October 3rd, 2008
Madame Speaker, only in Washington could a bill demonstrably worse than its predecessor be brought back for another vote and actually expect to gain votes. That this bailout was initially defeated was a welcome surprise, but the power-brokers in Washington and on Wall Street could not allow that defeat to be permanent. It was most unfortunate that this monstrosity of a bill, loaded up with even more pork, was able to pass.
The Federal Reserve has already injected hundreds of billions of dollars into US and world credit markets. The adjusted monetary base is up sharply, bank reserves have exploded, and the national debt is up almost half a trillion dollars over the past two weeks. Yet, we are still told that after all this intervention, all this inflation, that we still need an additional $700 billion bailout, otherwise the credit markets will seize and the economy will collapse. This is the same excuse that preceded previous bailouts, and undoubtedly we will hear it again in the future after this bailout fails.
One of the most dangerous effects of this bailout is the incredibly elevated risk of moral hazard in the future. The worst performing financial services firms, even those who have been taken over by the government or have filed for bankruptcy, will find all of their poor decision-making rewarded. What incentive do Wall Street firms or any other large concerns have to make sound financial decisions, now that they see the federal government bailing out private companies to the tune of trillions of dollars? As Congress did with the legislation authorizing the Fannie and Freddie bailout, it proposes a solution that exacerbates and encourages the problematic behavior that led to this crisis in the first place.
With deposit insurance increasing to $250,000 and banks able to set their reserves to zero, we will undoubtedly see future increases in unsound lending. No one in our society seems to understand that wealth is not created by government fiat, is not created by banks, and is not created through the manipulation of interest rates and provision of easy credit. A debt-based society cannot prosper and is doomed to fail, as debts must either be defaulted on or repaid, neither resolution of which presents this country with a pleasant view of the future. True wealth can only come about through savings, the deferral of present consumption in order to provide for a higher level of future consumption. Instead, our government through its own behavior and through its policies encourages us to live beyond our means, reducing existing capital and mortgaging our future to pay for present consumption.
The money for this bailout does not just materialize out of thin air. The entire burden will be borne by the taxpayers, not now, because that is politically unacceptable, but in the future. This bailout will be paid for through the issuance of debt which we can only hope will be purchased by foreign creditors. The interest payments on that debt, which already take up a sizeable portion of federal expenditures, will rise, and our children and grandchildren will be burdened with increased taxes in order to pay that increased debt.
As usual, Congress has show itself to be reactive rather than proactive. For years, many people have been warning about the housing bubble and the inevitable bust. Congress ignored the impending storm, and responded to this crisis with a poorly thought-out piece of legislation that will only further harm the economy. We ought to be ashamed.
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September 29th, 2008
The process of this bailout reminds me of a panic-stricken swimmer thrashing in the water only making his situation worse. Even a “bipartisan deal”—whatever that is supposed to mean— will not stop the Congress from thrashing about.
The beneficiaries of the corrupt monetary system of the last three decades are now desperately looking for victims to stick with the bill after they have reaped decades of profit and privilege.
The difficulties in our economy will continue because the Legislative and the Executive branches have not yet begun to address the real problems. The housing bubble’s collapse, as was the Dot Com bubble’s collapse, was predictable and is merely a symptom of the monetary system that brought us to this point.
Indeed, we do face a major crisis but it is much bigger than the freezing up of Wall Street and dealing with worthless assets on the books of major banks. The true crisis is the pending collapse of the fiat dollar system that emerged after the breakdown of the Bretton Woods agreement in 1971.
For 37 years the world built a financial system based on the dollar as the reserve currency of the world in an attempt to make the dollar serve as the new standard of value. However since 1971, the dollar has had no intrinsic value, as it is not tied to gold. The dollar is simply a fiat currency, which has fluctuated in value on a daily, if not hourly, bias. This worked to some degree until the market realized that too much debt and malinvestment existed and a correction was required.
Because of our economic and military strength, compared to other countries, trust in America’s currency lasted longer than deserved. This resulted in the biggest worldwide economic distortion in all of history. The problem is much bigger than the fears of a temporary decline on Wall Street if the bailout is not agreed to.
Money’s most important function is to serve as a means of exchange—a measurement of value. If this crucial yardstick is not stable, it becomes impossible for investors, entrepreneurs, savers, and consumers to make correct decisions; these mistakes create the bubble that must eventually be corrected.
Just imagine the results if a construction company was forced to use a yardstick whose measures changed daily to construct a skyscraper. The result would be a very unstable and dangerous building. No doubt the construction company would try to cover up their fundamental problem with patchwork repairs, but no amount of patchwork can fix a building with an unstable inner structure. Eventually, the skyscraper will collapse, forcing the construction company to rebuild—hopefully this time with a stable yardstick. This 700 billion package is more patchwork repair and will prove to be money down a rat hole and will only make the dollar crisis that much worse.
But what politicians are willing to say that the financial “skyscraper”—the global financial and monetary system-is a house of cards. It is not going to happen at this juncture. They’re not even talking about this. They talk only of bailouts, more monetary inflation, more special interest spending, more debt, and more regulations. There is almost no talk of the relationship of the Community Reinvestment Act, HUD, and government assisted loans to the housing bubble. And there is no talk of the oversight that is desperately needed for the Federal Reserve, the Exchange Stabilization Fund, and all the activities of the President’s Working Group on financial markets. When these actions are taken we will at last know that Congress is serious about the reforms that are really needed.
In conclusion, there are three good reasons why Congress should reject this legislation:
- It is immoral—Dumping bad debt on the innocent taxpayers is an act of theft and is wrong.
- It is unconstitutional—There is no constitutional authority to use government power to serve special interests.
- It is bad economic policy—By refusing to address the monetary system while continuing to place the burdens of the bailout on the dollar, we can be certain that in time, we will be faced with another, more severe crisis when the market figures out that there is no magic government bailout or regulation that can make a fraudulent monetary system work.
Monetary reform will eventually come, but, unfortunately, Congress’ actions this week make it more likely the reform will come under dire circumstances, such as the midst of a worldwide collapse of the dollar. The question then will be how much of our liberties will be sacrificed in the process. Just remember what we lost in the aftermath of 9-11.
The best result we can hope for is that the economic necessity of getting our fiscal house in order will, at last, force us to give up our world empire. Without the empire we can then concentrate on rebuilding the Republic.
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September 24th, 2008
It is truly a shame that, less than two decades after the fall of communism, the lessons of price control are completely lost on most Washington power-brokers. The Treasury proposal before Congress is nothing more than a form of price control, an attempt to keep asset prices artificially elevated. The root of our recent economic boom, as in any other business cycle, was government intervention into the market under the guise of lowering the interest rate, which is itself a price. The function that prices play in the market in equalizing supply and demand, and the distortions that necessarily accompany each government effort at price-fixing, are forgotten by too many in Washington.
One of the primary causes for the length and severity of the Great Depression in this country was the federal government’s attempts at keeping prices artificially elevated. A typical example of getting causation backward, the federal government assumed that falling prices caused the depression, whereas in reality the falling prices were the result of the economic depression, and were necessary to bring the economy back into equilibrium. In its attempt to keep agricultural prices high, the federal government began to pay farmers to destroy their crops, while unemployed people lined up at soup kitchens around the country.
A similar situation exists today, where many mortgage-backed securities and other similar assets are horribly overvalued. The market response would be to allow these assets to be sold on the market at whatever price they would bring. This would result in a shakeout of bad debt and a shorter, sharper correction than would otherwise occur. Unfortunately, the political will to allow banks to take the responsibility for their lending actions is at times lacking.
Many here in Congress are asking where the money for this bailout will come from, and indeed it is a good question. $700 billion does not just materialize out of the ether, but then again neither do the hundreds of billions of dollars that we spend every year to fund our imperial war machine. We must the face the fact that our country is dead broke, and not just that, we are facing over $10 trillion in debt, and tens of trillions more in unfunded liabilities. This $700 billion bailout will only increase that debt, and increase the amount of money we pay merely to service the interest on that debt. The end result of this is higher taxes on our children and grandchildren, and the full-scale destruction of the dollar.
The only viable solution to this financial crisis is to keep the government from intervening any further. The Federal Reserve has already loaned hundreds of billions of dollars through its numerous lending facilities, and the Congress has passed legislation authorizing further hundreds of billions of dollars to bail out Fannie and Freddie, yet each successive crisis event seems to be advertised as larger and more severe than the previous one. It is time that this Congress put its foot down, reject the administration’s proposal, and allow the bust to work itself out so that our economic hangover is not as severe as it might otherwise be.
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September 24th, 2008
Mr. Chairman, I believe that our economy faces a bleak future, particularly if the latest $700 billion bailout plan ends up passing. We risk committing the same errors that prolonged the misery of the Great Depression, namely keeping prices from falling. Instead of allowing overvalued financial assets to take a hit and trade on the market at a more realistic value, the government seeks to purchase overvalued or worthless assets and hold them in the unrealistic hope that at some point in the next few decades, someone might be willing to purchase them.
One of the perverse effects of this bailout proposal is that the worst-performing firms, and those who interjected themselves most deeply into mortgage-backed securities, credit default swaps, and special investment vehicles will be those who benefit the most from this bailout. As with the bailout of airlines in the aftermath of 9/11, those businesses who were the least efficient, least productive, and least concerned with serving consumers are those who will be rewarded for their mismanagement with a government handout, rather than the failure of their company that is proper to the market. This creates a dangerous moral hazard, as the precedent of bailing out reckless lending will lead to even more reckless lending and irresponsible behavior on the part of financial firms in the future.
This bailout is a slipshod proposal, slapped together haphazardly and forced on an unwilling Congress with the threat that not passing it will lead to the collapse of the financial system. Some of the proposed alternatives are no better, for instance those which propose a government equity share in bailed-out companies. That we have come to a point where outright purchases of private sector companies is not only proposed but accepted by many who claim to be defenders of free markets bodes ill for the future of American society.
As with many other government proposals, the opportunity cost of this bailout goes unmentioned. $700 billion tied up in illiquid assets is $700 billion that is not put to productive use. That amount of money in the private sector could be used to research new technologies, start small business that create thousands of jobs, or upgrade vital infrastructure. Instead, that money will be siphoned off into unproductive assets which may burden the government for years to come. The great French economist Frederic Bastiat is famous for explaining the difference between what is seen and what is unseen. In this case the bailout’s proponents see the alleged benefits, while they fail to see the jobs, businesses, and technologies not created due to this utter waste of money.
The housing bubble has burst, unemployment is on the rise, and the dollar weakens every day. Unfortunately our leaders have failed to learn from the mistakes of previous generations and continue to lead us down the road toward economic ruin.
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September 10th, 2008
Mr. Chairman, once again we confront the issue of sovereign wealth funds, an issue which has become quite important due to the large amount of dollars and dollar-denominated bonds held by foreign governments, and the fears of these governments given the dollar’s precipitous decline over the past few years. The past few days have been quite interesting, with speculation that one of the reasons for the government takeover of Fannie Mae and Freddie Mac was the more than $1 trillion in Fannie and Freddie debt held by foreign governments. The threat of default on this debt would have undoubtedly had massive repercussions on the value of the dollar and might have unleashed the “nuclear threat” of a massive international sell-off of government and agency debt.
The United States government now finds itself between a rock and a hard place. The massive amounts of debt that we have allowed to accumulate are hanging over us like Damocles’ sword. Foreign governments such as Russia and China hold large amounts of government and agency bonds, and there are fears that as our creditors they will exert leverage over us. At the same time, as the dollar weakens, the desire to sell bonds and purchase better performing assets increases, leading to fears from others that foreign governments will attempt to purchase American national champion companies, or invest in strategic industries to gain sensitive technologies.
In either case, most politicians overlook the fact that we are in this situation because of our loose monetary and fiscal policy. Actions that would stifle the operations of foreign sovereign wealth funds would likely result in corresponding retaliatory actions by foreign countries against American pension funds and could have the same detrimental effects on the economy as the trade wars begun after passage of the Smoot-Hawley tariff. Rather than limiting or prohibiting investment by sovereign wealth funds, we should be concerned with striking at the root of the problem and addressing inflationary monetary and fiscal policy.
Debtors cannot continue building debts forever, and we now face strong indications that our creditors are eager to begin collecting what is owed them. It is not too late to correct our mistakes, but we must act now and cannot dally. We must drastically reduce government spending, end wasteful and disastrous interventions into financial markets, and rein in the Federal Reserve’s inflationary monetary policy. Failing to do so will ensure a descent into financial catastrophe.
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August 1st, 2008
Madame Speaker, anyone in need of proof that federal control follows federal funding need only examine HR 4137, the Higher Education Opportunity Act. HR 4137 imposes several new mandates on colleges, and extends numerous mandates that previous Congress imposed on colleges. HR 4137 proves the prophetic soundness of people who warned that federal higher education programs would lead to federal control of higher education.
Opponents of increasing federal control over higher education should be especially concerned about HR 4137’s “Academic Bill of Rights.” This provision takes a step toward complete federal control of college curriculum, grading, and teaching practices. While this provision is worded as a “sense of Congress,” the clear intent of the “bill of rights” is to intimidate college administrators into ensuring professors’ lectures and lesson plans meet with federal approval.
The “Academic Bill of Rights” is a response to concerns that federally-funded institutions of higher learner are refusing to allow students to express, or even be exposed to, points of view that differ from those held by their professors. Ironically, the proliferation of “political correctness” on college campuses is largely a direct result of increased government funding of colleges and universities. Federal funding has isolated institutions of higher education from market discipline, thus freeing professors to promulgate their “politically correct” views regardless of whether this type of instruction benefits their students (who are, after all, the professors’ customers). Now, in a perfect illustration of how politicians use the problems created by previous interventions in the market as a justification for further interventions, Congress proposes to use the problem of “political correctness” to justify more federal control over college classrooms.
Instead of fostering open dialog and wide-raging intellectual inquiry, the main effect of the “Academic Bill of Rights” will be to further stifle debate about controversial topics. This is because many administrators will order their professors not to discuss contentious and divisive subjects in order to avoid a possible confrontation with the federal government. Those who doubt this should remember that many TV and radio stations minimized political programming in the sixties and seventies in order to avoid running afoul of the federal “fairness doctrine.”
I am convinced that some promoters of the “Academic Bill of Rights” would be unhappy if, instead of fostering greater debate, this bill silences discussion of certain topics. Scan the websites of some of the organizations promoting the “Academic Bill of Rights” and you will also find calls for silencing critics of the Iraq war and other aspects of American foreign policy.
Madame Speaker, HR 4137 expands federal control over higher education; in particular through an “Academic Bill of Rights” which could further stifle debate and inquiry on America’s college campus. Therefore, I urge my colleagues to reject this bill.
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August 1st, 2008
Madam Speaker, I rise in reluctant opposition to this appropriations legislation. It is unfortunate that my colleagues have decided to combine the necessary appropriations contained in the Veterans Affairs portion of this bill with the bloated and unconstitutional military construction appropriations. In the past I have voted in favor of Veterans Affairs appropriation bills when they were not combined with unwise and wasteful spending of other appropriations like military construction.
This appropriation will allocate $9.5 billion to close bases in the United States while spending nearly $12 billion building other facilities overseas! As a matter of fact, any construction of new bases in the United States is prohibited by this bill. While I am not necessarily in favor of building new bases in the United States , we certainly should not be spending money to close existing domestic bases in favor of constructing new bases overseas.
The bill will transfer more than $200 million to NATO, an organization with no purpose that should be disbanded immediately, for the construction of NATO facilities in countries where we have no business having our military in the first place.
We have been told that we will have no permanent bases in Iraq , but then again we have no “permanent” bases in Korea either even though we have had a military presence there for more than 50 years. It is unclear how much of this $12 billion will go to building new facilities to maintain an indefinite presence in Iraq , but any such expenditure will be counterproductive to US national interests.
This appropriation increases construction funds to the service branches by as much as 50 percent over current levels, which is financially dangerous and unsustainable particularly in view of next year’s record budget deficit.
Madam Speaker, it is a tragedy that necessary spending to keep promises to American veterans should be held hostage to this out of control spending on maintaining an unnecessary and dangerous US empire overseas. We are doing no favors to today’s veterans or to future veterans – or to the US taxpayers — with this appropriations bill.
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July 30th, 2008
Madam Speaker, I rise in opposition to this resolution, which is yet another meaningless but provocative condemnation of China . It is this kind of jingoism that has led to such a low opinion of the United States abroad. Certainly I do not condone human rights abuses, wherever they may occur, but as Members of the US House of Representatives we have no authority over the Chinese government. It is our Constitutional responsibility to deal with abuses in our own country or those created abroad by our own foreign policies. Yet we are not debating a bill to close Guantanamo , where abuses have been documented. We are not debating a bill to withdraw from Iraq , where scores of innocents have been killed, injured, and abused due to our unprovoked attack on that country. We are not debating a bill to reverse the odious FISA bill passed recently which will result in extreme abuses of Americans by gutting the Fourth Amendment.
Instead of addressing these and scores of other pressing issues over which we do have authority, we prefer to spend our time criticizing a foreign government over which we have no authority and foreign domestic problems about which we have very little accurate information.
I do find it ironic that this resolution “calls on the Government of the People’s Republic of China to begin earnest negotiations, without preconditions, directly with His Holiness the Dalai Lama or his representatives.” For years US policy has been that no meeting or negotiation could take place with Iran until certain preconditions are met by Iran . Among these is a demand that Iran cease uranium enrichment, which Iran has the right to do under the terms of the Non-Proliferation Treaty. It is little wonder why some claim that resolutions like this are hypocritical.
Instead of lecturing China, where I have no doubt there are problems as there are everywhere, I would suggest that we turn our attention to the very real threats in a United States where our civil liberties and human rights are being eroded on a steady basis. The Bible cautions against pointing out the speck in a neighbor’s eye while ignoring the log in one’s own. I suggest we contemplate this sound advice before bringing up such ill-conceived resolutions in the future.
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July 30th, 2008
Madam Speaker, I rise in support of this legislation, which will bar the collection of co-payments from veterans for hospital and nursing home care if the veteran is considered catastrophically disabled. I strongly advocate a noninterventionist foreign policy that would result in far fewer wars and, thankfully, far fewer catastrophically disabled veterans. But I also strongly believe that we must take care of those veterans who have been so severely wounded or otherwise disabled. Too often those who are most vocal in support of foreign military action are most silent when it comes time to take care of those who have paid a very high price for these actions. This legislation will provide at least a little relief to the most seriously injured veterans.
I am concerned, however, that this bill incorporates language from HR 6114, which rescinds a current law requirement that the VA obtain a signed consent form from a veteran before conducting an HIV test. We have seen veterans punished severely for attempting to avoid the required but controversial myriad of inoculations they are required to receive. Now we see that they will have less control over what medical tests to which they might be subjected. I am concerned over this loss of control over one’s healthcare decisions among those who voluntarily join the military, and I urge the adoption of a more flexible policy. I would also urge my colleagues and the American people to contemplate this deprivation of medical and privacy rights on a massive scale should we ever reinstate the draft. I believe taking care of veterans should include both providing promised benefits and protecting their privacy rights.
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July 24th, 2008
The root of our current economic malaise, the weak dollar, the high price of oil, and the collapse of the housing market, comes about because almost no one understands what inflation is. Inflation is an increase in the money supply, which occurs by various methods, the printing of currency, low reserve requirements, Federal Reserve open market operations, etc.
In Germany in the 1920s, South America in the 1980s, and Zimbabwe today, everyone recognizes that inflation was caused by the government running the printing presses non-stop, with the resulting exponential rise in prices being the necessary result of monetary growth. Yet somehow, both the empirical and theoretical reality of inflation as a rise in money supply is ignored in this country. Inflation is conflated with price inflation, the increase in the overall price level, and is viewed as something both endogenous to the market economy while at the same time influenced by exogenous price shocks.
Because no one understands that inflation is growth in the monetary supply, no one is able to combat it effectively. We hear all sorts of hand-wringing about increasing inflation, and all sorts of explanations about how rising oil and food prices will make inflation worse. At the same time, the fact that MZM, the closest approximation to total money supply that still is reported by the Fed, is still rising by almost 15% per year and that M2 is rising significantly as well is quietly ignored. The pundits have causation backwards, it is inflation that leads to rising prices of oil and food, and not vice versa.
Until the cause of inflation is understood, no effective strategy can be undertaken to combat it. The problem, however, is that the government does not want inflation to be done away with. Inflation benefits debtors and harms creditors, and the United States government is the biggest debtor of all. The United States government, the banking monopoly under the Federal Reserve System, and politically-connected firms and industries are the first entities to take advantage of new money injected into the system, before prices increase. As the increased supply of money begins to chase the same number of goods, prices rise, and the average American suffers. Poor and middle class Americans are always the hardest hit by inflation, as the weakening dollar makes the imported goods that many Americans depend on more expensive.
As Chairman Bernanke admitted last week, inflation is a tax, and it is the most pernicious because of its hidden nature. It taxes the very purchasing power of money, and because the inflation rate in recent years has generally been low, its effects often take a while to manifest themselves. Now that inflation is beginning to rise, more and more rhetoric is being spun to hide the government’s role in creating inflation. I applaud Chairman Frank for holding this hearing, as hearings such as this one investigating the link between the weak dollar and the high price of oil are more important now than ever.
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