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Ron Paul Dear Colleague Regarding Exchange Stabilization Fund Amendment

Ron Paul Dear Colleague Regarding Exchange Stabilization Fund Amendment
July 15, 1998

(J. Bradley Jansen was Ron Paul’s legislative staffer for these issues at this time)

Ron Paul letter on ESF

Let’s Return Accountability to the People’s Money
Support Congressional Oversight on the Treasury-Postal Operations Approps.


July 15, 1998
Dear Colleague,

In 1934, the Gold Reserve Act created the Exchange Stabilization Fund and ended redeemability of gold domestically–indeed outlawing its ownership for our own citizens (rescinded decades later)–but reaffirmed to foreign central banks the dollar’s redeemability in gold at a fixed rate to them. FDR then devalued the dollar 40% against gold thereby destroying the wealth (purchasing power) of Americans and deepening the Great Depression.

In 1971, Pres. Nixon “closed the gold window” ending both redeemability of gold internationally (severing any fixed link of the dollar to gold) and any Congressionally-authorized need for the ESF.

In 1995, Congress passed, by a solid margin of 245-183, a similar amendment. A better use of the money would be to end the fund altogether and use the money for education tax credits.

Myths and Facts regarding the ESF

MYTH: The ESF is the chief U.S. weapon for stabilizing the U.S. dollar.
FACT: Foreign exchange traders base their perceptions of the value of currencies primarily on economic fundamentals: strength of the economy, net foreign borrowing, and interest rate differentials. About 80% of the up to $2 trillion dollars traded daily on the foreign exchange markets are conducted in U.S. dollars–ESF funds are irrelevant. The Soros, Moore Capital and Tiger hedge funds have a proven ability to make money at the expense of the U.S. taxpayer and alter exchange rates not justified by underlying economic fundamentals, e.g. Britain in the ERM.

MYTH: Restrictions on the ESF could result in dollar volatility.
FACT: Says Treasury Secretary Rubin and others, governmental intervention in the foreign exchange markets has no lasting effect. One of the best arguments to counter dollar volatility was proposed by Alan Greenspan in a Wall Street Journal article “Can the U.S. Return to a Gold Standard?” (September 1, 1981), advocating the return to the gold standard for dollar stability.

MYTH: The ESF never loses money.
FACT: “There were gains and losses that no one ever knew about…says one former Treasury official, literally, we would lose $10 million and other times we’d accidentally make $50 million (The Slush Fund, by Julie Corwin).” We need the Congressional oversight in this amendment.

MYTH: IMF and ESF loans to Mexico were a success.
FACT: Successful for rich investors and corrupt government officials, perhaps, but real per capita Mexican GDP in 1996 was only what it was in 1974 while its debt increased from $40 billion to $160 billion in the same period (Prof. Allan Meltzer before the JEC, February 24, 1998).

MYTH: The intervention to support the Japanese yen maintained a strong & stable dollar.
FACT: The goal of the recent U.S. Treasury intervention was actually to weaken the U.S. dollar, not make it stronger, against the Japanese yen.

The ESF started with the paper “profits” of the FDR devaluation which stole 40% of the value of the people’s money. The people’s chamber should have some say over the use of the money.
Let’s return to Congressional oversight of the ESF. Vote for the amendment.


Ron Paul