March 18, 2011
By Ron Paul
Before the US House of Representatives Committee on Financial Services Monetary Policy and Rising Prices, March 17, 2011
There is perhaps no topic as important to the average American today as rising prices. Whether we consider food, gasoline, or clothing, the cost of living is increasing significantly. At a time of high unemployment, rising prices trap American families between a rock and a hard place. While rising prices colloquially are referred to as “inflation,” true inflation is defined as an increase in the money supply, and all other things being equal, an increase in the money supply leads to a rise in prices. Inflation is and always has been throughout history a monetary phenomenon, and its destructive effects have ruined societies from the Roman Empire to Weimar Germany to modern-day Zimbabwe.
Blame for the most recent round of price increases has been laid at the feet of the Federal Reserve’s program of quantitative easing, and rightly so in my opinion. This program, known as QE2, sought to purchase a total of $900 billion in US Treasury debt over a period of 8 months. Roughly $110 billion of newly created money is flooding into markets each month, markets which still have not fully recovered from the financial crisis of the last few years. Banks still hold billions of dollars in underperforming mortgage-backed securities on their books, securities which would render numerous major banks insolvent if they were “marked to market.” These nervous banks are hesitant to loan out further money, instead holding well over a trillion dollars on reserve with the Fed. Is it any wonder, then, that the Fed’s new hot money is flowing into commodity markets? Read More
