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Last
week, the Financial Crisis Inquiry Commission (FCIC) presented its results to
the Financial Services Committee. As with most other politically-appointed
commissions, the results of the FCIC's investigation were easy to predict.
Established by the same congress that gave us national healthcare and with a
majority of its members appointed by those who seek to solve every problem
with more government intervention, it was no surprise that the commission's
findings would favor increased government intervention in the economy.
Minority members were not substantively involved in the commission's
operations, and the commission attempted to exclude their dissenting views by
granting them very limited space to do so.
However,
even the minority members of the commission failed to consider the most
important cause of the financial crisis, namely the Federal Reserve's loose
monetary policy. Almost a century ago, in 1912, Ludwig von Mises published
his great work The Theory of Money and Credit. This was the first systematic
description of Austrian Business Cycle Theory (ABCT), which explains the
origins of the business cycle in monetary expansion. This theory explains why
so many businessmen make so many of the same errors at the same time. Yet not
a single member of the commission undertook an analysis of the financial
crisis from an Austrian economic viewpoint.
Instead,
blame was placed on failures in financial regulation and corporate
governance, excessive borrowing and risky investments, and expansion of
subprime lending, among other factors. But none of these explanations can
answer why this crisis occurred. Why was there excessive borrowing? Why was
there an explosion of subprime lending? Why were there failures in corporate
governance? Why did virtually no one except Austrian economists see this
coming?
Without
the Federal Reserve's massive expansion of credit throughout the 1990s and
early 2000s, there could have been no excessive borrowing or explosion of
subprime lending. Through easy credit, the Fed initiated the economic boom
that created the dot-com bubble. When that bubble burst the Fed pumped
additional liquidity into the system, which led to a new boom that created
the housing bubble. And now the Fed's additional trillions of dollars in
monetary pumping is creating yet another bubble. This is the exact opposite
of stability in the marketplace and has nothing to do with free markets. It
is central economic planning at its worst.
It is
imperative that the historic record accurately reflect what actually
happened. In the popular press we see columnists attempting to blame the
financial crisis on the "small-government," "free-market"
policies of President Bush. Hundreds of billions of dollars in stimulus
payments, a $700 billion bailout program, and trillions of dollars of Federal
Reserve credit facilities hardly represent small-government and free-market
principles in action! On the contrary, these government interventions by both
major parties demonstrate quite clearly our nation's acceptance of crony
capitalism.
Schoolchildren
today are taught the myth that Herbert Hoover was a small-government
President who did nothing to stop the Depression, while the truth is exactly
the opposite. Fed Chairman Bernanke failed to understand the true cause of
the Great Depression, so his policy prescriptions to combat the current
crisis are understandably flawed. Unless we confront and correct false
economic rhetoric, truly understand the causes of the economic crisis, and do
away with our loose monetary policy, we will find ourselves in ever more
vicious business cycles.
Ron Paul
www.house.gov/paul
Copyright Dr. Ron
Paul
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