Hearing of the House Financial Services Committee - Systemic Risk and the Financial Markets
Hearing of the House Financial Services Committee - Systemic Risk and the Financial Markets
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REP. PAUL: And welcome, Secretary Paulson and Chairman Bernanke. I'm delighted the two of you are here today because I might just get to the bottom of the question I've been asking for many years -- who's in charge of the dollar? Because sometimes when I ask the Fed I get referred to the Treasury, and vice versa. But, maybe I can get a better answer today.
But I do want to acknowledge the gentleman from New Jersey, Mr. Garrett, for playing a part in bringing these hearings about; and also Chairman Frank for having these hearings, because I deeply appreciate it. But I would like to take a minute to just challenge something he said during his questioning, because he made this last statement that there was no alternative to the Federal Reserve system.
I don't want to take my time to explain the alternative, but maybe later on Chairman Frank and I can talk and I can explain to him what an alternative might be.
REP. FRANK: That's not very likely. (Laughter.)
REP. PAUL: But, anyway, I would like to pursue the theme of the day, and that has to do with systematic risk. And there's a lot of talk about systematic risk; and also, taken in the context of -- about market discipline. You know -- and we're talking so much about more regulations, and, quite frankly I think we should have a lot more regulations, but I think we should have market regulations.
I would like to see a lot more regulations on the government and on the Federal Reserve because I think it's the ability of the government -- through regulatory agencies as well as the Federal Reserve, to disrupt markets and destroy market discipline. That I -- where I think our problem lies.
When Enron failed, immediately said, well, it must have happened because we didn't have enough regulation. So Congress immediately responded by passing Sarbanes-Oxley. Hasn't exactly helped our markets.
You know, our markets today -- almost every index of the market today is where it was eight to nine years ago. And that's not taking into consideration inflation, the devaluation of the dollar. So the markets are in severe trouble. They are very dysfunctional.
The real question is, is why are they in such disarray? And, of course, I maintain that they're in disarray because our monetary policy disrupts the markets, because we create interest rates below market rates. Right now, the money is free to the banks. They can borrow money at 2 percent. Real inflation is 10 (percent) or 12 percent. And we wonder why there's disruptions.
When you have artificially low interest rates you cause the malinvestment, you cause excessive debt to accumulate, and you cause the bubbles to burst. And then, when they burst, the only thing we can come back with -- more regulations; and more inflation; we need lower interest rates; we need to print more money.
But it is -- it is back to this basic, fundamental problem that we think that we can compensate for lack of savings by creating money out of thin air. And it doesn't work. Never works throughout history. It's not going to work this time. And we can't bail ourselves out by more regulations and more monetary inflation.
And that's where we are today. And I think the IMF is correct. On this circumstances they say we're in the worst shape since the Depression.
And yet, our government tells us there's not even a recession. This is utterly amazing! Ask the American people. Our government tells us inflation is 4 percent. Nobody believes that! I mean, just look at the cost of energy.
So we have to someday get back to the fundamentals of what is a dollar, where does it come from and who's in charge of the dollar?
My question is directed to Secretary Paulson, dealing with the dollar, because evidently he is the spokesman and he's the champion of the dollar. And all public statements are that the dollar is to be strong. Well, the dollar lost 20 percent in the last two years. In the last three years we've created $4 trillion of new dollars, but when we go to China, we tell the Chinese we want a weak dollar.
I would like to see if I could get the secretary of the Treasury to explain to me: Do we want a weak dollar or a strong dollar? And why don't we worry about the value of our dollar?
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