Ron Paul: "Bailout" bill could trigger a major depression
By Peter Duveen
PETER'S NEW YORK, Oct. 2, 2008--The so-called financial "bailout"
package making its way through the halls of Congress could end up
tanking the economy, warned maverick Republican Congressman Ron Paul in
a televised appearance today.
“We’re trying to prop up bad debt,” said Paul of the
now famous bailout bill, a version of which was rejected by the
House of Representatives earlier this week, but which passed the Senate
last night, and which is headed for a vote in the House again. Paul
made his remarks in a brief telephone interview aired on Starting Bell,
a morning program on the Bloomberg cable financial news network
The bailout bill was introduced in both houses of Congress to stave off
what proponents claim is an unprecedented banking crisis caused by the
drying up of credit. The government has spent hundreds of billions of
dollars presiding over the rescuse or dissolution of of several
major financial concerns in recent weeks, including brokerage and
investment banker Bear Stearns; the two major players in the
mortgage market; Fannie Mae and Freddy Mack; the giant insurer
AIG; and, in what became the largest rescue of a commercial bank in
U.S. history, Washington Mutual. In the meantime, there have been
several corporate reorganizations in the financial sector involving
billions of dollars in new investment, much of it from overseas or from
private sources in the United States. All of this activity points to a
major hazard facing the financial sector, reportedly triggered by a
crumbling of the real estate investment sector over the past year.
The charge on behalf of the bailout bill is is being led by U.S.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben
Bernanke. It is designed to stave off financial collapse, proponents
contend, by injecting upwards of $700 billion in liquidity into the
banking sector through the purchase of poorly performing assets from
banks' balance sheets, courtesy of the American taxpayer.
But Congressman Paul argued that a bailout does not address the
underlying problems that caused the current crisis.The bad debt should
be “wiped off the books” rather than purchased by
taxpayers, Paul argued. The Texas congressman said he would vote
against the bill, citing a response of 9-1 against it by his
On a more ominous note, Paul warned of lean economic times ahead.
“We will have our recession,” he said, warning that it
could turn into a major "depression" if the bailout bill in its current
form was signed into law. "We built this problem by...irresponsible
spending," Paul said. He said the bailout bill would make the economy
worse. "It's propping up bad debt with more spending," he said. "As
long as you can create new money, you create more inflation" he said,
making an oblique reference to the power of the Federal Reserve to
introduce new money into the banking system.
Before the late 1960s, the Fed had to keep a percentage of gold on hand
for every Federal Reserve note it issued. These constraints were
removed by Congress in the mid to late 1960s during the administration
of President Lyndon Johnson, thus giving the Fed a blank check on how
much currency it could put into circulation. It forced Johnson's
successor, President Richard Nixon, to remove the final restraint
pegging the dollar to a fixed gold price. This created an inflationary
spiral that was not quashed until the mid-1980s due to the restrained
monetary policy of then-Fed Chairman Paul Volcker. Paul's remarks
indicated that he believes the economy could be headed for a similar
But Paul had a few good things to say about the current version of the
bailout bill. "I think there have been a few improvements," Paul said,
citing tax breaks and cuts tacked on to the $700 billion in
taxpayer-funded buyouts that could make the bill more appealing to
legislators. "Maybe the markets will like that for a little while."
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