Senator Rand Paul, son of famous libertarian father Congressman Ron Paul, recently had a very interesting discussion with Treasury Secretary Timothy Geithner over Federal Reserve policy. You can see it reproduced below in this video.
Part of the reason that this video hasn't gotten more attention in libertarian circles is because Geithner, at the end, seems to have an effective comeback to Rand Paul's criticisms.
From our point of view, this back-and-forth illustrates three things:
• First, Rand Paul's heart is in the right place in taking on this battle over the Fed's legally granted money monopoly.
• Second, if one is to argue against a money monopoly, one had best be prepared to face arguments of the most devious kind of sophistry, such as those employed by Geithner in defense of the Fed.
• Third, the conversation between the two men shows the difficult of discussing a subject like monetary policy in soundbites.
Rand Paul was correct but Geithner seems to have made a legitimate rebuttal – although, in fact, he did not. There was not enough time for Rand Paul to argue the case. Let's re-address it right now.
Rand Paul told Geithner that what caused the housing crash was primarily low Fed rates throughout the 2000s that led to a housing bubble and then a crash. Geithner responded by saying that the Fed only had power over short-term rates and that long-term rates were a function of the market.
He also said that rates stayed down because there was a lot of money sloshing around due to the puncturing of the tech bubble earlier. Rand Paul eventually changed the subject.
Geithner is very smart and quick on his feet and as we said, it is very hard to truly discuss these subjects in soundbites. But here is what occurs to us:
• The Fed fixes the price and value of money. Price-fixing distorts markets. No question about this. It is ineluctable.
• While short-term rates may not affect long-term rates directly, they may do so indirectly. There are all sorts of arbitrages that can take place when money is "cheap." And people can take cheap money and buy more "expensive" money with it.
• The Fed "prints" money as well as tampers with interest rates. By swelling the volume of money, central bankers make money less expensive.
• Rand Paul didn't know it at the time but Ben Bernanke, et al., were about to make a confession that they'd lent some US$16 trillion to American banks in 2008, in aggregate. These were apparently short-term loans, but nonetheless the effect was highly distortive. If someone lent YOU a trillion dollars, wouldn't that expand your money supply?
What it comes down to is that central banks – especially the Fed – have numerous ways of over-printing money. One would have to be INSIDE one of these operations to understand fully all the ways that price-fixing takes place. But it does.
Central banks are price-fixing machines for money and not all of Secretary Geithner's evasiveness can diminish that single, ruinous fact. You can see the dialogue here:
(From RandPaul's YouTube user channel.)
source @DailyBell
