United States House of Representatives
Statement at Financial Services Committee Hearing
July 21, 2009
(Watch on YouTube)
The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit, created out of thin air, can provide sustained economic growth has delivered this crisis to us. Instead of economic growth and stable prices it has given us a system of government and finance that now threatens the world financial and political institutions.
Real unemployment is now 20% and there has not been any economic growth since the onset of the crisis in the year 2000, according to non-government statistics. Pyramiding debt and credit expansion, over the past 38 years, has come to an abrupt end—as predicted by free-market economists. Pursuing the same policy of excessive spending, debt expansion, and monetary inflation, can only compound the problems and prevent the required correction. Doubling the money supply didn’t work; quadrupling it won’t work either. The problem of debt must be addressed.
Expanding debt when it was a principal cause of the crisis is foolhardy. Excessive government and private debt is a consequence of a loose Federal Reserve monetary policy. Once a debt crisis hits, the solution must be paying it off or liquidating it. We are doing neither. Net US debt is now 372% of GDP. In the crisis of the 1930s it peaked at 301%. Household debt services requires 14% of the disposable income—an historic high. Between 2000 and 2007 credit debt expanded five times as fast as gross domestic product.
With no restraint on spending, and revenues dropping due to the weak economy, raising taxes will be poison to the economy. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile. Monetizing government debt, as the Fed is currently doing, is destined to do great harm. In the past 12 months the national debt has risen over $2.7 trillion. Future entitlement obligations are now reaching $100 trillion. US foreign indebtedness is $6 trillion. Foreign purchases of US securities in May were $7.4 billion, down from a monthly peak of $95 billion in 2006.
The fact that the Fed had to buy $38.5 billion of government securities last week indicates that it will continue its complicity with Congress to monetize the rapidly expanding deficit. This policy is used to pay for the socialization of America and for the maintenance of an unwise American empire overseas, and to make up for the diminished appetite of foreigners for our debt.
Since the attack on the dollar will continue, I would suggest that the problems we have faced so far are nothing compared to what it will be like when the world, not only rejects our debt, but our dollar as well. That’s when we’ll witness political turmoil which will be to no one’s benefit.