During Bernake’s testimony last week at Congress,Bernake was grilled by Ron Paul (the congressman running for President.) He is a libertarian who is fundamentally opposed to all the government intervention in our economy and all the damage that the Fed has done through its free money policy.
Here is a synopsis of his testimony:
“We [need to] get down to the bottom of this and define what inflation is, and not look at only prices. Beware, [the central banks] will increase money supply, but they will make you concentrate on prices. And they will give you CPIs and PPIs and fudge those figures.”
“We ignore the fundamental flaw, and that is not only have we had a subprime market in housing, the whole economic system is subprime in that we have artificially low interest rates. This has been going on for 10 years or longer, and now we are bearing the fruits of that policy.
“Instead of looking at consumer prices, which nobody in this country really believes, we need to talk about the distortion, the malinvestment, the misdirection, the bad information that is gotten from artificially low interest rates. In many ways, people refer to you as a price fixer. You fix interest rates. When the Fed fixes interest rates at 1%, that is price fixing.
“The real deception is when we distort the value of money, when we create money out of thin air.
“We have to get back to the very fundamentals of where this problem [bubbles] comes from. And the bubbles occur when we have mal-investment and the creation of new money.
“So my question boils down to this: How in the world can we expect to solve the problems of inflation — that is the increase in the supply of money — with more inflation?”
Ron Paul has it correct. The latest move to cut interest rates is the exact opposite of what we need. We have an inflation problem and the Fed’s response has been to cut interest rates. Buy Gold!
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