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the constitution is the revolution

February 11, 2004 House of Representatives (Excerpt)

Paper Money, Inflation, and Economic Pain: Paper money and inflation have never provided long-term economic growth, nor have they enhanced freedom. Yet the world, led by the United States, lives with a financial system awash with fiat currencies and historic debt as a consequence. No matter how serious the problems that come from central-bank monetary inflations – the depressions and inflation, unemployment, social chaos, and war – the only answer has been to inflate even more. Except for the Austrian free-market economists, the consensus is that the Great Depression was prolonged and exacerbated by the lack of monetary inflation. This view is held by Alan Greenspan, and reflected in his January 2001 response to the stock market slump and a slower economy – namely a record monetary stimulus and historically low interest rates. The unwillingness to blame the slumps on the Federal Reserve’s previous errors, though the evidence is clear, guarantees that greater problems for the United States and the world economy lie ahead.Though there is adequate information to understand the real cause of the business cycle, the truth and proper policy are not palatable. Closing down the engine of inflation at any point does cause short-term problems that are politically unacceptable. But the alternative is worse, in the long term. It is not unlike a drug addict demanding and getting a fix in order to avoid the withdrawal symptoms. Not getting rid of the addiction is a deadly mistake. While resorting to continued monetary stimulus through credit creation delays the pain and suffering, it inevitably makes the problems much worse. Debt continues to build in all areas – personal, business, and government. Inflated stock prices are propped up, waiting for another collapse. Mal-investment and overcapacity fail to correct. Insolvency proliferates without liquidation. These same errors have been prolonging the correction in Japan for 14 years, with billions of dollars of non-performing loans still on the books.

Failure to admit and recognize that fiat money, mismanaged by central banks, gives us most of our economic problems, along with a greater likelihood for war, means we never learn from our mistakes. Our consistent response is to inflate faster and borrow more, which each downturn requires, to keep the economy afloat. Talk about a foolish consistency! It’s time for our leaders to admit the error of their ways, consider the wise consistency of following the advice of our Founders, and reject paper money and central bank inflationary policies.

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