Doug Noland sends a "shout out" to Fleck & all his homies. What, no mention of Luc? -g-
prudentbear.com
Ron Paul, kicking ass and taking names:
Texas Representative Ron Paul: Thank you. Welcome, Mr. Chairman
(Greenspan). In the last few weeks you have received a fair amount of
criticism and suggestions about what to do with interest rates and the
economy. And I think that's going to continue, because I suspect that we
are moving into what you call -- you do not call a recession, but a
retrenchment. I guess that may be a new word. But anyway, there will be
a lot of suggestions, and I do not want to presume that I want to make a
suggestion what interest rates should be, but I would like to address more
the system that you have been asked to manage, because in many ways I
think it's an unmanageable system, and yet it's key to what's happening in
our economy.
We have a system that you operate where you are asked to lower
interest rates. And I would like to remind my colleagues and everybody
else that when you're asked to lower interest rates, you're asked, really,
to expand the money supply, because you have to go out and buy
something. You buy debt. So every time somebody says “Lower the
interest rates” they'll say, “Inflate the money.” And I think that's
important. You had a little conversation before about the money supply,
conceded it was important, but you don't even know what the good proxy
is, so it's very difficult to talk about the money supply. I'm disappointed
that we don't concentrate on that, talk about it more, even to the point
now that we are -- you no longer make projections.
I think this is a mission almost of defeat. There's no requirement for you
to say, “Well, we're going to expand the money supply at a precise rate.”
So we're past that point of a tradition that has existed for a long time. But
I think it's an unmanageable system, and it leads to bad ideas and bad
consequences, because we concentrate on prices, which is a consequence
of the inflation of the money supply. And therefore, if a PPI (producer
price index) is satisfactory, we neglect the fact that the money supply is
surging and that it's doing a lot of mischief. And therefore we talk about,
“Well, maybe if we just slow up the economy, if we slow up the economy,
it's going to take care of the inflation.” I think we're really missing the
point.
But you did mention a couple of words in your testimony today that I
thought were important, acknowledging that there are problems in the
economy that we have to address. You talked about excesses and
imbalances and the need for retrenchment. And I believe what is
important is that we connect the excesses and the imbalances to the
policy that you operate, because I think it is key. And instead of saying
and being reassured that the PPI is okay, if we looked at the excesses,
maybe there would have been an indication that there was a problem in
the overspeculation in the stock market.
But here we have a monetary system that creates a speculation where
NASDAQ goes to 5000 and then we have a lot of analysts telling us it's a
good buy, and yet you're now citing the analysts that say, “Well, we can
be reassured because these analysts are saying, you know, there's going
to be a lot of growth.” So I'm not sure which analysts you're quoting, but
I'm not sure that would be all that reassuring.
But I think we should really talk about the money supply and what we're
doing. In 1996, you expressed a concern about irrational exuberance in
the stock market, and I think that was very justified. But since that time,
the money supply, measured by M-3, went up two and a quarter trillion
dollars. And the stock market, of course, has soared. And I see those
imbalances as a consequence of excessive credit.
And the system has defects in it. You're expected to know what the
proper interest rate is. I don't think you can know it or the Federal
Reserve. I think only the market can dictate the proper interest rate. I
don't think you know what the proper money supply is. You admit you
don't have a good proxy. And yet that is the job, and yet all we ever hear
are the people coming and saying, “Now, Mr. Greenspan, if you want to
avert a downturn, if you want to save us, just print more money.” And
that's essentially what the system is doing. |
