[Congressional Record Volume 147, Number 17 (Wednesday, February 7, 2001)]
[Pages H212-H216]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


  The SPEAKER pro tempore (Mr. Rehberg). Under the Speaker's announced 
policy of January 3, 2001, the gentleman from Texas (Mr. Paul) is 
recognized for 60 minutes.
  Mr. PAUL. Mr. Speaker, I have asked for this time to spend a little 
bit of time talking about the assessment of our American Republic.
  Mr. Speaker, the beginning of the 21st century lends itself to a 
reassessment of our history and gives us an opportunity to redirect our 
country's future course, if deemed prudent. The main question before 
the new Congress and the administration is, are we to have gridlock, or 
  Today we refer to cooperation as bipartisanship. Some argue that 
bipartisanship is absolutely necessary for the American democracy to 
survive. The media never mentions a concern for the survival of the 
Republic, but there are those who argue that left-wing interventionism 
should give no ground to right-wing interventionism, that too much is 
at stake.
  The media are demanding the Bush administration and the Republican 
Congress immediately yield to those insisting on higher taxes and more 
Federal Government intervention for the sake of national unity because 
our government is neatly split between two concise philosophic views. 
But if one looks closely, one is more likely to find only a variation 
of a single system of authoritarianism, in contrast to the rarely 
mentioned constitutional non-authoritarian approach to government. The 
big debate between the two factions in Washington boils down to nothing 
more than a contest over power and political cronyism, rather than any 
deep philosophic differences.
  The feared gridlock anticipated for the 107th Congress will differ 
little from the other legislative battles in recent Congresses. Yes, 
there will be heated arguments regarding the size of budgets, local 
versus Federal control, private versus government solutions; but a 
serious debate over the precise role for government is unlikely to 
  I do not expect any serious challenge to the 20th century consensus 
of both major parties that the Federal Government has a significant 
responsibility to deal with education, health care, retirement 
programs, or managing the distribution of the welfare-state benefits. 
Both parties are in general agreement on monetary management, 
environmental protection, safety and risk, both natural and man-made. 
Both participate in telling others around the world how they must adopt 
a democratic process similar to ours as we police our worldwide 
financial interests.
  We can expect most of the media-directed propaganda to be designed to 
speed up and broaden the role of the Federal Government in our lives 
and in the economy. Unfortunately, the token opposition will not 
present a principled challenge to big government, only an argument that 
we must move more slowly and make an effort to allow greater local 
  Without presenting a specific philosophic alternative to 
authoritarian intervention from the left, the opposition concedes that 
the principle of government involvement per se is proper, practical, 
and constitutional.
  The cliche ``the third way'' has been used to define the so-called 
compromise between the conventional wisdom of the conservative and 
liberal firebrands. This nice-sounding compromise refers not only to 
the noisy rhetoric we hear in the United States Congress, but also in 
Britain, Germany, and other nations as well.
  The question, though, remains, is there really anything new being 
offered? The demand for bipartisanship is nothing more than a 
continuation of the third-way movement of the last several decades. The 
effort always is to soften the image of the authoritarians who see a 
need to run the economy and regulate people's lives, while pretending 
not to give up any of the advantages of the free market or the supposed 
benefits that come from compassionate welfare or a socialist 

                              {time}  1145

  It is nothing more than political, have-your-cake-and-eat-it-too, 
  Many insecure and wanting citizens cling to the notion that they can 
be taken care of through government benevolence without sacrificing the 
free market and personal liberty. Those who anxiously await next 
month's government check prefer not to deal with the question of how 
goods and services are produced and under what political circumstances 
they are most efficiently provided. Sadly, whether personal freedom is 
sacrificed in the process is a serious concern for only a small number 
of Americans.
  The third way, a bipartisan compromise that sounds less 
confrontational and circumvents the issue of individual liberty, free 
markets and production is an alluring, but dangerous, alternative. The 
harsh reality is that it is difficult to sell the principles of liberty 
to those who are dependent on government programs, and this includes 
both the poor beneficiaries as well as the self-serving, wealthy elites 
who know how to benefit from government policies. The authoritarian 
demagogues are always anxious to play on the needs of people made 
dependent by a defective political system of government intervention, 
while perpetuating their own power. Anything that can help the people 
to avoid facing the reality of the shortcomings of the welfare-warfare 
state is welcomed. Thus, our system is destined to perpetuate itself 
until the immutable laws of economics bring it to a halt at the expense 
of liberty and prosperity.
  The third-way compromise or bipartisan cooperation can never 
reconcile the differences between those who produce and those who live 
off others. It will only make it worse. Theft is theft, and forced 
redistribution of wealth is just that. The third way, though, can 
deceive and perpetuate an unworkable system when both major factions 
endorse the principle.
  In the last session of the Congress, the majority party, with 
bipartisan agreement, increased the Labor, Health and Human Services 
and Education appropriation by 26 percent over the previous year, nine 
times the rate of inflation. The Education Department alone received 
$44 billion, nearly double Clinton's first educational budget of 1993.

[[Page H213]]

 The Labor, HHS and Education appropriation was $34 billion more than 
the Republican budget had authorized. Already, the spirit of 
bipartisanship has prompted a new administration to request another $10 
billion along with more mandates on public schools. This is a far cry 
from the clear constitutional mandate that neither the Congress nor the 
Federal courts have any authority to be involved in public education. 
The argument that this bipartisan approach is a reasonable compromise 
between the total free market of local government or local government 
approach, and that of a huge activist centralized government approach 
may appeal to some, but it is fraught with great danger. Big government 
clearly wins. Limited government and the free market lose. Any talk of 
the third way is nothing more than propaganda for big government. It is 
no compromise at all.
  The principle of Federal Government control is fully endorsed by both 
sides, and the argument that the third way might slow growth of big 
government falls flat. Actually, with bipartisan cooperation, 
government growth may well accelerate.
  How true bipartisanship works in Washington is best illustrated by 
the way a number of former Members of Congress make a living after 
leaving Congress. They find it quite convenient to associate with other 
former members of the opposing party and start a lobbying firm. What 
might have appeared to be contentious differences when in office are 
easily put aside to lobby their respective party members. Essentially, 
no philosophic differences of importance exist; it is only a matter of 
degree and favors sought, since both parties must be won over. The 
differences they might have had while they were voting Members of 
Congress existed only for the purpose of appealing to their different 
constituencies, not serious differences of opinion as to what the role 
of government ought to be. This is the reality of bipartisanship.
  Sadly, our system handsomely rewards those who lobby well and in a 
bipartisan fashion. Congressional service too often is a training 
ground or a farm system for the ultimate government service: lobbying 
Congress for the benefit of powerful and wealthy special interests. It 
should be clearly evident, however, that all the campaign finance 
reform and lobbying controls conceivable will not help the situation. 
Limiting the right to petition Congress or restricting people's right 
to spend their own money will always fail and is not morally acceptable 
and misses the point. As long as government has so much to offer, 
public officials will be tempted to accept the generous offers of 
support from special interests. Those who can benefit have too much at 
stake not to be in the business of influencing government.
  Eliminating the power of government to pass out favors is the only 
real solution. Short of that, the only other reasonable solution must 
come from Members' refusal to be influenced by the pressure the special 
interest money can exert. This requires moral restraint by our leaders. 
Since this has not happened, special interest favoritism has continued 
to grow.
  The bipartisanship of the last 50 years has allowed our government to 
gain control over half of the income of most Americans. Being enslaved 
half the time is hardly a good compromise, but supporters of the 
political status quo point out that in spite of the loss of personal 
freedom, the country continues to thrive in many ways. But there are 
some serious questions that we as a people must answer. Is this 
prosperity real? Will it be long-lasting? What is the true cost in 
economic terms? Have we sacrificed our liberties for government 
security? Have we undermined the very system that has allowed 
productive effort to provide a high standard of living for so many? Has 
this system in recent years excluded some from the benefits that Wall 
Street and others have enjoyed? Has it led to needless and dangerous 
U.S. interventions overseas and created problems that we are not yet 
fully aware of? Is it morally permissible in a country that professes 
to respect individual liberty to routinely give handouts to the poor 
and provide benefits to the privileged and rich by stealing the fruits 
of labor from hard-working Americans?
  As we move into the next Congress, some worry that gridlock will make 
it impossible to get needed legislation passed. This seems highly 
unlikely. If big government supporters found ways to enlarge the 
government in the past, the current evenly-split Congress will hardly 
impede this trend and may even accelerate it. With a recession on the 
horizon, both sides will be more eager than ever to cooperate on 
expanding Federal spending to stimulate the economy, whether the 
fictitious budget surplus shrinks or not. In this frantic effort to 
take care of the economy, promote education, save Social Security, and 
provide for the medical needs of all Americans, no serious discussion 
will take place on the political conditions required for a free people 
to thrive. If not, all efforts to patch the current system together 
will be at the expense of personal liberty, private property, and sound 
  If we are truly taking a more dangerous course, the biggest question 
is, how long will it be before a major political economic crisis 
engulfs our land? That, of course, is not known, and certainly not 
necessary, if we as a people and especially the Congress understand the 
nature of the crisis and do something to prevent the crisis from 
undermining our liberties. We should, instead, encourage prosperity by 
avoiding any international conflict that threatens our safety or 
wastefully consumes our needed resources.
  Congressional leaders do have a responsibility to work together for 
the good of the country, but working together to promote a giant 
interventionist state dangerous to us all is far different from working 
together to preserve constitutionally protected liberties.
  Many argue that the compromise of bipartisanship is needed to get 
even a little of what the limited government advocates want, but this 
is a fallacious argument. More freedom can never be gained by giving up 
freedom, no matter the rationale. If liberals want $46 billion for the 
Department of Education and conservatives argue for $42 billion, a 
compromise of $44 billion is a total victory for the advocates of 
Federal Government control of public education. Saving $2 billion means 
nothing in the scheme of things, especially since the case for the 
constitutional position of zero funding was never even entertained. 
When the budget and government controls are expanding each year, a 
token compromise in the proposed increase means nothing. And those who 
claim it to be a legitimate victory do great harm to the cause of 
liberty by condoning the process. Instead of it being a third-way 
alternative to the two sides arguing over minor details of how to use 
government force, the three options instead are philosophically the 
same. A true alternative must be offered if the growth of the state is 
to be contained. Third-way bipartisanship is not the answer.
  However, if, in the future, the constitutionalists argue for zero 
funding for the Education Department and the liberals argue to increase 
it to $50 billion and finally $25 billion is accepted as a compromise, 
progress will have been made. But this is not what is being talked 
about in D.C. When an effort is made to find a third way, both sides 
are talking about expanding government and neither side questions the 
legitimacy of the particular program involved. Unless the moral and 
Constitutional debate changes, there can be no hope that the trend 
toward bigger government with a sustained attack on personal liberty 
will be reversed. It must become a moral and constitutional issue.
  Budgetary tokenism hides the real issue. Even if someone claims to 
have just saved the taxpayer a couple billion dollars, the deception 
does great harm in the long run by failure to emphasize the importance 
of the Constitution and the moral principles of liberty. It instead 
helps to deceive the people into believing something productive is 
being done, but it is really worse than that, because neither party 
makes an effort to cut the budget. The American people must prepare 
themselves for ever more spending and taxes.
  A different approach is needed if we want to protect the freedoms of 
all Americans, to perpetuate prosperity, and to avoid a major military 
confrontation. All three options in reality represents only a variation 
of the one based on authoritarian and interventionist principles. 
Nothing should be

[[Page H214]]

taken for granted, neither our liberties, nor our material well-being. 
Understanding the nature of a free society and favorably deciding on 
its merits are required before true reform can be expected. If, 
however, satisfaction and complacency with the current trend toward 
bigger and more centralized government remain the dominant view, those 
who love liberty more than promised security must be prepared for an 
unpleasant future.

                              {time}  1200

  Those alternative plans will surely vary from one to another. 
Tragically, for some it will contribute to the violence that will 
surely come when promises of government security are not forthcoming. 
We can expect further violations of civil liberties by a government 
determined to maintain order when difficult economic and political 
conditions develop.
  But none of this needs occur if the principles that underpin our 
Republic, as designed by the Founders, can be resurrected and 
reinstituted. Current problems that we now confront are government-
created and can be much more easily dealt with when government is 
limited to its proper role of protecting liberty, instead of promoting 
a welfare-fascist state.
  There are reasons to be optimistic that the principles of the 
Republic, the free market, and respect for private property can be 
restored. However, there remains good reason, as well, to be concerned 
that we must confront the serious political and economic firestorm seen 
on the horizon before that happens.
  My concerns are threefold: the health of the economy, the potential 
for war, and the coming social discord. If our problems are ignored, 
they will further undermine the civil liberties of all Americans. The 
next decade will be a great challenge to all Americans.
  The booming economy of the last 6 years has come to an end. The only 
question remaining is how bad the slump will be. Although many 
economists express surprise at the sudden and serious shift in 
sentiment, others have been warning of its inevitability. Boom times 
built on central bank credit creation always end in recession or 
depression. But central planners, being extremely optimistic, hope that 
this time it will be different, that a new era has arrived.
  For several years we have heard the endless nostrum of a technology 
and productivity-driven paradigm that would make the excesses of the 
1990s permanent and real. Arguments that productivity increases made 
the grand prosperity of the last 6 years possible were accepted as 
conventional wisdom, although sound free-market analysts warned 
  We are now witnessing an economic downturn that will, in all 
likelihood, be quite serious. If our economic planners pursue the wrong 
course, they will make it much worse and prolong the recovery.
  Although computer technology has been quite beneficial to the 
economy, in some ways these benefits have been misleading by hiding the 
ill effects of central bank manipulation of interest rates and by 
causing many to believe that the usual business-cycle correction could 
be averted. Instead, delaying a correction that is destined to come 
only contributes to greater distortions in the economy, thus requiring 
an even greater adjustment.
  It seems obvious that we are dealing with a financial bubble now 
deflating. Certainly, most observers recognize that the NASDAQ was 
grossly overpriced. The question remains, though, as to what is needed 
for the entire economy to reach equilibrium and allow sound growth to 
  Western leaders for most of the 20th century have come to accept a 
type of central planning they believe is not burdened by the 
shortcomings of true socialist-type central planning. Instead of 
outright government ownership of the means of production, the economy 
was to be fine-tuned by fixing interest rates, that is, Fed funds 
rates, subsidizing credit, government-sponsored enterprises, 
stimulating sluggish segments of the economy, farming and the weapons 
industry, aiding the sick, Medicaid and Medicare, federally managing 
education, the Department of Education, and many other welfare schemes.
  The majority of Americans have not yet accepted the harsh reality 
that this less threatening, friendlier type of economic planning is 
minimally more efficient than that of the socialist planners with their 
5-year economic plans.
  We must face the fact that the business cycle, with its recurring 
recessions, wage controls, wealth transfers, and social discord, is 
still with us, and will get worse unless there is a fundamental change 
in economic and monetary policy. Regardless of the type, central 
economic planning is a dangerous notion.
  In an economic downturn, a large majority of our political leaders 
believe that recession's ill effects can be greatly minimized by 
monetary and fiscal policy. Although cutting taxes is always 
beneficial, spending one's way out of a recession is no panacea. Even 
if some help is gained by cutting taxes, or temporary relief given by 
an increase in government spending, they distract from the real cause 
of the downturn: previously pursued faulty monetary policy.
  The consequences of interest rate manipulation in a recession, along 
with tax-and-spending changes, are unpredictable and do not always 
produce the same results each time they are used. This is why interest 
rates of less than 1 percent and massive spending programs have not 
revitalized Japan's economy or her stock market.

  We may well be witnessing the beginning of a major worldwide economic 
downturn, making even more unpredictable the consequence of 
conventional western-style central banking tinkering.
  There is good reason to believe that Congress and the American people 
ought to be concerned and start preparing for a slump that could play 
havoc with our Federal budget and the value of the American dollar. 
Certainly the Congress has a profound responsibility in this area. If 
we ignore the problems or continue to endorse the economic myths of 
past generations, our prosperity will be threatened. But our liberties 
could be lost as well if expanding the government's role in the economy 
is pursued as the only solution to the crisis.
  It is important to understand how we got ourselves into this mess. 
The blind faith that wealth and capital can be created by the central 
bank's creating money and credit out of thin air, using government debt 
as its collateral, along with fixing short-term interest rates, is a 
myth that must one day be dispelled. All the hopes of productivity 
increases in a dreamed-about new era economy cannot repeal eternal 
economic laws.
  The big shift in sentiment of the past several months has come with a 
loss of confidence in the status of the new paradigm. If we are not 
careful, the likely weakening of the U.S. dollar could lead to a loss 
of confidence in America and all her institutions.
  U.S. political and economic power has propped up the world economy 
for years. Trust in the dollar has given us license to borrow and spend 
way beyond our means. But just because world conditions have allowed us 
greater leverage to borrow and inflate the currency than otherwise 
might have been permitted, the economic limitations of such a policy 
still exist. This trust, however, did allow for a greater financial 
bubble to develop and dislocations to last longer, compared to similar 
excesses in less powerful nations.
  There is one remnant of the Bretton Woods gold exchange standard that 
has aided U.S. dominance over the past 30 years. Gold was once the 
reserve all central banks held to back up their currencies. After World 
War II, the world central banks were satisfied to hold dollars, still 
considered to be as good as gold, since internationally the dollar 
could still be exchanged for gold at $35 an ounce.
  When the system broke down in 1971 and we defaulted on our promises 
to pay in gold, chaos broke out. By default, the dollar maintained its 
status as the reserve currency of the world. This is true even to this 
day. The dollar still represents approximately 77 percent of all world 
central bank reserves.
  This means that the United States has a license to steal. We print 
the money and spend it overseas, while world trust continues because of 
our dominant economic and military

[[Page H215]]

power. This results in a current account and trade deficit so large 
that almost all economists agree that it cannot last. The longer and 
more extensive the distortions in the international market, the greater 
will be the crisis when the market dictates a correction. That is what 
we are starting to see.
  When the recession hits full force, even the extraordinary power and 
influence of Alan Greenspan and the Federal Reserve, along with all 
other central banks of the world, will not be enough to stop the 
powerful natural economic forces that demand equilibrium. Liquidation 
of unreasonable debt and the elimination of the overcapacity built into 
the system and a return to trustworthy money and trustworthy government 
will be necessary. Quite an undertaking.
  Instead of looking at the real cost and actual reasons for the recent 
good years, politicians and many Americans have been all too eager to 
accept the newfound wealth as permanent and deserved, as part of a 
grand new era. Even with a national debt that continued to grow, all 
the talk in Washington was about how to handle the magnificent budget 
  Since 1998, when it was announced that we had a budgetary surplus to 
deal with, the national debt has nevertheless grown by more than $230 
billion, albeit at a rate less than in the past, but certainly a sum 
that should not be ignored. But the really big borrowing has been what 
the U.S. as a whole has borrowed from foreigners to pay for the huge 
deficit we have in our current account. We are now by far the largest 
foreign debtor in the world and in all of history.
  The convenient arrangement has allowed us to live beyond our means, 
and according to long-understood economic laws must end. A declining 
dollar confirms that our ability to painlessly borrow huge sums will no 
longer be cheap or wise. During the past 30 years, in the post-Bretton 
Woods era, worldwide sentiment has permitted us to inflate our money 
supply and get others to accept the dollar as if it were as good as 
gold. This convenient arrangement has discouraged savings, which are 
now at an historic low.
  Savings in a capitalist economy are crucial for furnishing capital 
and establishing market interest rates. With negative savings and with 
the Fed fixing rates by creating credit out of thin air and calling it 
capital, we have abandoned a necessary part of free market capitalism, 
without which a smooth and growing economy is not sustainable.
  No one should be surprised when recessions hit, or bewildered as to 
their cause or danger. The greater surprise would be the endurance of 
an economy fine-tuned by a manipulative central bank and a compulsively 
interventionist Congress.
  But the full payment for our last economic sins may now be required. 
Let us hope we can keep the pain and suffering to a minimum.
  The most recent new era of the 1990s appeared to be an answer to all 
politicians' dreams: a good economy, low unemployment, minimal price 
inflation, a skyrocketing stock market, with capital gains tax revenues 
flooding the Treasury, thus providing money to accommodate every 
special-interest demand.
  But it was too good to be true. It was based on an inflated currency 
and massive corporate, personal and government borrowing. A recession 
was inevitable to pay for the extravagance that many knew was an 
inherent part of the new era, understanding that abundance without a 
commensurate amount of work was not achievable.
  The mantra now is for the Fed to quickly lower short-term interest 
rates to stimulate the economy and alleviate a liquidity crisis. This 
policy may stimulate a boom and may help in a mild downturn, but it 
does not always work in a bad recession. It actually could do great 
harm since it could weaken the dollar, which in turn would allow market 
forces instead to push long-term interest rates higher. Deliberately 
lowering interest rates is not even necessary for the dollar to drop, 
since our policy has led to a current account deficit of a magnitude 
that demands the dollar eventually readjust and weaken.
  A slumping stock market will also cause the dollar to decline and 
interest rates to rise. Federal Reserve Board central planning, though, 
through interest rate control, is not a panacea. It is, instead, the 
culprit that produces the business cycle. Government and Fed officials 
have been reassuring the public that no structural problems exist, 
citing no inflation and a gold price that reassures the world that the 
dollar is indeed still king.
  The Fed can create excess credit, but it cannot control where it goes 
as it circulates throughout the economy, nor can it dictate value. 
Claiming that a subdued government-rigged CPI and PPI proves that no 
inflation exists is pure nonsense. It is well established that, under 
certain circumstances, new credit inflation can find its way into the 
stock or real estate market, as it did in the 1920s, while consumer 
prices remained relatively stable. This does not negate the distortions 
inherent in a system charged with artificially low interest rates. 
Instead, it allows the distortion to last longer and become more 
serious, leading to a bigger correction.
  If gold prices reflected the true extent of the inflated dollar, 
confidence in the dollar specifically and in paper more generally would 
be undermined. It is a high priority of the Fed and all central banks 
of the world for this not to happen. Revealing to the public the fraud 
associated with all paper money would cause loss of credibility of all 
central banks. This knowledge would jeopardize the central bank's 
ability to perform the role of lender of last resort, and to finance 
and monetize government debt. It is for this reason that the price of 
gold, in their eyes, must be held in check.
  From 1945 to 1971, the United States literally dumped nearly 500 
million ounces of gold at $35 an ounce in an effort to do the same 
thing by continuing the policy of printing money at will, with the 
hopes that there would be no consequences to the value of the dollar. 
That all ended in 1971, when the markets overwhelmed the world central 
  A similar effort continues today, with central banks selling and 
loaning gold to keep the price in check. It is working and does convey 
false confidence, but it cannot last. Most Americans are wise to the 
government statistics regarding prices and the no-inflation-exists 
rhetoric. Everyone is aware that the prices of oil, gasoline, natural 
gas, medical care, repairs, houses, and entertainment have all been 
rapidly rising.
  The artificially low gold price has aided the government's charade, 
but it has also allowed a bigger bubble to develop.

                              {time}  1215

  This policy cannot continue. Economic law dictates a correction that 
most Americans will find distasteful and painful. Duration and severity 
of the liquidation phase of the business cycle can be limited by proper 
responses, but it cannot be avoided and could be made worse if the 
wrong course is chosen.
  Recent deterioration of the junk bond market indicates how serious 
the situation is. Junk bonds are now paying 9 to 10 percent more than 
short-term government securities. The quality of business loans is 
suffering, while more and more corporate bonds are qualifying for junk 
status. The Fed tries to reassure us by attempting to stimulate the 
economy with low, short-term Fed fund rates at the same time interest 
rates for businesses and consumers are rising. There comes a time when 
Fed policy is ineffective, much to everyone's chagrin.
  Micromanaging an economy effectively for a long period of time, even 
with the power a central bank wields, is an impossible task. The good 
times are ephemeral and eventually must be paid for by contraction and 
renewed real savings.
  There is much more to inflation than rising prices. Inflation is 
defined as the increase in the supply of money and credit. Obsessively 
sticking to the ``rising prices'' definition conveniently ignores 
placing the blame on the responsible party: The Federal Reserve. The 
last thing central banks, or the politicians who need a backup for all 
their spending mischief, want is for the government to lose its power 
for creating money out of thin air, which serves political and 
privileged financial interests.

[[Page H216]]

  When the people are forced to think only about rising prices, 
government-doctored price indexes can dampen concerns for inflation. 
Blame then can be laid at the doorstep of corporate profiteers, price 
gougers, labor unions, oil sheiks, or greedy doctors. But it is never 
placed at the feet of the highly paid athletes or entertainers. It 
would be economically incorrect to do so, but it is political 
correctness that does not allow some groups to be vilified.
  Much else related to artificially low interest rates goes unnoticed. 
An overpriced stock market, overcapacity in certain industries, 
excesses in real estate markets, artificially high bond prices, general 
mal-investments, excessive debt and speculation all result from the 
generous and artificial credit the Federal Reserve pumps into the 
financial system. These distortions are every bit, if not more, harmful 
than rising prices. As the economy soars from the stimulus effect of 
low interest rates, growth and distortions compound themselves. In a 
slump, the reverse is true and the pain and suffering is magnified as 
the adjustment back to reality occurs.
  The extra credit in the 1990s has found its way especially into the 
housing market like never before. Government Sponsored Enterprises, in 
particular Freddie Mac and Fannie Mae, have gobbled up huge sums to 
finance a booming housing market. GSE securities enjoy implicit 
government guarantees that have allowed for a generous discount on most 
housing loans. They have also been the vehicles used by consumers to 
refinance and borrow against their home equity to use these funds for 
other purposes, such as investment in the stock market. This has 
further undermined savings by using the equity that builds with price 
inflation that homeowners enjoy when money is debased.
  In addition, the Federal Reserve now buys and holds GSE securities as 
collateral in their monetary operations. These securities are then 
literally used as collateral for printing Federal Reserve notes. This 
is a dangerous precedent.
  If monetary inflation merely raised prices and all prices and labor 
costs moved up at the same rate and it did not cause disequilibrium in 
the market, it would be of little consequence. But inflation is far 
more than rising prices. Creating money out of thin air is morally 
equivalent to counterfeiting. It is fraud and theft, because it steals 
purchasing power from the savers and those on fixed incomes. That in 
itself should compel all nations to prohibit it, as did the authors of 
our Constitution.
  Inflation is socially disruptive in that the management of fiat 
money, as all today's currencies are, causes great hardships. 
Unemployment is a direct consequence of the constantly recurring 
recessions. Persistent rising costs impoverish many as the standard of 
living of unfortunate groups erodes. Because the pain and suffering 
that comes from monetary debasement is never evenly distributed, 
certain segments of society actually benefit.
  In the 1990s, Wall Streeters thrived while some low-income, non-
welfare, non-homeowners suffered with rising costs for fuel, rent, 
repairs, and medical care. Generally, one should expect the middle 
class to suffer and to literally be wiped out in severe inflation. When 
this happens, as it did in many countries throughout the 20th century, 
social and political conflicts become paramount when finger-pointing 
becomes commonplace by those who suffer, looking for scapegoats. Almost 
always, the hostility is inaccurately directed.
  There is a greater threat from the monetary mischief than just the 
economic harm it does. The threat to liberty resulting when economic 
strife hits and finger-pointing increases should concern us most. We 
should never be complacent about monetary policy.
  We must reassess the responsibility Congress has in maintaining a 
sound monetary system. In the 19th century, the constitutionality of a 
central bank was questioned and challenged. Not until 1913 were the 
advocates of a strong federalist system able to foist a powerful 
central bank on us, while destroying the gold standard. This banking 
system, which now serves as the financial arm of Congress, has chosen 
to pursue massive welfare spending and a foreign policy that has caused 
us to be at war for much of the 20th century.
  Without the central bank creating money out of thin air, our welfare 
state and worldwide imperialism would have been impossible to finance. 
Attempts at economic fine-tuning by monetary authorities would have 
been impossible without a powerful central bank. Propping up the stock 
market as it falters would be impossible as well.
  But the day will come when we will have no choice but to question the 
current system. Yes, the Fed does help to finance the welfare state. 
Yes, the Fed does come to the rescue when funds are needed to fight 
wars and for us to pay the cost of maintaining our empire. Yes, the Fed 
is able to stimulate the economy and help create what appears to be 
good times. But it is all built on an illusion. Wealth cannot come from 
a printing press. Empires crumble and a price is eventually paid for 
arrogance toward others. And booms inevitably turn into busts.
  Talk of a new era these past 5 years has had many believing, 
including Greenspan, that this time it really would be different. And 
it may indeed be different this time. The correction could be an 
especially big one, since the Fed-driven distortion of the past 10 
years, plus the lingering distortion of the past decades, have been 
massive. The correction could be made big enough to challenge all of 
our institutions, the entire welfare state, Social Security, foreign 
intervention, and our national defense.
  This will only happen if the dollar is knocked off its pedestal. No 
one knows if that is going to happen sooner or later. But when it does, 
our constitutional system of government will be challenged to the core.
  Ultimately, the solution will require a recommitment to the 
principles of liberty, including a belief in sound money, when money 
once again will be something of value rather than pieces of paper or 
mere blips from a Federal Reserve computer. In spite of the grand 
technological revolution, we are still having trouble with a few 
simple, basic tasks: counting votes, keeping the lights on, or even 
understanding the sinister nature of paper money.
  Mr. Speaker, I will continue this special order tomorrow.