estb 1776


the constitution is the revolution

The Financial Crisis- Crisis by Design

Fractional Reserve Lending
by Douglas V. Gnazzo
November 29, 2005

“All the perplexities, confusion and distresses in America arise not from defects
in the Constitution or confederation, nor from want of honor or virtue, as much from downright ignorance of the nature of coin, credit, and circulation.” [1]


Ignorantia juris non excusat (ignorance of the law does not excuse) is a well established principle dating back thousands of years. Roman and English law, precursors of the American system of jurisprudence, both recognized the maxim.

Be it not forgotten – justice excuses not the law. The laws of the land are to be made in pursuance of the Constitution. The Constitution has precedent. Any law not in pursuance of the Constitution is null and void, as if it never occurred. So the court has ruled.

“And there is virgin Justice, the daughter of Zeus, who is honored and reverenced among the gods who dwell on Olympus, and whenever anyone hurts her with lying slander, she sits beside her father, Zeus the son of Cronos, and tells him of men’s wicked heart, until the people pay for the mad folly of their princes who, evilly minded, pervert judgement and give sentence crookedly.” [2]

No man is above the law – not even the King. No law is above the Constitution – not even the King’s. All men are created equal. All men are judged accordingly. He without sin cast the first stone.

The ignorance of coin, credit, and circulation is unfortunately, a widespread occurrence – causing perplexities, confusion, and distress, all tearing at the social fabric of our nation. But who is guilty of these defects – who has caused them to be?

Is it the fault of the common man that he cannot understand the complexities of a monetary system that moved Lord Keynes to say that not one man in a million understands money?

No, the common man is not at fault, the blame lies elsewhere: it rests with those who have purposefully made the monetary policy so bizarre that even its keepers have a hard time understanding the delusion they have created.

John Kenneth Galbraith clearly understood the illusionary nature of the elite’s monetary economists when he stated that they:

“use complexity to disguise or to evade the truth, rather than to reveal it.” [3]

Fractional Reserves

The most dishonest monetary illusion is the shadow cast by fractional reserve lending.

“Because of ‘fractional’ reserve system, banks, as a whole, can expand our money supply several times, by making loans and investments.” [4]

Let’s take a closer look at the sword of State the magi use to create their tricks of prestidigitation – the scepter of fractional reserves.

What is meant by fractional reserves? It would seem that reserves are reduced to a fraction, but a fraction of what? Perhaps we should seek the wise counsel of the Federal Reserve, as this is their raison d’etre.

Required Reserve Balances

“Required reserve balances are balances that a depository institution must hold with the Federal Reserve to satisfy its reserve requirement. Reserve requirements are imposed on all depository institutions – which include commercial banks, savings banks, savings and loan associations, and credit unions – as well as U.S. branches and agencies of foreign banks and other domestic banking entities that engage in international transactions.

Since the early 1990s, reserve requirements have been applied only to transaction deposits, which include demand deposits and interest-bearing accounts that offer unlimited checking privileges. An institution’s reserve requirement is a fraction of such deposits; the fraction – the required reserve ratio – is set by the Board of Governors within limits prescribed in the Federal Reserve Act.” [5]

According to the above, the Board of Governors set required reserve balances within limits as prescribed by the Federal Reserve Act that depository institutions must hold on account.

The required reserve ratio is clearly stated to be a fraction of demand deposits and interest-bearing accounts that offer unlimited checking privileges.

Notice the wording “since the early 1990s, reserve requirements have been applied only to transaction deposits”, as such language demonstrates that previous to the early 1990’s reserve requirements were applied to a larger composite – according to the usage of the word “only.”

Which in fact is true, as reserve requirements have been reduced several times since the Fed took control in 1913? A closer look at reserve requirements is in order.

Reserve Requirements

The Federal Reserve has the following to say in regards to reserve requirements:

“Reserve requirements have long been a part of our nation’s banking history. Depository institutions maintain a fraction of certain liabilities in reserve in specified assets. The Federal Reserve can adjust reserve requirements by changing required reserve ratios, the liabilities to which the ratios apply, or both.” [6]

Once again, we see the use of the word “fraction” when discussing reserve requirements, however, we now have the further clarification of reserves in “specified assets.” Obviously, these “specified assets” are critically important, as they are the reserves of our monetary system.

“A depository institution satisfies its reserve requirement by its holdings of vault cash (currency in its vault) and, if vault cash is insufficient to meet the requirement, by the balance maintained directly with a Federal Reserve Bank or indirectly with a pass-through correspondent bank (which in turn hold the balances in its account at the Federal Reserve).” [7]

Now we see that depository institutions satisfy their reserve requirements by holding cash (currency) in their vaults, or if short, they get some help from the Fed or a correspondent bank. The next logical question is: how much cash are they required to have on reserve in their vaults.
From the same Fed publication, we find the following table:

As can be seen from the above chart there isn’t a heck of a lot of reserves on reserve. Three of the five categories listed in the chart have zero (0) reserve requirements. One of the five categories has three (3%) percent reserves, and the remaining category has approximately ten (10%) percent reserve requirements.

So, what are the ramifications of the above listed reserve requirements? From the Fed’s publication, we find the following:

Autonomous Factors

“The supply of balances can vary substantially from day to day because of movements in other items on the Federal Reserve’s balance sheet. These so-called autonomous factors are generally outside the Federal Reserve’s direct day-to-day control.

The largest autonomous factor is Federal Reserve notes. When a depository institution needs currency, it places an order with a Federal Reserve Bank. When the Federal Reserve fills the order, it debits the account of the depository institution at the Federal Reserve, and total Federal Reserve balances decline.

The amount of currency demanded tends to grow over time, in part reflecting increases in nominal spending as the economy grows. Consequently, an increasing volume of balances would be extinguished, and the federal funds rate would rise, if the Federal Reserve did not offset the contraction in balances by purchasing securities. Indeed, the expansion of Federal Reserve notes is the primary reason that the Federal Reserve’s holdings of securities grow over time.” [8]

Federal Reserve notes are those little green pieces of paper we all carry around in our wallet or purse and refer to as cash. A dollar bill is a Federal Reserve note, as are fives, tens, twenties, fifties, and one hundred dollar bills.

From where does the Fed get the Federal Reserve Notes? Good question. Let’s try and find the answer.

Notice in the above quote the last sentence, which reads, “Indeed, the expansion of Federal Reserve notes is the primary reason that the Federal Reserve’s holdings of securities grow over time.”

With the Fed’s holding of securities entering the picture, we now have two questions to answer: Federal Reserve notes come from where; and what securities is the Fed holding due to the expansion of Federal Reserve notes?

The Treasury

The Treasury has a role to play in this monetary game of musical chairs. The Fed has this to say regarding the Treasury:

“Another important factor is the balance in the U.S. Treasury’s account at the Federal Reserve. The Treasury draws on this account to make payments by check or direct deposit for all types of federal spending. When these payments clear, the Treasury’s account is reduced and the account of the depository institution for the person or entity that receives the funds is increased. The Treasury is not a depository institution, so a payment by the Treasury to the public (for example, a Social Security payment) raises the volume of Federal Reserve balances available to depository institutions.” [9]

From this we see that the Treasury has an account at the Federal Reserve, and that the Treasury draws on the account to make payments by check and direct deposit. Where did the Treasury’s account at the Fed come from? Rather than finding answers, we are discovering more questions.

Open Market Operations

“Open market operations are the most powerful and often-used tool for controlling the funds rate. These operations, which are arranged nearly every business day, are designed to bring the supply of Federal Reserve balances in line with the demand for those balances at the FOMC’s target rate.” [10]

The more we look, the greater our task becomes. That is good, as often times its not just the answers that matter, but asking the right questions as well. We are getting warmer by the minute.

“In theory, the Federal Reserve could conduct open market operations by purchasing or selling any type of asset. In practice, however, most assets cannot be traded readily enough to accommodate open market operations. For open market operations to work effectively, the Federal Reserve must be able to buy and sell quickly, at its own convenience, in whatever volume may be needed to keep the federal funds rate at the target level. These conditions require that the instrument it buys or sells be traded in a broad, highly active market that can accommodate the transactions without distortions or disruptions to the market itself. The market for U.S. Treasury securities satisfies these conditions.” [11]

United States Treasury securities are the main market the Fed uses to conduct open market operations. As the money supply continually grows, the buying of Treasury securities by the Fed occurs more often then selling.

Summary To Date

* Fractional Reserves refers to monetary reserves required to be on deposit in banks.
* The reserve requirements go from zero, to 3%, to 10%.
* Federal Reserve notes (cash) are the predominant reserve deposit.
* When banks need cash, they go to the Fed.
* The Fed holds U.S. government securities in its accounts.
* The U.S. Treasury has an account at the Fed.
* The Fed conducts open market operation of buying or selling Treasury securities.

The remaining questions before us are:

* Where does the Fed get the ever-increasing supply of Federal Reserve notes?
* Where did the Treasury account at the Fed come from?

Where The Money Comes From

Trillions of dollars are said to be everywhere. I remember as a kid that a million was a big number. Today billions of dollars are tossed around from computer to computer without the blink of an eye. Trillions are now the topic de jour.

Budgets, deficits, and international money flows are all described using trillions or parts thereof. We have come a long way. The financial wizards circle high above the common man. But perhaps the way so chosen is the wrong way, for the good of all of the people – not just the elite few who control the strings of the purse, and profit thereby.

Let’s go within the Temple of the Wizards of Finance, to see what arts the conjuring is done by, to see what potions and spells are cast within fortune’s cauldron, and what strange brew precipitates there from.

The Beginning

On that fateful day when Federal Reserve Notes were first issued, it is obvious that a huge number of dollar bills had to be printed. Now, the printing press is pretty much obsolete; the only money that actually gets printed is used to replace old and worn Federal Reserve notes already in circulation. In vogue today is electronic money – fast food style.

The process actually begins with the Treasury Department printing a piece of paper called a bond, which is done electronically. Treasury bonds are debt obligations (liability) of the government to repay a loan – with interest.

The Treasury sells bonds to the public. The bonds the public does not buy, the Treasury deposits with the Federal Reserve. When the Fed accepts the bond from the Treasury, it lists the bond on its books as an asset.

The Fed assumes the government will make good on its promise to pay back the loan. This is based on the belief that the government’s power to tax the people is sufficient collateral.

Because the Fed now has an asset that it didn’t have before receiving the Treasury bond, the Fed can now create a liability that is offset by its new asset.

The liability that the Fed creates is a Federal Reserve check. It gives the Treasury the check in payment for the Treasury bond.


The Federal Reserve check is endorsed by the Treasury and is deposited in one of the government’s accounts at the Federal Reserve. The government can use the deposits to write checks against, to pay for government expenses.

This is the first new money flow to enter the system. Various government contractors, vendors, etc. receive these checks as payment for services rendered, and they take the checks and deposit them in their commercial banks.

The Second Step

This is when the wizards of finance perform their greatest feats of magic. The deposits in the commercial banks take on a sort of split personality or dementia, brought on by a preponderance of delusional thinking.

On the one hand, the deposits are the bank’s liabilities, as they owe the total sums to their depositors.

However, because of FRACTIONAL RESERVE lending, the bankers get to lend out 9 times what they have on deposit.

The commercial banks get to list the deposits as RESERVES.

In other words, FRACTIONAL RESERVE lending allows the commercial banks to create 9 times more money then they have on reserve. The banks lend money they don’t have, and:

They get to charge interest on it.

As the newly issued money is put to work by borrowers, they then spend it and the receiver then deposits it in their bank account, and the bank starts the reserve lending policy all over again. This is why the

Money supply must expand by the amount of interest owed on the debt.

If it didn’t, the debt would not be able to be serviced. There is no money created without creating debt, they are one and the same. Wealth is not created by creating money by fiat – only debt. As the Fed has admitted:

“Commercial banks create checkbook money whenever they grant a loan, simply by adding new deposit dollars in accounts on their books in exchange for a borrower’s IOU.” [12]


Fractional reserve lending invokes the moral hazard of fidelity of contract. Banks have on deposit (reserve) at most 10% of the “money supply.”

This means that if more than 10% of depositors go to the bank at one time to withdraw “our” money – there isn’t any money to withdraw beyond the 10% reserves.

Which means that 90% of the money supply is non-existent, nothing more than a fleeting illusion.

The bank’s solvency stands on the faith that no more than 10% of depositors will want their money at the same time. This means that although

Banks may appear to be solvent – they are without question illiquid.

Fractional reserve lending insures and guarantees that banks cannot possibly be liquid.

Banking is the only type of business that is allowed to function this way. If any other business used a similar modus operandi it would be subject to censor, arrest, court, and possibly imprisonment. Banks cannot fulfill all of their contracts if demand occurred at the same time. Thus, the banks are illiquid.

Why the double standard? Why the dishonesty? Why are they afraid of gold and silver money as the Constitution mandates? Because it would make them tow the line or go bankrupt. Less they forget – be ever mindful – even Zeus cannot deny Destiny.

OCEANIDS: Who then is the steersman of Necessity?
Prometheus: The three-shaped MOERAE and mindful ERINYES.
OCEANIDS: Can it be that Zeus has less power than they do?
Prometheus: Yes, in that even he cannot escape what is foretold. [13]

Coming Soon – Open Letter To Congress
Seeking Redress For The Return To Honest Money

[1] John Adams in a letter to Thomas Jefferson
[2] Hesiod, Works and Days
[3] John Kenneth Galbraith Money: Whence It Came, Where It Went
[4] Federal Reserve Bank, New York The Story of Banks, p.5.
[5] The Federal Reserve System Purposes and Functions The Implementation of Monetary Policy
[6] Same as above
[7] Same
[8] Same
[9] Same
[10] Same
[11] Same
[12] Federal reserve Bank of New York, I Bet You Thought, p.19
[13] Aeschylus, Prometheus Bound 515

© 2005 Douglas V. Gnazzo
Editorial Archive


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The GOP v. Ron Paul and GOP Voters

Below are links to two separate stories that discuss the efforts by the GOP to keep Ron Paul’s support silent. The stories are based on firsthand information of the writers; not sources, conspiracy, or conjecture.

For Republican voters, the message is very clear– the party is dedicated to selecting the nominee without interference from the voters. Do Republicans not realize that it is they that are being attacked by their own party?


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Congress Questions Big Oil, Expands Power of the Federal Reserve

Once again, Rome proves no competition for Washington, D.C. when it comes to putting on a circus.

The U.S. Congress wants to question big oil according to this AP story while at the same time expanding the powers of the Federal Reserve according to a plan put forward by the U.S. Treasury Secretary.

Do the members of the U.S. Congress not know that oil is traded in dollars? Thus, any decline in the dollar will result in an increase in the price of oil.

I keep a record of the value of the dollar from 1790 to 2007 on a spreadsheet for quick reference. I see that 1971 was the year the dollar converted to the monopoly money standard; 100% backed by the same thing monopoly money is backed by—nothing. Of course, the dollar was backed by nothing as far as Americans ability to convert after 1968, but Washington, D.C. has been a circus for a long time and non-Americans could convert until 1971 so we use that as our year of reference.

So we have 2007 minus 1971 equals 36 years. 36 glorious years since America adopted the monopoly money standard, with the result that the Federal Reserve gained complete and absolute control over management of the U.S. dollar.

So a few calculations, a little cut and paste and I have the entire history of the U.S. dollar in 36 year increments from 1790 to 2007. Do you want to guess the worst 36 year span of performance? Right, 1971 to 2007. The second worst? Right, 1970 to 2006.

So, of course, the Federal Reserve would be the natural choice to handle the markets, this is a circus.

And Barrack Obama says we are all “Hamiltonians” now. It would appear that Obama is upset that George Bush got dibs on the “we are not in a recession” phrase, and so Obama got creative and came up with another way to say things are going great economically.

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Gold & Silver Accepted Here


The fact that euros are accepted by many stores in New York City has made the news lately and is well known in gold investor circles. It is yet another symptom of the ongoing demise of the US dollar. The good news for these New York City merchants – and for all others nationwide – is that gold and silver will not be far behind and offer far better advantages as dollar-alternatives.

You may think that honest-to-goodness currency demand for gold and silver is non-existent in the US and that this will remain so until the legal tender laws are repealed (as currently proposed by Representative Ron Paul’s dual HR 42756 and HR 4683 approach) – but that is not necessarily true. Such demand will soon begin to build, regardless of Ron Paul’s efforts in Congress – and it will take off very fast.

Here is why:

Until now, merchants or service providers labored under the quite incorrect assumption that offering their goods for gold and silver would be unprofitable, and a waste of time because of a number of factors.

Factors That Used to Limit the Currency-Use of Gold:

  1. A widespread, but incorrect, application of Gresham’s law to the situation at hand;
  2. A lack of public understanding of the advantages of PMCs by the public;
  3. Legal tender laws prohibiting the issuance and the “utterin” or “passing” of non-official precious metals coins (like 18 USC 486, the law the Liberty Dollar ran up against);
  4. Tax laws that inhibit the free exchange of gold or silver for goods and services by imposing difficult to satisfy accounting burdens;
  5. Insufficient numbers of consumers own spendable gold or silver or are aware of their availability..

Yet, none of these reasons really prevent merchants from profitably offering their wares for gold. (Whenever the word “gold” is used from here on forward, it should be understood to include silver).

The dollar’s rapid decline and the accompanying credit crunch and world economic slowdown are changing the picture for gold-as-currency dramatically. Gold has always been – and will always be “money”, but its actual widespread use as a circulating medium of exchange has been stifled by the above listed factors. Let’s go through them, one by one, to see if they really pose such severe obstacles to the use of gold as a viable currency.

To read the complete article go here.

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Obama Pushes Bill That Would Mandate Global Tax

Barack Obama is using the same marketing pitch that George Bush used in his 2000 campaign. In his 2000 campaign, George Bush would often say he was a “uniter, not a divider”. Look past the marketing slogans and Barack Obama is just another anti-American socialist.

Paul Joseph Watson
Prison Planet
Thursday, February 14th, 2008

Presidential frontrunner Barack Obama is pushing a bill that will lead to the implementation of a UN global tax, costing the U.S. at least $845 billion dollars over thirteen years in the name of fighting worldwide poverty, as well as banning “small arms and light weapons”.

The “Global Poverty Act,” which is sponsored by Obama, is up for a Senate vote today, and if passed would mandate the U.S. to spend 0.7 percent of the gross national product on foreign aid, on top of the money being sent out of the country already.

The bill passed the House by a voice vote last year because most members failed to read what was actually in it. The words “global” and “poverty” in the title were presumably enough to convince them that it must be good.

In reality, the bill also “Commits nations to banning “small arms and light weapons” and ratifying a series of treaties, including the International Criminal Court Treaty, the Kyoto Protocol (global warming treaty), the Convention on Biological Diversity, the Convention on the Elimination of All Forms of Discrimination Against Women, and the Convention on the Rights of the Child,” writes Cliff Kincaid.

“Jeffrey Sachs, who runs the U.N.’s “Millennium Project,” says that the U.N. plan to force the U.S. to pay 0.7 percent of GNP in increased foreign aid spending would add $65 billion a year to what the U.S. already spends. Over a 13-year period, from 2002, when the U.N.’s Financing for Development conference was held, to the target year of 2015, when the U.S. is expected to meet the “Millennium Development Goals,” this amounts to $845 billion. And the only way to raise that kind of money, Sachs has written, is through a global tax, preferably on carbon-emitting fossil fuels.”

A UN controlled global tax has long been a cherished goal of the elite and they have attempted to piggy-back it on numerous different pretexts, most recently via a global carbon tax on fuel, a move that was advanced at the recent summit in Bali.

During the summit, over one hundred prominent scientists signed a letter dismissing the move as a futile bureaucratic scheme which will diminish prosperity and increase human suffering.

In 2005, former French President Jacques Chirac called for the imposition of a global tax to finance the fight against AIDS.

Perfectly happy with giving Bush carte blanche to continue illegal spying on American citizens with the passage of this week’s telecom immunity bill, the Senate seems destined to rubber stamp legislation that would lead to a global carbon tax.

President Bush has overseen the biggest increase in foreign aid since the Marshall Plan and is highly unlikely to veto the bill if it is passed.

Contact the Senate and voice your opposition to this bill. Call the switchboard at (202) 224-3121 and asked to be connected to the office of your Senator.

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GM offers buyouts to 74,000

NEW YORK ( — In an effort to shave ongoing losses, General Motors offered lucrative buyouts Tuesday to 74,000 employees – its entire U.S. hourly workforce.

The nation’s largest automaker announced the latest round of buyouts as it reported another loss on its core auto operations in the fourth quarter, which combined with charges taken earlier in the year left GM with a company-record $38.7 billion net loss for 2007.

To try to stem automotive losses that have dogged the company since 2005, the company is making a range of offers, up to cash payments of $140,000 to the remaining 74,000 GM workers represented by the United Auto Workers union.

The goal is not to reduce headcount but rather to bring in new workers at a lower cost.

Read Full Story

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Ron Paul’s Top Contributors – Follow the Money

So who is supporting that crazy congressman from Texas? It may come as a surprise to those that are not informed about his message, but his top 3 contributors in order are:

1. U.S. Army
2. U.S. Navy
3. U.S. Air Force

The Department of Defense comes in at #19.

John McCain’s top 3 are:
1. Merrill Lynch
2. Citigroup, Inc
3. Blank Rome , LLP

Neither the U.S. Army, U.S. Navy, or U.S. Air Force show up in John McCain’s top 20 contributors.

The money has come from the PACs for these organizations. Here is the link to the full list of 1-20, Full List

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Some Observations on Four Terms in Congress (1984)

(Ron Paul) Before the US House of Representatives, September 19, 1984

Mr. Speaker, I shall be soon leaving the House and have asked for this special order to make a few comments regarding the problems our nation faces and the actions needed to correct them. Having been honored by the 22nd District of Texas to represent them for four terms, I have grown to appreciate the greatness of this institution. I only wish the actions performed by the Congress in recent years could match the historic importance of this body.

Thousands of men and women have come and gone here in our country’s history, and except for the few, most go unnoticed and remain nameless in the pages of history, as I am sure I will be. The few who are remembered are those who were able to grab the reins of power and, for the most part, use that power to the detriment of the nation. We must remember that achieving power is never the goal sought by a truly free society. Dissipation of power is the objective of those who love liberty. Others, tragically, will be remembered in a negative way for personal scandals. Yet those individuals whose shortcomings prompted the taking of bribes or involvement in illicit sexual activities, have caused no more harm to society than those who used “legitimate” power to infringe upon individual liberty and expand the size of government. Morally the two are closely related. The acceptance of a bribe is a horrible act indeed for a public servant, but reducing liberty is an outrageous act that causes suffering for generations to come.

Since the time of our founding, few who have come to the Congress have been remembered for championing the cause of freedom. This is a sign of a declining nation and indicates that respect for freedom is on the wane.

Serving here has been a wonderful experience, and the many friendships will be cherished. I am, however, the first to admit the limited impact I’ve had on the legislative process. By conventional wisdom, I am “ineffective,” unable to trade votes, and champion anyone’s special privilege – even my own district’s. It places me in a lonely category here in Washington. If the political career is not the goal sought, possibly the measuring of “effectiveness” should be done by using a different standard.

The most I can hope for is that someday a suggestion I’ve made is remembered: that the debate would shift to a different plane. Instead of asking which form of intervention and planning government should impose, perhaps someday Congress will debate intervention versus nonintervention, government versus voluntary planning, U.S. sovereignty versus internationalism – the pros and cons of true liberty. Today the debate basically is only that of deciding who will be the victims and who the beneficiaries. I hope the hours of debate over the mechanisms of the political system orchestrated by the special interests will give way to this more important debate on freedom. The lack of this debate was my greatest disappointment. Only rarely did I see small fragments of this discussion, and then merely as a tactic for short-term gain rather than because of a sincere belief in the principles of liberty and the Constitution.

Some have said my approach is not practical, but most concede, “At least he’s consistent.” Since I first came here in 1976, the number of lobbyists has doubled and the national debt has tripled – $550 billion to $1.59 trillion – to me a most impractical trend. Business cycles, unemployment, inflation, high interest rates, and trade wars are the real impracticalities brought about by unwise political and economic policies. I’ve been impressed over the years by those who concede to me the consistency of my views, yet evidently reject them in favor of inconsistent views. Who, I might ask, is served by the politicians of inconsistency, the special interests or the general welfare?

The petty partisan squabbles that are today more numerous and more heated serve no useful function. The rhetoric now becoming personal is not designed to solve problems, nor does it show a correct perception of our country’s problems. All are motivated by good intentions, but that cannot suffice. The narrow partisan squabbles are a natural consequence of an intellectual bankruptcy, whereby correct solutions are not offered for our economic problems. The “good intentions” prompts those involved to “do something.” It seems that narrow partisanship on the House floor contributes nothing to the solutions of today’s problems.

Sadly, I have found that individual Members, even though we represent our half-million constituents, are much less important than most of us would like to believe. The elite few who control the strings of power are the only ones who really count in the legislative process. Votes, of course, occur routinely after heated debate by all those who want to ventilate. But as C. Northcote Parkinson pointed out, the length of debate on an issue is inversely proportional to the importance of an issue. Many times debate is done either for therapy or as a ritual to force Members to make public commitments to those who wield the power, a mere litmus test of loyalty, thus qualifying some quietly to receive largess for their particular district.

More often than not, the floor debates are a charade without real issues being dealt with – a mere chance for grandstanding. Budgetary votes are meaningless in that continuing resolutions and supplemental appropriations are all that count. If covert aid to a nation is voted down, the CIA and the administration in power can find the means to finance whatever is desired. Emergencies are declared, finances are hidden, discretionary funds are found, foreign governments are used, and policy as desired is carried out, regardless of the will of the people expressed by Congress.

On occasion, a program requested by the administration is “stopped” or voted down. But this doesn’t really change the course of events – the “price” is merely raised. The vote can be reversed on the House floor or in the conference, and the “enlightened” Member who cast the crucial vote will receive an ample reward for his or her district. These arrangements or deals are routine and accepted practice. The better one is at making them, the higher is one’s “effectiveness” rating and the easier the next election.

Recently, the national Taxpayers’ Union gave me their annual Taxpayers’ Best Friend Award for voting for the least amount of taxes and spending of any Member of Congress. I realize this does not qualify as a news event, but I have, over the years, tried to emphasize how dangerous is the problem of overspending and have voted accordingly. This past year, I am recorded as having voted against 99 percent of all spending. To me that means voting for the taxpayer 99 percent of the time and against the tyranny of the state at the same percentage. I must confess, though, to the possible disappointment of the anarchists, that I endorse more than one percent of our expenditures – possibly even 20 percent. Due to the seriousness of the problems we face, I believe it’s crucial to make the point that programs are bloated, and overspending, deficits and monetary inflation are a mortal threat to a free society. Those not willing to vote for the cuts either must believe they are not a threat or do not care if they are. I suspect the former to be the case.

Deficits are in themselves very harmful, but it’s what they represent that we must be concerned about. Deficits are a consequence of spending, and this tells us something about the amount of power gravitating into the hands of a centralized authority. As the deficits grow, so does the power of the state. Correspondingly, individual freedom is diminished.

It’s difficult for one who loves true liberty and utterly detests the power of the state to come to Washington for a period of time and not leave a cynic. Yet I am not; for I believe in the goodness of my fellow man and am realistic enough to understand the shortcomings of all human beings. However, I do believe that if the Democrats and the Republicans played more baseball and legislated a lot less, the country would be much better off. I am convinced the annual baseball game played by the Republicans and the Democrats must be considered one of the most productive events in which the Members of Congress participate.

Mr. Speaker, I would like to take some time to point out some of the contradictions that I have observed in my four terms in the Congress. These I have found frustrating and exasperating and, if others agree, possibly this recognition will someday lead to policies designed to correct them. I find these contradictions in three areas: foreign policy, economic policy and social issues.

I have trouble believing that the foreign policy of the past 70 years has served the best interests of the United States. The policy of international intervention has been followed during this time, regardless of the party in power. The traditional American policy of strategic independence and neutrality based on strength has been replaced by an international policy of sacrifices, policy that has given us nearly a century of war. The last two wars were fought without formal declaration and without the goal of victory in mind. There are many specific examples to show how irrational this interventionist policy is.

We pump $40 billion a year into the Japanese economy by providing for essentially all of Japan’s defense. At the same time, Japan out-competes us in the market, in effect subsidizing their exports, which then undermines our domestic steel and auto industries. The result: greater deficits for us, higher taxes, more inflation, higher interest rates, and a cry by our producers for protectionism. We insist that Western Europe take our Pershing missiles. We get the bill, and the hostility of the people of Western Europe, and then act surprised that the Soviets pull out of arms negotiations and send more modern nuclear submarines to our coastline. It’s a sure guarantee that any conflict in Europe – even one between two socialist nations – will be our conflict.

Loyally standing by our ally Israel is in conflict with satisfying the Arab interests that are always represented by big business in each administration. We arm Jordan and Egypt, rescue the PLO (on two occasions), and guarantee that the American taxpayer will be funding both sides of any armed conflict in the Middle East. This policy prompts placing Marines, armed with guns without bullets, between two waning factions. Our F15s shooting down our F-5s in the Persian Gulf War is our idea of neutrality and getting others to test our equipment. America’s interests are forgotten under these circumstances.

We condemn the use of poison gas by Iraq at the same time we aid Iraq, along with the Soviets, in preventing an Iranian victory, forgetting that Iraq started the war. Inconsistently, the administration pressures Congress to manufacture new nerve gas so we have something with which to go to the Soviets and draw up some unworkable treaty regarding war gases. We allocate low-interest loans through the Export-Import Bank to build a pipeline for Iraq, giving huge profits to Shultz Bechtel Corp., while hurting our domestic oil producers.

On the day we “stood firm” against Communist aggression in this hemisphere by invading Grenada, our president apologized to those liberal House Members who were “soft on communism” and pleaded for their vote to ensure the passage of the IMF bill, so the “Communist dictators” can continue to receive taxpayers’ dollars – dollars used to support Castro’s adventurism in the Caribbean and in Central America.

Our official policy currently is to be tough on communism, but at the same time promote low-interest loans, allowing Red China to buy nuclear technology, F-16’s and other military technology – all this by the strongest anti-Communist administration that we’ve had in decades. We participate in the bailout of bankrupt Argentina as she continues to loan money to Castro’s Cuba, which then prompts us to send men, money and weapons to counteract the spread of communism formed by Castro. It’s doubtful if any of these loans will be repaid, and the military equipment and technology will probably end up being used against us at a later date. We talk about a close alliance with Taiwan while subsidizing their hated enemy, Red China.

We subsidize Red China’s nuclear technology; at the same time, we allow Jane Fonda to ruin ours.

We continuously sacrifice ourselves to the world by assuming the role of world policeman, which precipitates international crises on a regular basis, all the while neglecting our own defenses. New planes go overseas while our Air National Guard is forced to use planes 20 years old. We neglect our defenses by signing treaties like Salt I and the ABM Treaty that prevent us from building a non-nuclear defense system – and follow Salt 11 without even signing it. The result: a massive arms race based on a doctrine of mutual assured destruction.

Praising the greatness of the Vietnam veterans and honoring them can never remove the truth of our failed policy that took us there. Resurrecting heroes will never erase the pain and suffering of an interventionist foreign policy that prompted unnecessary military activities and a no-win strategy.

There are 42 wars now going on in the world, and it’s reported we’re involved in many of them – on both sides. We have troops in a total of 121 countries. National security is used as justification for all this activity, but rarely is it directly involved.

Our Export-Import Bank financed the building of the Kama River truck plant in Russia – trucks then used in the Soviet invasion of Afghanistan over a road built by our own Corps of Engineers. Our response? Draft registration and an Olympic boycott!

In pleading for the MX funds, the administration explains we need it as a bargaining chip. I guess to bargain away to the Soviets whom we can’t trust anyway. We even modify the MX to conform with the Salt II Treaty – a treaty we never even signed.

If we look closely at the record, we find the conservative hawk is frequently the one who appeases and subsidizes the Communists, and never starts the war; the liberal dove is the one more likely to involve us in a war to protect democracy and stop Communist expansion. Images play tricks on us and policy is achieved by deception. Is this a mere coincidence, or is it contrived by those dedicated to internationalism?

The carnage of the 20th Century, as compared to the 19th Century, must someday make us aware of the difference between the two policies pursued. Does the modem age mandate that we reject a policy of self-interest and non-intervention, or is it just possible that worthwhile policies are of value, regardless of the age in which we live? It’s an important question, because it will determine whether or not we will enjoy peace and prosperity in the generations to come.

Our economic policy is no less contradictory. It’s fair to say that even with all the good intentions of the Members, the planned welfare state has been a complete and miserable failure. For the most part, the programs achieve exactly opposite results from those sought. There is a limit to how long the economy can tolerate these insults before we all suffer from the severe consequences. What we say and do are in conflict with each other. We talk boldly of balanced budgets, full employment, prosperity, low interest rates, and no inflation. So we either do not believe, as a body, what we say, or we are inept in our ability to pursue and achieve the goals that we seek. Either way, the results remain the same.

The economic contradictions are numerous. Conservatives, for years, preached balanced budgets – until in charge – then the deficits soared to $200 billion per year. Liberal big spenders who led the way to runaway spending quickly excoriate conservative deficits and nothing happens; the deficit financing continues and accelerates.

Campaigns are won on promising tax cuts; some are given, but are quickly canceled out by numerous tax increases associated with accelerated federal spending.

Congress and the administration are quick to blame the Federal Reserve System for high interest rates and do nothing about the huge deficits. Congress totally ignores their responsibility in maintaining the integrity of the money and refuses to exert their rightful authority over the Federal Reserve. We routinely preach about helping the poor, then plunder the working class to subsidize foreign socialist dictators and the welfare rich through abusive taxation and inflation.

Our government pursues a policy of currency debasement, causing steadily rising prices, and blindly treats only the symptoms while punishing, through regulations and taxation, those capable and willing to take care of themselves.

Vocal support for free trade is routinely heard, as protectionist measures march on. The steel, sugar, textile, shoe, copper, and automobile industries all come for help, and we do nothing to remove the burden of taxation, inflation, high interest rates and labor laws that put our companies at a competitive disadvantage. Our protectionist measures then hurt our trade partners, precipitating our need to send them more foreign aid to help out their weak economies and to relieve their debt burden.

Archconservatives champion tobacco subsidies, which are criticized by archconservatives who champion milk subsidies. Government then spends millions of dollars to regulate the tobacco industry and points out the hazards of smoking.

A liberal champion of the peace movement and disarmament pushes for the B-1 bomber as a reasonable alternative – and because it’s good for the economy – the bomber, by coincidence, to be built in the Senator’s home state.

The well-intentioned do-gooder legislates minimum wage laws to help the poor and minorities, causing higher unemployment in the precise groups who were intended to be the beneficiaries.

We learned nothing from the Depression years and continue to pay farmers to raise crops not needed, then pay them to stop planting. Our policies drive prices of commodities down, so we prop up the prices and buy up the surpluses. The consumer suffers, the farmer suffers, the country suffers, but our policies never change; we just legislate more of the same programs that cause the problems in the first place.

Our steel plants are closing down, so we pursue protectionism and stupidly continue to subsidize the building of steel plants throughout the world through our foreign-aid projects.

We pay for bridges and harbors throughout the world and neglect our own. If we feel compulsion to spend and waste money, it would make more sense at least to waste it at home. We build highways around the world, raise gasoline taxes here, and routinely dodge potholes on our own highways.

Why do we cut funding for day-care centers and Head Start programs before cutting aid to the Communists, Socialists, and international bankers?

A substantial number of businessmen demand the rigors of the free market for their competitors, and socialism/fascism for themselves.

Economic interventionism, a philosophy in itself and not a compromise with anything, is the cause of all these contradictions in the economy. Rejection of government planning, controlled by the powerful special interests, at the expense of the general welfare is necessary, and even inevitable, for that system will fall under its own weight. The question that remains is whether or not it will be replaced with a precise philosophy of the free market, rejecting all special interests and fiat money, or with a philosophy of socialism. The choice when the time comes should not be difficult, but freedom lovers have no reason for complacency or optimism.

Social issues are handled in a contradictory manner as well. A basic misunderstanding of the nature of rights and little respect for the Constitution has given us a hodgepodge of social problems that worsen each day.

At one time, we bused our children long distances from their homes to force segregation; now we bus them, against their will, to force integration.

We subsidize flood insurance in the low-lying areas of the country, prompting people to build where market-oriented insurance companies would have prevented it. When flooding problems worsen, land control and condemnation procedures become the only solution.

The Supreme Court now rules that large landowners must, against their wishes, sell to others to break up their holdings. This is being done in the name of “eminent domain.” This is land reform “à la U.S.A.”

Certain individual groups, against the intent of the Constitution and the sentiments of a free society, agitate to make illegal privately owned guns used for self-defense. At the same time, they increase the power of the state whose enforcement occurs with massive increase in government guns – unconstitutionally obtained at the expense of freedom. Taking away the individual’s right to own weapons of self-defense and giving unwarranted power to a police state can hardly be considered progress.

We have strict drug laws written by those who generously use the drug alcohol. Our laws drive up the price of drugs a thousandfold, to the delight of the dealers, the pushers, and terrorist nations around the world who all reap huge illegal profits. Crimes are committed to finance the outrageous prices, and drug usage never goes down. Enforcement costs soar, and its success remains “mysteriously” elusive. The whole system creates an underground crime world worth billions of dollars; and addicts must then entice others to join, getting new customers to finance their habits – forever compounding a social problem epidemic in proportion. Any new suggestions for changing our drug laws that is, liberalizing them – is seen as political suicide by the hypocritical politicians and a society legally hooked on alcohol, nicotine, caffeine, aspirin and Valium.

Talk is cheap about freedom and civil liberties, while privacy and individual liberty are continuously undermined and government force is used to protect the privileges and illegal demands placed on government, by the special interest groups. Computers are routinely used to enforce draft registration, involving Selective Service, IRS, Social Security, HHS and ice cream parlor lists.

The shortcomings of South Africa’s apartheid system are denounced continuously by the same politicians who ignore the fact that, in Communist countries, dissidents aren’t segregated; they are shot or sent to concentration camps. In comparison, segregation is seen as more vicious than the exiling and the killing of the political dissidents in Russia. South Africa, for their defective system of civil liberties, is banned from the Olympics, while we beg the murdering Communists to come.

Government responsibility to protect life and liberty becomes muddled when the government and courts chosen to protect them, under the guise of privacy and civil liberties, totally ignore the real issue. The abortionist who makes a fortune dropping fetuses and infants into buckets, instead of being restrained by government, is encouraged by the courts and the law. Some show greater concern for the lives of seals than for the life of a human baby.

The government writes thousands of pages of regulations designed to protect workers in private industry – without proof of any beneficial results – and at the same time 50,000-plus are killed on government engineered and operated highways.

Good conservatives explain why guns and teachers shouldn’t be registered, and beg and plead and coerce the government into registering their own kids for the draft.

We have seen cases where harmless elderly women, having committed no act of violence, are arrested for: one, defending against an intruder with the use of a “Saturday night special”; two, raising marijuana in the yard to use for relief of severe arthritic pain; and three, selling chances in a numbers game – the fact that governments run the biggest crap games seems to have no moral significance.

Federal officials – IRS agents and drug enforcement agents – have been known to destroy the property and lives of totally innocent people as homes are entered mistakenly without search warrants. Confiscation of property without due process of law is becoming more commonplace everyday with the tactics of the IRS.

The products produced by businessmen are regulated to the extreme by so-called liberals who would never accept similar regulations on the products of the mind and the media. Yet the ill effect of bad economic ideas and bad education is much more damaging to one’s economic health than are the products manufactured in a totally free and unregulated market. The conservative’s answer to regulating ideas in a similar way to regulating goods and services is the risk of pointing out this inconsistency.


Contradictions are all about us, but we must realize they are merely the manifestations of more basic problems. Some of these problems are general, others specific; but all are a consequence of the precise ideology to which the nation’s intellectuals ascribe. Understanding this is imperative if we ever expect to reverse the trend toward statism in which we find ourselves.

Our government officials continue to endorse, in general, economic interventionism, interventionist control of individuals, a careless disregard for our property rights, and an interventionist foreign policy. The ideas of liberty for the individual, freedom for the markets, both domestic and international, sound money, and a foreign policy of strategic independence based on strength are no longer popularly endorsed by our national leaders. Yet support by many Americans for these policies exists. The current conflict is over which view will prevail.

The concept of rights is rarely defined, since there is minimal concern for them as an issue in itself. Rights have become nothing more than the demands of special-interest groups to use government coercion to extract goods and services from one group for the benefit of another. The moral concept of one’s natural right to life and liberty without being molested by State intervention in one’s pursuit of happiness is all but absent in Washington. Carelessly the Congress has accepted the concept of “public interest” as being superior to “individual liberty” in directing their actions. But the “public” is indefinite and its definition varies depending on who and which special interest is defining it. It’s used merely as an excuse to victimize one individual for the benefit of another. The dictatorship of the majority, now a reality, is our greatest threat to the concept of equal rights

Careless disregard for liberty allows the government to violate the basic premise of a free society; there shall be no initiation of force by anyone, particularly government. Use of force for personal and national self-defense against initiators of violence is its only proper use in a moral and free society. Unfortunately this premise is rejected – and not even understood – in its entirety in Washington. The result is that we have neither a moral nor a free society.

Rejecting the notion that government should not coerce and force people to act against their wishes prompts Congress to assume the role of central economic and social planner. Government is used for everything from subsidized farming to protecting cab monopolies; from the distribution of food stamps to health care; from fixing the price of labor to fixing the price of gasoline. Always the results are the same, opposite to what was intended: chaos, confusion, inefficiency, additional costs and lines.

The more that is spent on housing or unemployment problems, the worse the housing and unemployment problems become. Proof that centralized economic planning always fails, regardless of the good intentions behind it, is available to us. It is tragic that we continue to ignore it.

Our intervention and meddling to satisfy the powerful well-heeled special interests have created a hostile atmosphere, a vicious struggle for a shrinking economic pie distributed by our ever-growing inefficient government bureaucracy. Regional class, race, age and sex disputes polarize the nation. This probably will worsen until we reject the notion that central planning works.

As nations lose respect for liberty, so too do they lose respect for individual responsibility. Laws are passed proposing no-fault insurance for injuries for which someone in particular was responsible. Remote generations are required to pay a heavy price for violations of civil liberties that occurred to the blacks, to the Indians, and to Japanese-Americans. This is done only at the expense of someone else’s civil liberties and in no way can be justified

Collective rights – group fights, in contrast to individual rights – prompt laws based on collective guilt for parties not responsible for causing any damage. The Superfund is a typical example of punishing innocent people for damages caused by government /business. Under a system of individual rights where initiation of force is prohibited, this would not occur.

Short-run solutions enhance political careers and motivate most legislation in Washington, to the country’s detriment. Apparent economic benefits deceive many Members into supporting legislation that in the long run is devastating to the economy. Politics unfortunately is a short-run game – the next election. Economics is a long-run game and determines the prosperity and the freedoms of the next generation. Sacrificing future wealth for present indulgence is done at the expense of liberty for the individual.

Motivations of those who lead the march toward the totalitarian state can rarely be challenged. Politicians’ good intentions, combined with the illusion of wisdom, falsely reassure the planners that good results will be forthcoming. Freedom endorses a humble approach toward the idea that one group of individuals by some quirk of nature knows what is best for another. Personal preferences are subjectively decided upon. Degrees of risk that free individuals choose to take vary from one individual to another. Liability and responsibility for one’s own acts should never be diminished by government edicts. Voluntary contracts should never be interfered with in a free society except for their enforcement. Trust in a free society even with its imperfections – if we’re to strive for one, must be superior to our blind faith in government’s ability to solve our problems for us.

Government in a free society is recognized to be nothing more than in embodiment of the people. The sovereignty is held by the people. A planned coercive society talks vaguely of how government provides this and that, as if government were equivalent to the Creator. Distribution is one thing – production is another. Centralized control of the distribution of wealth by an impersonal government that ignores the prescribed role of guaranteeing the equal protection of liberty ensures that one day freedom will disappear and take with it the wealth that only free men can create.

Today the loss of the people’s sovereignty is clearly evident. Lobbyists are important, if not the key figures, in all legislation – their numbers are growing exponentially. It’s not an accident that the lobbyist’s and chief bureaucrat’s salaries are higher than the Congressman’s – they are literally “more important.” The salary allocation under today’s conditions are correct. Special interests have replaced the concern that the Founders had for the general welfare. Conference committees’ intrigues are key to critical legislation. The bigger the government, the higher the stakes, the more lucrative the favors granted. Vote trading is seen as good politics, not as an immoral act. The errand-boy mentality is ordinary – the defender of liberty is seen as bizarre. The elite few who control our money, our foreign policy, and the international banking institutions – in a system designed to keep the welfare rich in diamonds and Mercedes – make the debates on the House and Senate floors nearly meaningless.

The monetary system is an especially important area where the people and Congress have refused to assume their responsibilities. Maintaining honest money – a proper role for government – has been replaced by putting the counterfeiters in charge of the government printing press. This system of funny money provides a convenient method whereby Congress’ excessive spending is paid for by the creation of new money. Unless this is addressed, which I suppose it will be in due time, monetary and banking crises will continue and get much worse during this decade.

Congress assumes that it can make certain groups economically better off by robbing others of their wealth. The business and banker welfare recipient justifies the existence of the system by claiming that it is good for jobs, profits and sound banking. The welfare poor play on the sympathies of others, and transfer programs based on government force and violence are justified as “necessary” to provide basic needs to all – at the expense of liberty needed to provide for the prosperity everyone desires.

Government cannot make people morally better by laws that interfere with nonviolent personal acts that produce no victims. Disapproving of another’s behavior is not enough to justify a law prohibiting it. Any attempt to do so under the precepts of liberty is an unwarranted use of government force.

Congress reflects prevailing attitudes developed by an educational system and the conventional media, and in this sense Congress rarely leads, but is merely pushed and manipulated by public opinion. This is even done with scientific use of public-opinion polls. “Show me the direction the crowd is going and I will lead them,” is sadly the traditional cry of the politician. Statesmanship is not the road to reelection. Statesmanship is reserved for a rare few at particular times in history unknown to most of us. Leadership in great movements is infrequently found in official capacities. Lech Walesa, Alexander Solzhenitsyn, et al., are not legal officials, but are nevertheless great leaders.

Today the deficits, the skyrocketing real interest rates, total government spending, and the expansionist foreign policy have delivered to us a crisis of confidence. The politicians’ worries and concerns on the short run reflect the lack of plans made for the future. The interest rates on 30-year bonds tell a lot about the trust in the economic system and especially the integrity of the money.

It’s become traditional, especially during the last 70 years, for foreign policy to be pawned off as “bipartisan,” meaning no dissent is permissible and all true debate is squelched. Congress, it is said, has no role in formulating foreign policy, for the Constitution gives this power to the president. Nowhere is this written. Many more powers and responsibilities are to be assumed by the Congress than by the president in the foreign policy area, according to my reading of the Constitution. Monopoly power for a president to wage war without declaration, as was done in Korea and Vietnam, is a blatant attack on constitutionally guaranteed liberty. I hope the caution shown by the Congress in recent years will prevail, yet the Grenada invasion was not reassuring.

Unfortunately, economic egalitarianism has taken over as the goal of most congressional legislation. Any equality achieved will come about by leveling – a lowering of everyone’s standard of living – not by raising it. It is achieved by ignoring the sanctity of the voluntary contract and the prohibitions that should exist against government initiating force against the citizen. This concept must be rejected if we’re to reverse the trend toward the Orwellian state.

Many Members of Congress defend liberty, but only in minute bits and pieces as it appears convenient. I find in Washington the total absence of a consistent defense of liberty, as this principle applies to the marketplace, our personal lives, and international relations. Bits and pieces of liberty will never suffice for the defense of an entire concept. Consistency in defense of freedom is necessary to counteract the consistent aggressive militancy of interventionism, whether it’s of liberal or conservative flavor.

Government today perpetuates violence in epidemic proportions. Most of the time, the mere “threat” of violence by the agencies, the bureaucrats, the officials in charge of writing the final drafts of legislation, is enough to intimidate the staunchest resister. Courts, legal costs, government arrests, government guns, and long-term imprisonments have created a society of individuals who meekly submit to the perpetual abuse of our liberties. All this in the name of the “social good,” “stability,” “compromise,” the “status quo,” and the “public interest.” The IRS, the EPA and other agencies now carry guns. The colonists would have cringed at the sight of such abuse of our rights to live free. They complained about a standing army that carried guns; we now have a standing bureaucracy that carries guns.

Government today has accumulated massive power that can be used to suppress the people. How is it that we grant our government power to do things that we as individuals would never dream of doing ourselves, declaring such acts as stealing wealth from one another as immoral, and unconscionable? If a free nation’s sovereignty is held in the hands of the people, how is it that the state now can do more than the people can do themselves? Planning our people’s lives, the economy, and meddling throughout the world change the role of government from the guarantor of liberty to the destroyer of liberty.

Our problems have become international in scope due to the nature of the political system and our policies. This need not be, but it is. The financial problems of the nation, although clearly linked to our deficits and domestic monetary policy, cannot be separated from the international schemes of banking as promoted by the IMF, the World Bank and the Development Banks. It is much clearer to me now, having been in Washington for seven years, how our banking and monetary policies are closely linked to our foreign policy and controlled by men not motivated to protect the sovereignty of America, nor the liberties of our citizens. It’s not that they are necessarily inclined to deliberately destroy our freedom, but they place a higher priority on internationalism and worldwide inflation – a system of government and finance that serves the powerful elite.

All the military might in the world will not protect us from deteriorating economies and protectionism, and will not ensure peace. Policies are much more important than apparent military strength. The firepower used in Vietnam and the lives sacrificed did nothing to overcome the interventionist policies of both the Republicans and the Democratic administrations. When foreign policies are right, money sound, trade free, and respect for liberty prevalent, strong economies and peace are much more likely to evolve. The armaments race, and the funding of enemies and wealthy allies, only contribute to the fervor with which our tax dollars are churned through the military-industrial complex.

The crisis we face is clearly related to a loss of trust – trust in ourselves, in freedom, in our own government and in our money. We are a litigious welfare society gone mad. Everyone feels compelled to grab whatever he can get from government or by suit. The “something for nothing” obsession rules our every movement, and is in conflict with the other side of man’s nature – that side that values self-esteem and pride of one’s personal achievement. Today the pride of self-reliance and personal achievement is buried by the ego-destroying policies of the planned interventions of big government and replaced by the “satisfaction” of manipulating the political system to one’s own special advantage. Score is kept by counting the federal dollars allocated to the special group or the congressional district to which one belongs. This process cannot continue indefinitely. Something has to give – we must choose either freedom and prosperity or tyranny and poverty.

Filed under: Uncategorized

December 4, 2000 Economic Update

  • Mr. Speaker, more and more people now are talking about an oncoming recession. I tend to agree. I think we are moving into a recession, and for good reasons. But already the question that comes up so often among politicians is, who will get blamed? Will the current President be blamed for the recession or will the next President be blamed? Will the current Congress be blamed for the recession or the next Congress?
  • I do not believe either should be blamed. I think we should deal with the real cause of the business cycle, and that is the Federal Reserve system. The FederalReserve system causes and brings about a boom period in a cycle, but it also brings about the bust. Because the bust, the correction, is inevitable consequence of the boom caused by unduly inflating the money supply.
  • Soon we will hear from many, we have already heard some from the financial circles as well as from politicians, to lower interest rates. This will keep the economy from turning down. It will prevent the recession from coming. And if we do have a recession, it is always said, what you do is you lower the interest rates. But dwelling on the interest rates and not talking about what it takes to lower interest rates I think is a serious mistake.
  • The only way the Federal Reserve can lower interest rates is by inflating the money supply, increasing the money supply, which is the cause of our problems. So if the cause of our problem is the inflation, increasing the money supply which causes a boom, we can hardly solve our problems by further inflating. And then, too, there is a period of time in the business cycle where inflating the money supply or lowering interest rates do not get the response that many people hope for.
  • Take, for instance, what is happening in Japan today. There is no response whatsoever. They take interest rates down below one percent, and they cannot generate economic activity to really get them out of their slump.
  • The other irony of all this is that when we have an economic boom, another reason given for raising interest rates to slow up the economy is to stop the inflation. This is fallacious thinking because the inflation comes from the money supply. The idea that economic growth and prosperity and productivity causes inflation, that is the price type of inflation, is wrong. If we have good productivity, prices go down, they do not go up. So the whole notion that we have to slow up the economy in order to prevent inflation is absolutely incorrect.
  • The problem I see is that Congress for too long has conceded too much of their authority over control of the monetary system to the Federal Reserve system, which acts in secrecy.
  • It is something that is directly stated in the Constitution that the Congress shall have the responsibility over the money supply, not a Federal Reserve system. Quite frankly, the Federal Reserve system is not even authorized by the Constitution.
  • Now, if in the midst of a recession the Federal Reserve decides that they want to lower interest rates but the dollar is also dropping and we lower interest rates, we cause the dollar to go down and price inflation will occur because of that. So it is not quite so simple as saying, well, let us just tell the Fed what to do, lower the interest rates and it will solve our problems.
  • We have the problem of the international debt. We, as Americans, now owe more than any other country in the world. We owe $1.7 trillion. Our current account deficit is over $400 billion a month. We borrow well over $100 billion a day to support the international debt.
  • The reason we should be concerned about this more so than we are is the fact that, when we are in a recession, revenues go crashing down. The inflation that occurred over these past 10 years, which was artificially created, giant revenues from capital gains from this artificially high stock market. Well that is all being reversed now, so revenues are going to go down now, and we will have to deal with this in the next Congress.
  • Unfortunately, there are some who are concerned about this who say there is going to be gridlock and the two sides will not get together and the Government is now divided, the House and the Senate and the Presidency is undecided and therefore there will be gridlock. Quite frankly, I do not think that will happen. I sort of would hope that we would have some gridlock.
  • What I think is going to happen is that once the recession sets in and there is a need for additional spending and there will be no longer a concern at all about the deficit; and that is when the Congress will spend, the Federal Reserve will inflate. And it may temporarily help, but in the long-run it does not do the trick. It is not the way we gain economic prosperity out of a printing press. We just cannot allow a Federal Reserve to believe it creates capital by creating credit out of thin air.
  • We will soon be hearing a lot about interest rates. There will be a loud clamor from all quarters for the Fed to lower interest rates. It will be argued that it is necessary in order to help stop the stock market slide/crash and also to stimulate a sagging economy.
  • What we must remember though, is that every time someone pressures the Fed to lower interest rates, they are saying to the Fed that the money supply must be inflated. The only tool the Fed has for lowering interest rates is to increase the supply of money. They are arguing the case for further systematic and deliberate debasement of the US dollar. Those who chant for lower interest rates are literally attacking the dollar.
  • And yet, depending on many variables, a deliberate attempt by the Federal Reserve to lower interest rates may instead lead to higher interest rates and precipitate a period of accelerating price inflation. Instead of boosting the stock market, this effort can do the opposite by producing conditions that will lower the stock market and do nothing to avert the economic slump that more people are now worried about.
  • Congress should be prepared for some surprises in the not-to-distance future. A slumping economy or definite recession will obviously lower revenues. This will reverse the illusion of the grand surpluses that everyone has been anxious to spend. Instead of expenditures being held under control, expect them to rise rapidly.
  • Many are starting to talk now about a legislative stalemate with no clear majority in the House or Senate and the Presidency being uncertain. This concern about a stalemate is overblown. Not that the problem isn’t serious, but I am certain that under the conditions that we are about to experience, the Congress and the President will be all too willing to deal with the deteriorating conditions with increased spending and with a concerted bi-partisan effort to pressure the Federal Reserve to further inflate the currency in pursuing the fiction that the Federal Reserve can prevent a “hard landing” by merely increasing the money supply in an effort to dictate short-term Fed funds rates.
  • Although this will not be the impasse that many anticipate, the actual capitulation by both parties to deal with the oncoming economic slowdown will actually be more harmful than gridlock because Congress will undoubtedly do more harm than good to the economy.
  • For decades now the Federal Reserve has followed a policy of “fine-tuning” the economy and with the relative success of the recent boom cycle, it has been deceived into believing its ability is more than it actually is. But in this effort to fine-tune the economy the Federal Reserve, since the middle of 1999 until May of this year, has systematically raised the Fed’s fund rates from 4.75% to 6.5%.
  • The explanation was that economic growth, when not controlled, leads to price inflation and therefore the economy had to be “cooled.” A healthy free market economy should never have to be cooled, it should only be encouraged.
  • Ironically it’s argued that the deliberate raising the cost of borrowing money for everyone is that this will hold prices in check. Yet consumers and businesses suffer from this additional cost – pushing all prices upward. But even more ironic is the claim that they now care about “inflation” after a decade of massive monetary inflation-the real culprit.-The Federal Reserve meanwhile ignores the fact that the money supply is key to monetary policy, not admitting the damage has already been done.
  • Signs of economic slowdown are now all around with the seriously slumping stock market being the most visible and eliciting the most concern. As the slowdown spreads and accelerates the politicians will be anxious to advise the Chairman of the Federal Reserve, Alan Greenspan. Politicians from both sides of the aisle will become deeply and especially concerned when the evidence is clear that the revenues are plummeting and the “surplus” is disappearing. Since this will challenge the ability of the politician to continue the spending spree many will become deeply and vocally concerned.
  • The big debate already started in the financial and political circles is when, how much, and how quickly the Federal Reserve should lower interest rates. Indeed all will clamor to lower rates to revive the economy again. With the signs of rising prices in many sectors, especially energy, and in spite of the weak economy we can expect the Federal Reserve chairman to issue precautionary statements. He will reiterate that he must watch out for the resurgence of (price) inflation. In spite of his statements about concerns for inflation, if the stock market slumps and the economic slowdown is significant enough, we can be certain of one thing, the money supply will continue to grow rapidly in an attempt to keep interest rates low. But Mr. Greenspan will never admit that inflating is exactly what he’s been generously doing for the past 13 years.
  • A short time after Chairman Greenspan took over the reigns of the Federal Reserve the stock market crash of 1987 prompted him to alleviate concerns with a heavy dose of monetary inflation. Once again, in the slump of 1991 and 1992, he again re-ignited the financial bubble by more monetary inflation. There was no hesitation on Mr. Greenspan’s part to inflate as necessary to alleviate the conditions brought about by the Mexican financial crisis, the Asian crisis, the Russian ruble crisis, and with the Long-Term Capital Management crisis. Just one year ago the non-existent Y2K crisis prompted huge, unprecedented monetary inflation by the Federal Reserve. All these efforts kept interest rates below the market rate and contributed to the financial bubble that is now starting to deflate. But, there is no doubt that this monetary inflation did maintain an economy that seemed like it would never quit growing. Housing markets thrived, the stock market and bond market thrived, and in turn, the great profits made in these areas, especially gains made by stock market transactions, produced profits that inflated greatly the revenues that flowed into the Treasury. The serious problem that we now face, a collapsing stock market and a rapidly weakening economy, was caused by inflating the money supply along with artificially low interest rates. More inflation and continuing the policy of artificially low interest rates can’t possibly be the solution to the dilemma we face.
  • We should never blame economic growth as the culprit. Instead artificial growth, mal-investment, overcapacity, speculation, and excessive debt that comes from systematic monetary inflation should be blamed, since these are all a result of Federal Reserve Board policy. Let there be no doubt political and financial leaders will demand lower interest rates in order to alleviate the conditions that are developing. But just because a boom can come from generous Fed credit, it doesn’t mean the bubble economy can be maintained or re-inflated by easy credit once a correction sets in.
  • Besides, Alan Greenspan knows full well that the scenario we are now experiencing can be made worse by lowering interest rates. Under the conditions we are facing it’s very likely the dollar will weaken and deliberately lowering interest rates will accelerate this trend. Price inflation, which the Fed claims it is so concerned about, will not necessarily go away even with a weak economy. And the one thing we will come to realize that even the best of all central bankers, Alan Greenspan, will not be able to determine interest rates at all times of the business cycle. Inflation premiums, confidence, the value of the dollar, and political conditions all can affect interest rates and these are out of the control of the Federal Reserve Board.
  • Congress definitely should be concerned about these matters. Budgetary planning will get more difficult as the revenues spiral downward and spending does the opposite. Interest on the national debt will continue and will rise as interest rates rise. The weak dollar, lower stock markets and inflation can affect every fixed income citizen, especially the Social Security beneficiaries. We can expect the World Trade Organization=s managed trade war will actually get much worse under these conditions. Military conflict is not out of the question under the precarious conditions that are developing. Oil supplies are obviously not secure, as we have already seen the run up of prices to dangerously high levels.
  • The question is what should one expect the Federal Reserve Board to eventually do? We can expect it to continue to inflate as they have always chosen with every crisis. There’s no evidence that Alan Greenspan would choose to do anything else regardless of his expression of concern about inflation and the value of the dollar. Greenspan still believes he can control the pain and produce a weakened economy that will not get out of control. But there’s no way that he can guarantee that the United States might not slip into a prolonged lethargy, similar to what Japan is now experiencing. We can be certain that Congress will accommodate with whatever seems to be necessary by bailing out a weakened financial sector.
  • But all this will be done at the expense of the dollar. This is a dangerous process and makes our entire economic and financial system vulnerable.
  • We must someday recognize that neither Congress nor the Fed is supposed to “run” the economy. Yet we still live with the belief that the Administration, our Presidents, our Congress and the Federal Reserve should run the economy. This is a dangerous concepts and always leads to the painful corrections to so-called the good times for which everyone is anxious to take credit.
  • Congress does have responsibility for maintaining a sound dollar and a free market and not much else. Unfortunately this responsibility that is clearly stated in the Constitution is ignored.
  • A major financial crisis is possible since the dollar is the reserve currency of the world, held in central banks as if it were gold itself. The current account deficit for the United States continues to deteriorate, warning us of danger ahead. Our foreign debt of $1.7 trillion continues to grow rapidly and it will eventually have to be paid.
  • Action by the Congress and the Federal Reserve will most likely make the correction that is now starting much worse. Also, under conditions such as these, personal liberty is always vulnerable to the advocates of big government. It is well known that during the times of military wars personal liberties are in endangered. Social wars such as the war on drugs are notorious for undermining the principles of liberty. So too, under economic conditions that are difficult to understand and deal with, personal liberty comes under attack. This should concern us all.

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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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