Straight Talk About the Dollar Crisis

Yesterday, I happened to turn on CSPAN-3 during the Joint Economic Committee's hearing on the U.S. Economic Outlook. They were questioning Ben Bernanke, the Bush Administration appointee as the Chairman of the Federal Reserve. I wasn't going to watch it, because I'm not a fan of being bored, but there was something about the body language of the committee members that made me stay on that channel.

Other CSPAN junkies will attest that, even in the most gnarly hearings (like the Alberto Gonzales hearings), the Senators and Congressman all are interested but generally pretty relaxed. But this boring old economic hearing was different. The Senators and Congressman (it's a mixed committee) were sitting straight up during their turns to question the Chairman of the Fed, their backs not touching the leather chairs. Some of their voices were shaking. Ben Bernanke was, at some points, kind of stuttering, definitely shaking, and even had a moment where I swear he looked like he might cry.

I've never seen a hearing with more tension.

Unfortunately, I couldn't really tell what the issue was. Until Ron Paul got his turn.

Here's most of the transcript (some gibberish that's not vital to the point has been taken out) of Ron Paul's questioning of Ben Bernanke, shocking in Ron Paul's blunt assessment of our current economic situation and Ben Bernanke's disturbing dodge:

RON PAUL: The best way I could describe the problems that we face here in this country, as well as the problem the Federal Reserve faces, is that we are indeed between a rock and a hard place. We have a serious problem and we don’t talk much about how we got here. We talk about how we’re gonna patch it up.

The bubble has been burst. We saw what happened after the NASDAQ bubble burst. We didn’t ask how it was created. Then we have a housing bubble, and it’s deflating and it’s spreading and yet nobody says, but where does it come from?

What is the advice that you generally get? That is ‘inflate the currency’. They don’t say ‘inflate the currency’, they don’t say ‘debase the currency’, they don’t say ‘devalue the currency’, they don’t say ‘cheat the people who are safe’. They say ‘lower the interest rates’ […]

This was taught by the free-market economists all through the 20^th-Century. They said ‘Beware, they will increase the money supply, but they will make you concentrate on prices, and they will give you CPIs, and PPIs, and they’ll fudge those figures, and they’ll talk about wage and price controls to solve our problems.’

We ignore the fundamental flaw and that is that not only do we have a subprime market in housing, but the whole economic system is subprime in that we have artificially low interest rates. And it wasn’t just in your tenure in office. It’s been going on 10 years or longer and now we’re bearing the fruits of that policy. I mean, a 1% interest rate, overnight rates, and that’s not a distortion? Instead of looking at the consumer prices, which nobody in this country really believes, we need to talk about the distortion, the mal-investment, the mis-direction, the bad information, that is gotten from artificially low interest rates.

In some ways, people refer to you as a ‘price-fixer’, you know because you fix interest rates. The market is powerful, and usually overwhelms and comes into play, but when the Fed fixes an interest rate at 1%, that is price fixing.

At the end of your testimony, you suggested that we should address this housing crisis and we should have rules that would address deceptive lending practices. And I just think that is not the answer at all. The real deception is when we distort the value of money. When we create money out of thin air, and we have no savings, yet there’s so-called capital. There’s money available, but it comes from what you have to do and the pressures put on you.

I think we have to get back to the very fundamentals of where this problem comes from. The bubbles occur when we have this mal-investment and the creation of new money. So my question boils down to this… how in the world can we expect to solve the problems of inflation, that is the increase in the supply of money, with more inflation?

BEN BERNANKE: […] What we’ve tried to do is follow the mandate that Congress gave us and the mandate that Congress gave us is to look at employment and inflation as measured by domestic price growth. And as I talked about today, and as I think you would agree, we do see risks to inflation, and we are taking those into account. We want to be sure that prices remain as stable as possible in the United States.

RON PAUL: But how can you do this and pursue this, the policy you have, without further weakening the dollar? There’s a dollar crisis out there and people’s money is being stolen. People who have saved, they’re being robbed. I mean, if you have a devaluation of the dollar at 10%, people have been robbed of 10%. How can you pursue this policy without addressing the subject that somebody’s losing their wealth because of a weaker dollar? And it’s going to lead to higher interest rates and a weaker economy.

BEN BERNANKE: If somebody has their wealth in dollars and they’re going to buy consumer goods in dollars, hence, the typical American. The decline in the dollar... the only effect it has on their buying power is that it makes imported goods more expensive.

RON PAUL: Yeah, but not if you are retired and elderly and you have CD’s. Their cost of living is going up. No matter what your CPI says, their cost of living is going up and they’re hurting and that’s why the people in this country are very upset.

The decline of the dollar just makes imported goods more expensive? Imported goods - doesn't that mean clothing, furniture, computers, office supplies, toys, medicines, automobiles, and oil? Don't we import some of our food from other countries?

Can you afford to pay more for all of these things?

It should be shocking that the Chairman of the Fed is so dismissive of a rapidly declining dollar and its' effects on you and me. It should be shocking that we're being robbed daily, and that the Chairman of the Fed is making excuses for why that's fine.

I should be shocked by this, but I can't be.

After all the dead and wounded military guys, after all the civil rights that have been taken away, after the destruction of justice, and the billions of wasted tax dollars... after all of the ways that we have been systematically screwed in the last 7 years, how can any of us be honestly shocked that we are being robbed of our personal savings and wealth by the policies implemented by a Bush Administration appointee?

We're all a bunch of suckers. This is just more proof.

UPDATE: Here's the video of the part of the hearing I transcribed above: