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Oversight of Implementation of the Emergency
Economic Stabilization Act of 2008 and of Government Lending and Insurance
Facilities: Impact on the Economy and Credit Availability hearing before the
Committee on Financial Services, U.S. House of Representatives, November 18,
2008
The CHAIRMAN. The gentleman from Texas.
Dr. PAUL. Thank you, Mr. Chairman. My question is
directed to Chairman Bernanke. You know, for many years, the Austrian free
market economists have predicted all these problems would come, and they were
certainly correct in everything that they said. Of course, they are not very
satisfied, including myself, with the so-called solutions, because it looks
like we are spending a lot of energy and a lot of money trying to patch a
system together that is unworkable. So we have Congress spending a lot of
money; we have Treasury very much involved in trying to pick and choose which
worthless asset that we are going to buy. And, of course, the Federal Reserve
is involved in injecting trillions of dollars that nobody seems to be keeping
track of. But what we are failing to do, I think, is to recognize that the
system no longer works. But I can understand why we do this. Because, you
know, if Congress couldn’t do this and if the Fed couldn’t do
this and the Treasury couldn’t do this, it would make us all
irrelevant. And instead of looking at the causes of this and then realizing
that the solutions aren’t going to be found here, we have to make
ourselves feel pretty important. But I think there is another reason why we
think we are pretty important. It is because, in a way, our interference in
the market corrections that tried to come about since 1971 seemed to work. I
mean, the failure started in 1971 with a system that had no way of
automatically correcting the balance of payment in the current account
deficits. And that is where the problem has been. The economists, whether
they were left, right, or middle over the last several decades, have always
said this current account deficit is a big problem. Now it is totally out of
hand. So here we are, struggling with all these rules and shifting back and
forth and really getting nowhere. But my question is: When we come to the
full realization that the system is unworkable, what are we going to do? What
have you thought about doing? Already we see talk in the newspapers, we see
articles about a new international world reserve currency. And, to me, that
is pretty important, because the fiat dollar reserve system is not going to
work anymore. And that is the information that we have to accept and decide
what we are going to do with in the future. This is not new in history.
Currencies have failed, financial systems have failed. And, generally, to
restore the confidence that everybody is talking about, they usually have to
go back to a currency with integrity to it rather than just fiat money. And,
you know, the stage is there; it is not impossible. Already the central banks
of the world still own 15 percent of all the gold that was ever mined in all
of history. So they hold on to this gold for some reason. And, therefore,
something has to give, or are we going to keep trying to waste more money and
time patching this system together? Just last week, there was a report that
Iran purchased $75 billion worth of gold, took their reserves out of Europe,
bought gold, and put it in Asia. So is that a sign of the times, and is that
moving on? Now, my question is, in your meetings, and you had a meeting just
recently with other central bankers, does this thought come up, about a new
international world reserve currency? And, if so, does the subject of gold
ever come up? How do you restore the confidence? Have you recently had
conversation with any central banker? And is there a move on to replace the
dollar system? Because the dollar system is essentially declared dead because
it is not working. But this, indeed, was predictable because of these
tremendous imbalances that were never allowed to be corrected, and they were
always patched up. We always came in. We would spend, we would inflate, we
would run up deficits. And, since 1971, we have been able to correct these
problems. Could you tell me what kind of conversations you have had regarding
a new reserve currency?
Mr. BERNANKE. Yes, Congressman. I don’t think
the dollar system is dead. I think the dollar remains the premier
international currency. We have seen a good bit of appreciation in the dollar
recently during the crisis precisely because there has been a lot of interest
in the safe haven and the liquidity of dollar markets. And the Federal Reserve
has been engaged in swap agreements to make sure there is enough dollar
liquidity in other countries because the need for dollars is so strong. So I
think the dollar system remains quite strong. I do agree with you very much
on one point, which is about the current accounts. The current account
imbalances have proven to be a very serious problem. It was, in fact, the
large capital inflows from those current accounts which created a lot of the
financial imbalances we saw and have led to some of the problems we are
seeing. And one of the silver linings in this huge great cloud is that we are
seeing some improvement in greater balance in our current account deficits.
Dr. PAUL. But does the subject of a new regime ever
come up?
Mr. BERNANKE. No, it doesn’t.
Dr. PAUL. And does the subject of gold ever come up
in any of your conversations?
Mr. BERNANKE. Only in terms of the sales that the
central banks are planning.
Ron Paul
www.house.gov/paul
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Congressman Ron Paul of Texas enjoys a national
reputation as the premier advocate for liberty in politics today. Dr. Paul is
the leading spokesman in Washington for limited constitutional government,
low taxes, free markets, and a return to sound monetary policies based on
commodity-backed currency. For more information click on the Project Freedom website.
Published with the authorization of Dr. Paul.
Copyright Dr. Ron Paul
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