United Liberty

Ben Bernanke is showing himself to be more of a Big-Government politician than a scientist. In his latest speech, he has tried to defend the actions of his predecessors by claiming that their easy-money monetary policy only holds five percent of the responsibility for the high real estate prices that ignited the boom-and-bust bubble that almost broke the back of the global economy.

According to his analysis, 30 percent of the responsibility goes to what he has been calling the “global savings glut.” The other 65 percent, he says, belongs to the inferior standards of the US mortgage market. Therefore, his argument seems to be saying that if we cure the standards we cure the problem.

He attempts to prove his point by demonstrating through charts that other countries had even looser monetary policy than the US, and yet they did not show a worse real estate boom; therefore, he concludes, loose monetary policy does not cause bubbles.

This sounds convincing, coming as it does from the highest-placed economic academician in the land. But his logic is flawed.

There are two problems with his argument. First, you cannot isolate these particular variables as he has done. To do so is the equivalent of saying Michael Phelps eats a lot, and he is not obese, therefore a high-calorie diet does not cause obesity. (Michael Phelps is the Olympic medalist swimmer who purportedly eats around 8,000-10,000 calories a day. A scientist could probably prove that he also spends almost 8,000-10,000 calories a day in his sports activities.)

Every year the Ludwig von Mises Institute in Auburn, AL hosts a conference for scholars of the Austrian tradition to come together and share essays and ideas.  This year’s conference was loaded with big names and reputable authors among the Libertarian and generally liberty-minded.

Naturally a recurrent theme of this lecture was monetary policy, specifically having to do with the dollar’s spiral toward hyper-inflation in the midst of the current economic collapse.  Schiff stressed that sooner than later the rest of the world, more importantly those still buying our debt would wise up to our inability to repay those fiscal obligations.  He told a short story about a wily old man in a certain neighborhood who had hoodwinked the neighborhood kids into vying for the job of painting his fence.  He related the metaphor by surmising, “We’ve got the world painting our fences, as if they don’t have their own fences to paint.”  Essentially, he said the way it is now, we get all the stuff and they only get the jobs.  He then fittingly asked, “What good are jobs without stuff?”  In short, we are barreling straight toward a currency crisis.

Dr. Paul explains why the Federal Reserve needs to go and why the free market and saving money (vs. printing money) is part of the solution to the current crisis.