If the creation of new money affected everyone evenly, there would be no point in government granting monopoly privileges to a central bank. It's precisely because some benefit at the expense of others, that monetary inflation is so intoxicating. The Federal Reserve is the beating heart of big government, military empire, and the welfare state. Ron Paul talks about the tough times that lie ahead.
If the creation of new money affected everyone evenly, there would be no point in government granting monopoly privileges to a central bank. It's precisely because some benefit at the expense of others, that monetary inflation is so intoxicating. The Federal Reserve is the beating heart of big government, military empire, and the welfare state. Ron Paul talks about the tough times that lie ahead.
If the creation of new money affected everyone evenly, there would be no point in government granting monopoly privileges to a central bank. It's precisely because some benefit at the expense of others, that monetary inflation is so intoxicating. The Federal Reserve is the beating heart of big government, military empire, and the welfare state. Ron Paul talks about the tough times that lie ahead.
Hello, everybody, and thank you for tuning in to the Liberty Report.
With me today is Chris Rossini, the co-host.
Chris, welcome to the program.
Hello, Dr. Paul.
Chris, I want to talk a little bit about inflation.
We talk a lot about monetary policy and inflation, but it was in the news this week because the markets were jumping around, prices were going up a little faster than anticipated.
And I thought it was interesting that a term popped up, which I think is significant.
I use it frequently because I think it's with us all the time, more so at some times.
Certainly in the 70s, it was well known.
It was called stagflation.
And people get baffled by the idea that you have prices going up and it's inflationary, but the economy is not doing so well.
And conventional wisdom is that a healthy economy causes prices to go up and vice versa.
And they think that is good.
If you need jobs, you raise prices.
Anyway, I think they're all mixed up on this.
But this week, it came up suggesting, boy, prices are going up, and there's people who are worried about the economy going down.
So this is a trick on definitions, and that's what we want to address today is defining some of these issues and these perceptions.
And I want to pursue that a little bit about exactly what inflation is all about.
Yes.
Well, those who seek power and who have been in power know the importance of corrupting the language.
That is taking one word and making it mean the total opposite.
And it's happened so many times in history.
In fact, a lot of the words we use today used to mean different things like liberals and liberalism.
That used to stand for liberty and small government out of your life.
Today it's the exact opposite.
And rights today mean virtually whatever people want them to mean.
And free market, there's a lot of instances, and inflation is one of those.
Whereas inflation used to mean the creation of new money.
So when a central bank would create new money, they were inflating the currency.
Today it means a rise in prices, which is actually the effect of creating money.
So they have taken away focusing on the cause, and now you're only supposed to focus on the effect.
And ironically, you're supposed to look to the Federal Reserve to fight inflation, even though they are the cause of it.
So that's how it works, Dr. Paul.
Right.
And, you know, when prices go up, people get somewhat worried about it.
But the whole thing is, is if prices are going up or going down or whatever because of the market, they think they can adjust for that.
So they're always behind the curve.
And they always think when they need to stimulate the economy, they want to increase the money supply, which is to stimulate the economy.
But that doesn't always happen because it's an illusion to think that increasing monetary units is actually increasing wealth.
It has nothing to do with it.
Matter of fact, it distorts wealth creation because it distorts the economic picture.
And obviously, it distorts the interest rates.
They do that.
It's economic planning, central economic planning by the Federal Reserve and accommodating the big spenders in Congress.
So there's a purpose for all this.
People say, well, why do they do all this?
It doesn't make any sense.
To them, it makes sense.
To the average person, it doesn't.
And to the average person, they're susceptible to believe all the propaganda and that CPI measures inflation, which it measures one consequence of inflation.
One of the frustrations in recent years has been that QE's program haven't done what they thought.
They thought, well, we were printing more money than ever before, and usually printing a little money and spending a little money would get us out of recession.
But it didn't happen this time.
And the more they printed, the more they were put into this quandary.
What's going on?
So people have to understand that inflation is created by the Federal Reserve.
It's the creation of money, and it's a great distorter.
One of the main beeps I have with the Federal Reserve and this whole process is it is a, I call a facilitator.
It facilitates big government.
You know, whether they want wars or welfare, they can delay the spending and the penalties.
So this is actually a threat.
And I've often accused the Fed of being a facilitator in a negative sense, but it's also a taxing authority.
People say, well, how do you mean they don't collect taxes to the IRS?
But spending for me is a tax immediately because people have to pay for it.
They have to pay for it through income tax or corporate tax or borrowing the money or the Federal Reserve printing the money.
So it's a facilitator and it's also a taxing authority.
Because if they can take a dollar and reduce the value by 50%, you know, they have liquidated debt, which is always necessary, but it's also a tax because the people's income, you know, gets lowered as well.
But the big thing is nobody, not everybody suffers the same consequences.
If you doubled the money supply and everybody's salary went up, double, even if prices went up, it would all be equal.
But it never happens that way.
Some people benefit a lot more than the other.
The people who get the money first, the government, the big banks, the big corporations, the military-industrial complex.
Yes, some filters down to the average person and they get a low mortgage.
But just think of the crisis we just went through.
People lost their mortgages and lost their jobs.
So it doesn't really help the middle class.
Mises in Human Action makes a very strong point that if you systematically and steadily devalue the currency and debase the currency, the middle class eventually gets wiped out.
And that's a big thing that's happening right now.
Not only the fact that government is too big, but the wealth maldistribution is a serious problem because it becomes a political problem and then puts more demands on the socialists and the interventionists and the bailout.
And this is a cause for government to even spend more money.
But this wealth maldistribution where the rich get richer and the poor get poorer, it's not because of free market.
It's caused by crony capitalism and our monetary system.
Yes, and you make a great point that it doesn't affect everyone equally because if creating money out of thin air affected everyone the same, they wouldn't do it.
There'd be no point.
The whole point is that some benefit at the expense of everyone else.
So if the Federal Reserve called you up one day and said, hey, I like you.
Here's a million dollars.
We just typed it up in a computer and that's how they do it.
They just create digits and go ahead, go out and have a good time.
Well, you now have this unearned digits, but that you could use as money and you can go into the marketplace and start bidding up prices.
And meanwhile, everyone else, they see prices rising around them.
And they look for excuses.
Maybe it's the greedy businessman or oil prices.
But as John Maynard Keynes, who championed this system, said, not one in a million will figure out what's happening here.
And that's how people get taxed.
The first receivers get the money.
They go bid up prices.
And everyone else, that's how they're taxed with higher prices.
And you know, what you talk about, the founding fathers understood this.
They had gone through the runaway inflation, the destruction of the continental dollar, and the saying from that came not worth a continental because they just printed up the money.
At that time, they were making metal coins that had no value to it.
So the founders understood this, and that's why they believe from their understanding that you can't allow paper to be money.
You had to have gold and silver as money, and that it was prohibited for especially the states to issue paper money, bills of credit.
But we drifted a long way from that because even in our early history, even when we were doing rather well with a pseudo-type gold standard in the 19th century, eventually, though, they go further on and they debase it.
People who believed in big government had to change the system.
And that's what the early part of the last century was all about.
The progressive era usher in an income tax, let the people know that the government owns them.
Gets control of the economy by having a monopoly control through the monetary system and have legal tender laws that you can't even compete with the government.
So that was done, but systematically, you know, from the time the Federal Reserve was established, you know, at that time, gold was priced at $20 an ounce.
And now from that period of time, about 98% of that value has eroded.
And a lot of mischief has occurred, a lot of transfer of wealth has occurred.
And now we're at a point where the economy is very shaky, much shakier than appears by just looking at Wall Street.
But if you look at this past week, it was a little shaky and giving hints about the unsteadiness of the marketplace.
Gold went up sharply and the stocks were very shaky.
So I think those are signs that this is beginning to crack.
And the American people, though, unfortunately, I imagine the majority right now will chime in and say the government needs to do more because the saying always comes when you have inflation and prices go up, they interpret it, oh, there's a shortage of money.
The government has to give me more money because the prices went up.
And of course, if they print the money, that's the real problem.
So but then the government systematically over many, many years, many, many centuries for that matter, have always contended with this goal of having sound money versus abusing the money and getting more power into the government.
In the early days, they debased the currency by clipping the gold coins and debasing the metals.
And yet, in the modern day age, I mean, right now, one of the most interesting, if not fascinating, but it's still an immoral thing to do is people deceive the consumer.
I don't think they're totally conceived.
They just make the packages smaller, charge the same, and make the packages smaller.
And that's how they have inflation.
It's called shrinkflation.
But it's always to try to fool people for as long as time as possible.
But that is what I think our goal ought to be: to expose these fallacies and get people to understand why government is big and what they're doing and how important it is that the Federal Reserve accommodate that system by having monopoly control over the money supply.
Yes, those are all great points.
Dr. Paul, I'll try to finish with an analogy.
And it's not a perfect analogy because, on the one hand, we're dealing with the physical science, and on the other, economics, which is more human action and choices, which can't be put into a mathematical formula, even though people try to do that.
But we've all heard about drugs and alcohol and how you build a tolerance to them.
You take them to get an artificial high, and as time goes on, you have to keep taking more, more and larger dosages of it just to get the same high.
Well, the same thing happens with inflation.
We have these booms and busts, and with each boom, they have to keep pumping so much money into the system just to get that fixed, that artificial high.
And ultimately, it leads to disaster, just like it does with drugs and alcohol.
You can overdose and die.
Well, the central bank can do the same thing to the economy.
It could destroy the economy completely and the currency.
We want to try to avoid that somehow.
I don't know if it can be avoided at this point, but at least understanding how money works and how you should never have a central bank that can create money out of thin air at least get us moving in the right direction, I hope.
Well, I think it's a good analogy, and most addicts realize this and they'd like to get off, but the demand is so great and it's irresistible.
And I think that's the way it'll be in our society.
The demand will be high.
The politicians will always cave in.
Just look at the recent budget negotiations.
You know, it was a tremendous increase by conservative, conservative Republicans.
So it's going to continue.
I think it's going to get a lot worse.
And that's why I think our job is to present the case for sound money and get people to understand why it's in their interest, the people who are suffering now from a weak economy, to understand that there is a different system.
And it's not that difficult to understand.
It's just difficult to transition into because somebody would have to adjust.
And the drug addict never wants to adjust.
But there's other things that governments have done.
I remember very clearly when they put on wage and price controls in 1971 when Nixon closed the gold window.
This was a tremendous burden of the economy.
They do that to some degree all the time, but that's another way of saying it's prices that are a problem, not the printing of money.
So they put on wage and price controls.
That's been known for hundreds of years that that's what they do.
And actually, some of the countries, even some of the countries right now that have devastated their currency, they invoke severe penalties for people who break the law and try to charge a market price, but that's an exposure of what the government has done to the money.
But, you know, currency wars go on, currency, you know, currency controls, traveling with the country.
These things are all available to governments and they're used to some degree all the time.
The currency competition is going on.
But there's one other thing that I want to mention that is so symbolic of what's going on right now, and that is the overwhelming debt, but in particular, the pension funds.
You know, most of these pension funds are not solvent.
Very few states really have a solvent system.
And one of the worst states has been Illinois.
Unsolvent Pension Funds00:02:11
They're totally in debt, and they owe $130 billion, and they don't know what to do.
So they're offering a bond auction.
And it's unbelievable that they believe that they can do it.
And if they do do it, it's unbelievable somebody would buy these bonds.
They want to buy bonds with a 27-year duration, and they want to borrow $107 billion.
And at the rate we're going and they're going, they're going to be worthless.
Who would invest in that?
You know, it doesn't even make any sense today for an American to invest in a 10-year bond, our government bond, and you save it for your kids' education.
It doesn't make any sense because of inflation just eating away at this.
So it's all a game they play.
And the total debt, and this is around the whole country, is $1.2 trillion.
And this is unpayable.
They're unfunded, including actually Social Security.
So one big consequence that we're facing today, and it will be faced for the next several years, if not a decade or two, because it may be held together for a time yet that we don't know when the market will give up on it.
But it is something that this debt will have to be dealt with.
The debt will be liquidated.
It will not be paid off with earned money.
It will be liquidated by more inflation.
And that is why people have to realize this is a dangerous situation.
You say, oh, no, Zimbabwe, that's never going to happen.
Venezuela will never happen.
Maybe not exactly like that.
But, you know, it's possible it can get very, very bad.
And there's been so many historic examples, but there's always this overwhelming temptation and offer by the politicians to take care of the people and do only good things.
Take care of people who need help and demand help but believe they have a right to it and also to assume a moral responsibility to take care of the world and be the world policeman.
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And people say they are all good things.
What's a little inflation?
What's a little debt?
And besides, I learned in college, debts don't matter.
Deficits aren't the problem.
What we need is just a well-managed monetary system by the Federal Reserve.
I'll tell you what I think we need.
We need to get rid of the Federal Reserve.
And if we don't get rid of it very quickly, we ought to at least demand an audit to find out what they're doing.
Because I think if the American people knew what was going on at the Federal Reserve, especially since this last bailout, how the rich got richer, they would wake up and say, you know, this is so corrupt and this has to be stopped.
The market will eventually stop it.
And we want to facilitate that.
Chris, I want to thank you for being with us today.
Thanks very much, Dr. Paul.
And I want to thank our viewers for tuning in today to the Liberty Report.