Ron Paul’s Dissenting View on IMF Bill
Ron Paul’s Dissenting View on International Monetary Fund Quota Increase
(J. Bradley Jansen was Ron Paul’s legislative staffer for these issues at this time)
Dissenting View by Ron Paul
H.R. 3114 should be rejected. We should provide no additional funds to the International Monetary Fund. Created in the postwar era as an institution to manage the global fixed exchange rate system, the IMF lost any remaining justification for United States’ continued involvement when President Richard Nixon closed the gold window in 1971. The IMF’s charge of maintaining “pegged but adjustable exchange rates” no longer suits the current global financial system. The IMF has not proven to be an effective tool in managing international currencies and has done nothing to effectively warn us of the dangers that have marred the international financial system over the past several years. The bail-out of Mexico three years ago only served to encourage the same monetary policies that are now giving us the crisis in Southeast Asia. We are at a point in our history where formidable figures, like former Secretaries of the Treasury Simon and Schultz, are calling for getting out of the IMF, and Congress should give that serious consideration.
Cause of the Current Problem
The basic cause of the current crisis the various nations are facing in Southeast Asia, comes from a flawed monetary policy. These countries have inflated their currencies at a 20 to 30% rate over the past decade which has led to mal-investment, excess debt, over capacity, and an artificial boom period which predictably leads to a corrective bust. Fluctuating fiat currencies, according to sound monetary theory, always produces financial and monetary chaos. Without considering the basic cause of the problems
that exist in Southeast Asia, we are unable to devise sound policy here at home or internationally.
The most important Congressional responsibility, with regards to currencies, is to maintain a sound dollar. It’s now been 27 years since our currency has been linked to gold. Since that time the dollar has lost more than 50% of its value. The Constitution mandates that only silver and gold can be legal tender, and because this admonition has been ignored in dollar terms, gold has gone up nearly tenfold. If we continue to follow current policy of bailing out foreign countries through appropriations and
further credit expansion, we do exactly the opposite of what we should be doing. This will further undermine the value of the dollar, expand our trade imbalances and lead to a crisis in the United States similar to that which Southeast Asia is facing today. We should never lose sight of our responsibility to maintain the value of the dollar. We certainly should never deliberately undermine the value of the dollar in a feeble attempt to prop up the value of other currencies, for whatever reason.
Great danger lies ahead. I agree that the markets are in great danger but this is no justification for doing the wrong thing. It is true that protectionist sentiments may well result from current conditions. Obviously, competitive devaluations are even more troublesome than the lesser efforts at protectionism through tariffs. All world governments and central banks have embarked on a program of systematic inflation of their respective currencies which serve to lower their value in the marketplace. The currency crises and trade disruptions are indeed very serious because, if uncorrected, they will lead to political chaos. My disagreement with those who have expressed the concern about the impending danger is that we ought not continue the very policy that brought Southeast Asia their crisis.
The only answer is a new approach to understanding currencies. A universal worldwide currency controlled by the marketplace and not the politicians would go a long way toward solving many of our financial and trade problems. Just as it would be devastating for the United States to have 50 different currencies, it is chronically disruptive for hundreds of countries throughout the world expanding credit at different rates and pretending that a sound efficient economy can operate under those conditions. The serious shortcoming of chronic currency devaluation is that although the money supply may gradually increase, the ramifications of these increases do not come in the same manner–they come with sudden jolts to the value of the currency as well as to consumer prices.
There are three significant reasons why we in the Congress should oppose the IMF bailout: moral, economic and political. It’s morally wrong to take funds from innocent taxpayers and give this to special interests, whether they be foreign corporations, foreign governments or for the benefit of the lending agencies in this country, as well as U.S. corporations who have invested in Southeast Asia. A lack of understanding of how credit creation undermines the value of the dollar will make it difficult, if not impossible, to prevent the currency crisis from affecting our economy; transferring wealth from one country to another, diluting the value of stronger currency for the benefit of a poorer currency, can never
rectify the serious harm done by decades of monetary mischief. Redistributing wealth through government undermines the political foundations of voluntary exchange and prosperity.
The amendment offered by Representatives McCollum, Bachus, Barr and myself to sunset the Bretton Woods Act in three years and call for the Treasury to report on alternatives in two years is the first, responsible step that must be taken. The IMF has outlived whatever justification it might have had; it has no place in the new era of floating exchange rates.
A defeat of the IMF appropriations by the United States will be a very positive step in the direction of tackling the very serious problem which must be addressed. That is, promoting a sound currency for the United States and setting an example for the world. Only a gold or other commodity standard of money can do this. Political, or paper money, can only work for a short period of time and significantly enables authoritarian governments.