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House Financial Service Committee - Semiannual Monetary Policy Report to the Congress

Location: Washington, DC

Federal News Service February 11, 2004 Wednesday







REP. OXLEY: The gentlelady's time has expired. The gentleman from Texas, Mr. Paul.

REP. RON PAUL (R-TX): Thank you, Mr. Chairman. Welcome Chairman Greenspan.

I want to call attention to the committee that I certainly was pleased that you brought up the subject of deficits, because deficits obviously do cause a problem. And you mentioned that deficits may eventually cause interest rates to go up. But I would also like to suggest that deficits alone are not the problem, because whether you borrow the money or tax the money out of the economy, it still puts pressure on the capital markets. So deficits alone are not the problem; it's big government, it's big spending, and the amount we spend here that really counts.

But you said that deficits could-future expectation of deficits could raise interest rates and I certainly would agree with that. But we also must remember that future expectations of the inflation rate, and the future expectations of the value of the dollar, also can raise interest rates. Those are monetary policy causes and therefore the pressure, or the emphasis or the blame for high interest rates that will come, can't be put on the deficit alone and have to be put on those who manage monetary policy.

Also, you warned on page seven that the printing presses won't run indefinitely. You used the word "indefinitely." And that's good, because if they do run this fast indefinitely we all know what will and can happen.

So that's good that eventually you will turn the printing presses off. But for now, you said you can be patient. And that means we'll just let the money flow and see what happens, which I think is a risky proposition.

But you mentioned the conditions of protectionism, you worry about protectionism, which I think is characteristic in all societies that destroy their currencies, and especially when you have fluctuating fiat currencies, people yield to the temptations of protectionism. But once again, there are different ways of bringing about protectionism; there are the tariffs, but there's also the competitive devaluations in the exchange rate of the dollar, which is a reflection of monetary policy.

But my question is related a little bit to the wording of "indefinitely" and being patient, because they're arbitrary, they're subjective. And in January, your report, FOMC report, omitted two words, two words that were subjective, and that was considerable, period. I find that very interesting and also very alarming, the amount of clout, the amount of power that we as a nation, that we as a committee have allowed to get into the hands of one or two individuals or a committee. From the time the market was up to the release of that report, the stock market lost $250 billion as a reflection of the concern about the dropping of two words.

Friedrick Hayek was fond of saying that the managed economy was in danger because it was based on a pretense of knowledge that-certain things the economic planners don't know. And for instance, he would agree with me that we don't know, you don't know, the Congress doesn't know what the overnight rates ought to be, and that we reject the marketplace. But it's part of the system, and I understand that.

But doesn't it ever occur to you that maybe there's too much power in the hands of those who control monetary policy, the power to create the financial bubbles, the power to maybe bring the bubble about, the power to change the value of the stock market within minutes? That to me is just an ominous power and challenges the whole concept of freedom and liberty and sound money.

MR. GREENSPAN: Congressman, as I've said to you before, the problem you're alluding to is called the conversion of a commodity standard to fiat money. We have statutorily gone on to a fiat money standard, and as a consequence of that, it is inevitable that the authority which is the producer of the money supply will have inordinate power.

And this is one of the reasons why I've indicated because of that, and because of the fact that we are unelected officials, it is mandatory that we be as transparent as we conceivably can, and remember that we are accountable to the electorate and to the Congress, and the power that we have is all granted by you. We don't have any capability whatsoever to do anything without the agreement or even the acquiescence of the Congress of the United States. We recognize that. And one of the reasons I am here today is to endeavor to convey why we are doing what we are doing. And I will continue to do that. And I am sure that all of my colleagues are fully aware of the responsibility that the Congress has given us, and I trust that we adhere to principles of the Constitution of the United States more so than one would ordinarily do.

REP. PAUL: And I agree with you --

REP. OXLEY: The gentleman's time has expired.

REP. PAUL: -- the responsibility is here in the Congress.

REP. OXLEY: The gentleman's time has expired.

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