up. Just a few years ago, no one with the exception of Ron Paul was really questioning the Federal Reserve in Congress. They all just let it do whatever it wanted and didn’t really pay attention to it. I’ve been in the anti-Federal Reserve movement since 2007 and I’ve seen it rapidly grow. It’s become mainstream to not just criticize the Federal Reserve but to want to end the Fed.
I’ll start with some basics. What is money? Sounds like a dumb question. But we all use money and think about it quite a bit. But we really take the time to ask some vital questions. How does this piece of paper have any value? Who controls the value of the dollar? We all should know that the value of the dollar loses value from time to time. Why is that?
Money is a medium of exchange. Long ago we had a barter economy where people would exchange goods for other goods. Someone with a sword would trade it for some bread. As you can imagine, this was very inconvenient finding someone to trade with. Overtime societies started using commodity money. Commodity money is a money whose value comes from the commodity out of which it is made. Money did not originate with government. For example, some societies used shells and beads as money. These are thought to have value. Historically, the free market has chosen gold as money. If you own gold, you can offer it to someone in exchange for a good that they have.
Today most of the money used in the world is fiat currency. The dollar is fiat money. It only has value because the government says so meaning that it is not backed by anything. Government saw people using money and wanted to get in on the action. They began printing their own money and forcing people by law to use it.
The history of paper money is long but in almost every single case, starting with China in 806 AD, paper fiat currency has failed. Government printed so much money which inflated the money supply and made the money worthless. Today, it is illegal to use anything but the paper dollar as currency. People are in jail right now for trying to start their own currency backed by precious metals.
So now that we have an understanding of money, who controls the value of the money we have in our pockets? The Federal Reserve. The same supply and demand rules apply to money. The more dollars we have in the circulation, the less value the money becomes. It’s scary that the Fed has monopoly control over our money supply.
Since the very beginning, the Federal Reserve has been the most secret and least accountable operation of the federal government. The CIA has more oversight than the Fed. The plan for the Fed started in 1910. A group of the most powerful banks and government officials held a secret meeting in Jekyll Island resort in Georgia and devised the Federal Reserve Act to serve their own self interests. They finally got the Federal Reserve Act passed on the evening of December 22, 1913 when many congressional members were home on Christmas break. That’s how America’s central bank the most powerful institution and the greatest intervention in the economy was created. These unelected bureaucrats can create as much money as they want out of thin air.
Our Founding Fathers understood the dangers of fiat currency. In 1775, the continental congress issued paper money called the continental. The currency was hyperinflated to the point of disaster. This is why the Founders banned paper money and permitted only gold and silver as money in the constitution.
Supporters of the Fed claim that the central bank is necessary to stabilize the financial system. But since the Fed came into existence in 1914, we have experienced numerous recessions and depressions. Members of the Austrian school of economics blame the Fed for these financial crises including the Great Depression.
The Fed has created a boom and bust cycle. It lowers interest rates to put more dollars into the economy which creates a false boom. This sends out misleading signals to consumers and producers. It is impossible for the Fed to continue the boom so an economic crash will ultimately happen. This is called the Austrian business cycle.
Leading economists in the Austrian school warned us about the current economic crash years ago but few people cared to listen. The Fed is the biggest taxer of them all. The Fed steals our money through inflation which is a hidden and immoral tax. Inflation is the increase of money supply in the economy. Since the creation of the Fed, the dollar has lost 97 percent of its value.The Federal Reserve printing money punishes those who safe money for the future. Instead of obvious ways to raise government revenue such as taxation or borrowing, the Fed simply prints as much money as it needs.
The Federal Reserve likes fiat paper currency because it enables them to bail out their friends. The Fed has never been audited. A true audit would reveal what the Fed has been doing behind closed doors. A few weeks ago the Fed was court ordered to release documents which showed that they have loaned to many foreign banks including a corporation part owned by the bank of Libya.
Thankfully, Ron Paul and Rand Paul have introduced the Federal Reserve Transparency Act of 2011. The bill number in the House is H.R. 459 and in the Senate it is S. 202. As Ron Paul says, the audit is just the first step to ending the Fed. The threat of an audit has Fed Chairman Ben Bernanke running scared. There is even greater momentum for an audit this year so it’s very possible that it could pass. It would be amusing to watch Obama come up with excuses to why he doesn’t support the Federal Reserve if the bill ends up on his desk. There’s no good reason why anyone shouldn’t support increasing transparency to the Fed.
There’s another monetary policy issue that needs our attention: The International Monetary Fund. It hasn’t gotten as much attention as it deserves lately and I think it’s because it’s a complicated issue. The IMF is an unconstitutional, outdated and needlessly international bureaucracy. The U.S. should withdraw from the IMF.
The IMF started in 1944 when a group of 44 nations met in Bretton Woods, New Hampshire. These governments developed the Bretton Woods agreement. This was a system of exchange rate management. The IMF would temporary loan to countries who were experiencing balance of payment problems. The Bretton Woods system fell apart in 1971 when the U.S. completely ended the Gold Standard.
The end of the Gold Standard meant dollar devaluation, instability and inflation. After Nixon ended the Gold Standard, this gave the IMF absolutely no justification to continue. Instead of closing down, it simply changed its mission. Today, the main mission of the IMF is to bailout powerful politically connected banks and spendthrift nations at the expense of taxpayers. The IMF is the last lender of resort, loaning to shaky governments that no rational bank would consider.
U.S. taxpayers have the largest stake in the IMF. Out of 187 member countries, the U.S. has the highest quota of about 17 percent. This means that we pay roughly 17 percent of the IMF total funding. Don’t be fooled by government officials who say that the IMF doesn’t cost us anything. Taxpayers subsidize the IMF to the tune of billions of dollars annually yet these subsidies are nowhere to be found in our federal budget.
The IMF is a prime example of our bailout culture. The IMF recently sent nearly $300 billion taxpayer dollars to Greece and Ireland. A bailout of Portugal is now in the works. Barack Obama remains committed to a second bailout of Greece. All of these welfare states lived far beyond their means and we were forced to pay for their mistakes.
The IMF has created moral hazard. This means that they have encouraged reckless behavior by holding out the prospect of a bailout to any nation or large politically connected bank that fails. The IMF bailouts have made financial crises much worse.
The IMF is a clear threat to our sovereignty. The former head of the IMF French socialist party member Dominique Strauss Kahn was recently in the news for allegedly raping a hotel maid in New York City. These are the kinds of people who are running the IMF. The IMF recently proposed a global currency in honor of the father of Keynesian economics John Maynard Keynes. Keynes proposed a global currency called the bancor decades ago. A global fiat currency would grant the IMF even more power while failing to stabilize the global financial system.
Who would administer the banchor? The IMF report suggests a global bank or the Federal Reserve on a global scale. Since the creation of the IMF, it has operated under a veil of secrecy. Since all major decisions require an 85 percent super majority to pass, U.S. treasury secretary Timothy Geithner has the power to veto any IMF bailout. We must put pressure on Timothy Geithner while simultaneous striving to withdraw from the IMF.
I think the most important part of these campaigns is education. I know it may be difficult to strike up a casual conversation on monetary policy but we have to. You’re probably going to be called names like a “kook” but we have to keep fighting the good fight. History will prove us right. These are complicated issues but we owe it to ourselves to educate ourselves. The Fed and the IMF doesn’t want you to understand these issues. I believe that freedom is at stake and I hope that you will join me in speaking out against our dangerous monetary policy. If you want to learn more, I suggest the following books End the Fed by Ron Paul, What Has Government Done to Our Money by Murray Rothbard and the Case Against the Fed by Murray Rothbard. Thank you.