Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Bernanke Stumped by Representative Ron Paul

By

In today's testimony before the house, Fed Chairman Bernanke was questioned by Representative Ron Paul in what was a remarkable exchange.

PrintPRINT

In today's testimony before the house, Fed Chairman Bernanke was questioned by Representative Ron Paul in what was a remarkable exchange. Remarkable for how straightforward, lucid, and anti-statist the question was. In his questioning, Ron Paul stated:

"I want to follow up on the discussion about moral hazard. I think we have a very narrow understanding about what moral hazard really is. Because I think moral hazard begins at the very moment that we create artificially low interest rates which we constantly do. And this is the reason people make mistakes. It isn't because human nature causes us to make all these mistakes, but there is a normal reaction when interest rates are low that there will be overinvestment and malinvestment, excessive debt, and then there are consequences from this. My question is going to be around the subject of how can it ever be morally justifiable to deliberately depreciate the value of our currency?"


His statements continued (about how much oil, gold, wheat, corn, etc. has gone up since the rate decrease) but the heart of his question was the following moral question: ...consciously depreciating the value of the USD has winners and losers (Wall Street/banks/the rich and everyone else), Mr. Bernanke. How do you constantly choose Wall Street over the rest of America?

You will not be surprised to know that B-52 Ben didn't answer the question. He couldn't answer the question (at least truthfully). Was he going to say that the Federal Reserve is a quasi-private institution whose prime directive is to cartelize and protect the profits of the banking industry? Was he going to say that the only policy the Fed knows is based on the flawed Keynesian logic that wealth can be created out of thin air via printing presses? Of course not.

But his non-answer is not germane. The element that Ron Paul introduced is: the morality of the Federal Reserve's constant injection of credit into the system at the slightest hint of macroeconomic distress. And I mean slightest: we haven't even seen a GDP print below 0. We were only down 4.2% from the ALL TIME high in the Dow (the Fed's own research suggests that the stock market is the best leading indicator of the economy).

Back in July of 2006, I wrote a piece introducing this moral element into the discussion of the Federal Reserve's monetary policies. I wrote then words that today, after a pre-emptive, forestalling 50 basis points decrease and more than $1 trillion in worldwide central bank injections of credit, are as germane as ever:

"A constant loss of value in the monetary unit forces all manner of dire consequences on economic actors: it favors consumption over saving, speculation over investment, capital over labor, and the young over the old; it prevents accurate economic calculation about the future and thus clouds investment horizons; it hollows out a country's middle class making for more class conflict between haves and have nots… there are grave time preference consequences as well that impact not only long term investment projects (as noted above) but also the very manner in which parents raise their children and how children care for their ageing parents, as well as the lessons of frugality and hard work that once were the bedrock of this nation."


Bravo to Ron Paul for giving voice to the hundreds of millions or pensioners, savers, working stiffs, poor, fixed income beneficiaries, laborers, gasoline-, bread-, milk-, and egg-buyers who weren't able to ask Mr. Bernanke why he – like every Fed chairman before him since 1913 – screwed them for the benefit of the top 5% of the population of this country.

No positions in stocks mentioned.

The informatio= n on this website solely reflects the analysis of or opinion about the perf= ormance of securities and financial markets by the writers whose articles a= ppear on the site. The views expressed by the writers are not necessarily t= he views of Minyanville Media, Inc. or members of its management. Nothing c= ontained on the website is intended to constitute a recommendation or advic= e addressed to an individual investor or category of investors to purchase,= sell or hold any security, or to take any action with respect to the prosp= ective movement of the securities markets or to solicit the purchase or sal= e of any security. Any investment decisions must be made by the reader eith= er individually or in consultation with his or her investment professional.= Minyanville writers and staff may trade or hold positions in securities th= at are discussed in articles appearing on the website. Writers of articles = are required to disclose whether they have a position in any stock or fund = discussed in an article, but are not permitted to disclose the size or dire= ction of the position. Nothing on this website is intended to solicit busin= ess of any kind for a writer's business or fund. Minyanville management= and staff as well as contributing writers will not respond to emails or ot= her communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.<= /p>

PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE