 will be made part of the record. The chair notes that some members may have additional questions for this panel which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses and to place their responses in the record. And I understand that are there any other opening statements? Okay, I will make a brief opening statement and we'll go to our witnesses. The monetary issue has been an issue that I have been fascinated with and interested in for a long time. I became much more aware of the significance of this issue back in August of 1971 with the breakdown of the Bretton Woods Agreement. At that time I was quite convinced and remain convinced that we have ushered in a special age that probably did not exist in the same fashion ever before and we now have been living for four decades with a total fiat world currency and it has created a lot of problems for us. I'm convinced also that we're on the verge of a change from the current status just as significant as it was in 1971. Something had to give but there was a change and I think this is what the conflict in the markets and the chaos in the markets is telling us but too often the people in the Congress and looking elsewhere to solve the problems. We as a Congress have lived way beyond our means because the people in this country want us to live beyond our means and the monetary issue of course is very significant because it actually facilitates the spending so without the type of system of money that we have today there would have been a limitation on the massive expansion of size of government spending taxes debt and the crisis that we're facing right now but very few are even thinking about monetary policy as a significant contributor to our economic problems we have today and yet more tensions has been given to the Federal Reserve in recent years than it has in the past but we have a long way to go but there are more and more people on both sides of this issue who are recognizing that monetary reform eventually will come. The big question is will they try to patch this up or transfer this into another system that is not much better than the one we have in many ways that what that's what we did in 1971 we had a dollar reserve gold standard that broke down and then we ushered in something actually worse it probably lasted a lot longer than a lot of people expected but today because of the crisis I think many are just wondering what is going to happen. Now I've had a position for a long time about what I think we should do with the Federal Reserve and I don't believe it contributes all that much but I've also taken the position that if I had the authority to do it I probably wouldn't take the key lock the door and just allow the system to work its way out I think I would be very chaotic and that's not my position so as early on as the Gold Commission in the early 1980s even up until now I still believe that the best way to go from one system to another is to try to allow the market to help us we you know the British made a serious mistake when they tried to go back on the gold standard in 1920s and an old ratio of the dollar to the pound and it obviously failed of course it was blamed on the gold but not on the trend the policy of transition so the market has to help us on this the market has to help us if we ever want to relate our currency to gold again but I've been fascinated with some of the work of Hayek and others that talk about allowing currencies to compete with one another let the market sort it out and it's it's a lot less threatening other countries are talking about that the the Mexican government has talked about it the Swiss government has talked about just allowing other currencies to circulate within a in within their own country and when you think about it isn't that's what happens internationally all the time I mean currencies fluctuate all the time and that's one of the ways that they were able to keep the system together is allow the competing currencies to fluctuate on a minute-to-minute basis so there's no reason in the world that we couldn't adapt to allowing competing currency within our own country and then if people just love Federal Reserve notes and wants to spend Federal Reserve notes and save in Federal Reserve notes let them do it but others who might think that another system is better I think we ought to talk about legalizing it to me I like to summarize and saying why don't we legalize the Constitution and the Constitution it's been rather clear it might not have given us the perfect monetary system and we didn't follow it very well but at least it did indicate that the founders didn't like paper money they did not like emitting bills of credit they did not like fiat money and if we were to look just to the Constitution it would mean that we should reconsider commodity money something that governments can't control can't monopolize and let the market work so those are basically my thoughts on this issue so I'm anxious to hear the remarks from Dr. Parks and Dr. White on these issues because they've studied this for many many years and and and there's still a lot of questions to answer we do have a bill HR 1098 which is far from a perfect bill but it's something it's a place to get started in talking about what we might do and how we can do it because things could change rapidly although many of us have been thinking about this for many many years things could move rapidly currency destructions the end of currency sometimes move much quicker than everybody dreams that it could so a major crisis could come it could come next month or next year or in a few years but it to me it there's no guarantee that we have five or ten years to keep studying this I think that we need to get people engaged in this and talking about and understanding the monetary issue so I am very grateful to our our two guests coming today and being willing to submit their remarks and answer some questions for us so I will go to our first witness Dr. Lawrence Parks is the executive director and founder of the foundation for the advancement of monetary education Dr. Parks has studied money for 30 years and was a student of the free market economy Murray Rothbard his writings have appeared in the economist pensions and investment in the Washington Times among others he has authored and produced over 200 educational videos on the U.S. monetary system Dr. Parks is a member of the United Association of Labor Education and UAW 1981 AFCIO he received his Ph.D. in operations research from the Polytechnic Institute of New New York University and Dr. Parks go ahead and proceed and give your summary and then we will go to our next witness Dr. Parks push your button please try that well thank you very much Dr. Paul it's a great honor to be here and I appreciate the opportunity to pull that little bit closer to you please thank you very much Dr. Paul for inviting me I very much appreciate the opportunity to testify in support of HR 1098 the free competition and currency act of 2011 I'm honored to have been invited now I know it must sound like hyperbole but I believe that HR 1098 is perhaps the most important piece of legislation ever to come before the Congress because HR 1098 is necessary to make a transition from a certain catastrophic collapse of our unauthorized by the Constitution dishonest and unstable legal tender to the irredeemable paper ticket electronic monetary system well I suspect that this committee will be most interested in how this bill will affect jobs debt economic growth and capital markets pensions and a host of other important and timely topics I'm going to focus my opening statement with an example of the dishonesty which is the Achilles heel of the system of the present system by highlighting one of the many misrepresentations about our money there are three takeaway points from my testimony the first is that the system is not conformity with the Constitution the second and very importantly it is dishonest and thirdly it is unstable and in the process of blowing up perhaps while I'm testifying here today one can be certain of a complete collapse of this monetary system because there is no longer any market based self correcting mechanism for increasing debt increasing the money supply and increasing leverage and any system any physical system any social system any system without a self correcting mechanism blows up and with no exceptions the history of legal tender irredeemable paper ticket money is that it's purchasing power always approaches its cluster production which is zero now I want to explain why the system is dishonest there are myriad misrepresentations and non-disclosure of material information about what we call a dollar no amount of regulation or oversight committees will cure dishonesty the only remedy is honesty to illustrate what my view is the most egregious example of this dishonesty I give an example of silver although the same principle applies with gold now it was and remains inconvenient for people to carry around silver dollars because they're heavy and bulky and so what people did let's have that first exhibit up there okay what people did is that they deposited their silver dollars typically in a bank and received in exchange a promissory note aka a bank note or a note that bore the inscription that so many dollars have been deposited and the note is payable to the man payable to the bearer rather on demand so here's an example of a united states note and notice that this is not a dollar at the top of the bill are the words united states note not I don't know if you can see it from where you're sitting but under the image it says we'll pay to the bearer on demand one dollar well what is a dollar next slide please that's a dollar as put into law by alexander hamilton in the coinage act of 1792 but then the promise to pay a dollar let's have the next slide the promise to play a dollar was defaulted and here's the punchline the broken promissory note the dishonored promissory note is now represented as being a dollar this is a gross misrepresentation and is dishonest this paper this piece of paper is not even a valid note the signatures of the treasury of the united states and the secretary of the treasury are gratuitous and deceptive in other words what we use for money is just dishonored promissory notes and have been misrepresented to be dollars it means that all of the securities on our capital markets at home and abroad are denominated in dishonored promissory notes this has immense implication for trade jobs pensions military preparedness and almost everything else that's important now people have the notion that the congress can make the dollar anything the congress wants it to be and back it with specie or not or whatever this is demonstrably false the highest law in our country is the constitution and all of our laws have to be in conformity with it the word dollar is mentioned twice in the constitution but it is not defined in the constitution it's mentioned in connection with the slave tax which is no more but it's also mentioned in very importantly in the seventh amendment which guarantees everyone a right to a trial by jury for any dispute $20 or more now if it were true that the congress could redefine the dollar that would mean that the congress could redefine the seventh amendment which is ridiculous and so the question comes up what is the objective meaning of the dollar and in fact for the seventh amendment to have objective meaning the dollar has to have an objective meaning and what they're talking about the constitution let's have the next slide is the Spanish mill dollar sometimes called the piece of eight the Spanish had built mince all over the colonies and the Spanish mill dollar was ubiquitous and when independence was declared the colonies adopted the artist confederation which gave the congress the power to issue money called continentals here's an example of a continental $30 bill next slide please notice in titles I don't know if you can read it from where you're sitting notice it entitles the bearer to receive 30 Spanish mill dollars or the value thereof in gold and silver the value of a coin is its species content after independence was achieved and the constitution was adopted the United States did not want to rely on Spanish mince for its coins the U.S. wanted its own mince to mint its own coins including dollars to that end Alexander Hamilton then secretary of the treasury wrote the coinage act of 1792 wherein he tells us exactly what a dollar is and what a dollar is is 371.25 grains of silver where did Hamilton get that crazy number well that's what that was the silver content of the Spanish mill dollar so they couldn't just introduce some arbitrary coin because everybody had contracts in terms of dollars so the constitution requires that the dollar be a weight of silver now some might claim that if Hamilton defined the dollar this way perhaps it can be defined another way and that is not true either Hamilton's definition of a dollar was not arbitrary all he did was right until law was a ready effect now here's another way of looking at this issue go to the next slide please suppose we have a sign that says cat next slide and we hang it on a dog next slide does the dog become a cat and suppose the congress passes a law that says all the dogs with cat signs with the cat signs are now cats go to the next slide now all these dogs cats and the answer is no and conceptually this is no different than taking a piece of paper printing a word dollar on it adding seals and signatures and calling it a dollar and this is precisely what has happened to our money clearly there is no easy remedy how could such an immense fraud be perpetrated well there's several reasons but one of the most important which HR 1098 will go a long way to correcting is that we're coerced to using fraudulent money by the legal tender statutes by getting rid of legal tender HR 1098 is necessary and may be sufficient to help pave the way to an honest monetary system i'm going to stop now and give you a chance to address any questions or issues that may come to mind thank you so much i thank you i'd like to go next to uh dr white uh dr laurence white is professor of economics at george mason university where he specializes in the theory and history of banking and money dr white has written extensively on monetary systems with over 40 articles published in academic journals including the american economic review and the journal of monetary economics he has also authored three books on monetary matters including competition and currency he received his phd in economics from uc la and his undergraduate in economics from harvard and dr white you may proceed thank you mr chairman thanks for the opportunity to discuss my views on hr 1098 the free competition and currency act of 2011 i'm going to have to be very sweeping given the limited time but i'll be happy to answer any questions you might have about historical or other details the idea of competition and currency or you might call it competition among currencies uh is fairly straightforward we know as a rule that open competition gives us better products higher quality at lower cost for example we have faster and more reliable package delivery thanks to the competition of fedex and united parcel service with the us postal service the main point i want to emphasize today is that competition and currency isn't any exception to this general rule more competition promotes better currency let me give you some examples throughout history currency has been better provided by freely competing private enterprises then by government monopoly or by legally protected private monopoly the u.s had competing gold and silver mints at one time during our golden silver rushes and they produced very trustworthy coins these private mints ended only when they were suppressed by civil war legislation part of which hr 1098 aims to repeal redeemable private tokens and redeemable bank-issued paper currency notes have also been popular forms of money in the 60 plus parts of the world where they've been allowed hr 1098 would lift legal barriers to currency competition it wouldn't immediately remove the u.s treasury or the federal reserve system from issuing currency but and this is the second point i want to emphasize competition would give the fed better incentives better incentives to provide the kind of money that people want sound money stable valued money trustworthy money it would give the fed better incentives to avoid creating inflation in other words because its customers could begin to go elsewhere the u.s dollar already faces competition and i would say useful competition in the international arena right people have a choice in the international trade between the dollar and the euro the swiss frank and they can invest in gold and silver so there are many monetary standards in the world hr 1098 would open the door to similar kinds of competition within the domestic arena between federal reserve notes and other currencies it won't make the federal reserve note go away as dr paul said if people want to use federal reserve notes new forms of currency won't gain a foothold in the market any faster than the public has reason to prefer them to federal reserve notes so the fed can retain its business as long as it provides a high quality product but if the fed slips up in quality control meaning if double digit inflation should unfortunately return to the united states then the american public would find it very useful to have trustworthy alternatives to federal reserve notes that are depreciating in their pockets so this act offers three concrete reforms and let me talk about them briefly section two of the act removes legal tender status from treasury coins in federal reserve notes legal tender is has a more narrow scope than is often realized it relates to the discharge of debts so the phrase on federal reserve notes legal tender for all debts means that under current law a creditor is barred from refusing payment in federal reserve notes but it's perfectly feasible to have debt contracts without legal tender and in fact there's already an important class of contracts that are today exempt from legal tender provisions under title 31 section 51 18 d2 the obligations created by gold clause bonds are not discharged by delivery of legal tender today right that section says the bond issuer has a contractual obligation to pay in gold that's what the contract says and that will be enforced so removing legal tender status from us treasury coins in federal reserve notes more generally would simply broaden the freedom to denominate debt contracts in whatever people want not just dollars not just gold but they might want silver they might want to say the debt is only discharged by checks or wire transfers of dollars or it could be silver coins or it could be units of foreign currency claims denominated in consumer index bundles or wholesale commodity bundles or it could be bitcoins section three of the act rules out federal or state taxes on precious metal coins whether minted by a foreign government or by a private firm that would allow a more level playing field for competition of private coins with the us treasury coins without the special tax disadvantages which now handicap private coins sales taxes on acquisition capital gains taxes on holding them right federal reserve notes are not subject to those taxes section four of the act repeals title 18 section 486 that section bans privately produced gold sorry privately produced coins of gold silver or other metals and it repeals section 489 which bans disks that are merely similar to official coins 486 is the relic of the civil war that i mentioned it was part of an effort to boost the acceptance of the wartime paper greenbacks by banning competition from the private gold coins that were being produced repealing that would again allow producers to make and consumers the option to use privately minted silver and gold coins if they like i think the question we should ask in the words of Seth Lipsky in a recent wall street journal article is whether it makes any sense to quote suppress private money that is sound in order to protect government-issued money that is unsound unquote i mentioned that section 489 would also be repealed that i think is a section that's redundant at best and far too sweeping at worst it outlaws making or possessing quote any token disk or device in the likeness or similitude as to design color or the inscription there on of any of the coins of the united states it's redundant at best because there's already another section that outlaws counterfeiting and we're not talking about repealing the laws against counterfeiting but this section is simply about similitude and if you took it literally it would outlaw all silver medallions because after all they are the same color as silver dollars and quarters and dimes so it's too sweeping because it can be used to suppress private coinage what we might say victimless private coinage that it doesn't involve counterfeiting and doesn't involve any other fraudulent intent so to conclude competition and currency is a very practical idea it's an idea that offers sizable benefits to the public when the quality of the dominant currency becomes doubtful now we all hope that federal reserve notes retain their value but for those who are skeptical they should have another alternative u.s citizens would benefit from hr 1098's removal of current legal restrictions and obstacles against currencies that could provide useful competition with federal reserve notes and treasury coins thank you thank you i'll start off with the questions the first question will be for both of you what do you think the arguments will be by the establishment how will they come back and describe what we're trying to do and why why is it well i think it's well known that governments have always wanted to cling to a monopoly power over the currency and it must be related to that but could you give me an idea what you think they will be saying or trying to describe what's what's going to happen and if they claim that this would be terribly chaotic what are some of the answers that we might give to those questions that they raise well i i suspect that the argument might be made that you're encouraging people to abandon the u.s dollar and thereby you're undermining the u.s economy right but the the answer is that the fate of the dollar the purchasing power of the dollar is in the federal reserve's hands and all we're doing is giving people the option to make the transition to a more stable system if the federal reserve note should begin to deteriorate in value in reliability if we look at the experience around the world with paper money we know that high inflation is not impossible and we've had double digit inflation in the u.s and where people are free they start in a country with very high inflation in latin america we see this many times they prefer to start moving their savings into a more stable currency and then they start posting prices in the more stable currency so that they don't have to repost them every day and then they start accepting payment in the more stable currency so having that freedom makes the public a lot better off so giving people an additional option doesn't undermine the stability of the current monetary system that's under the control of the people who issue the current money what works what i suspect they're going to do is to ignore this all together not raise any objections at all just to leave it alone however should any objections come forth i think the best response is that the irredeemable paper ticket money is going away and in fact the history of the world is that this paper money is always go away why should this one be any different uh secondly the dollar is lost since the dollar the irredeemable paper ticket dollar has lost something like 98 percent of its purchasing power since the federal reserve was formed why does anybody think that the last two percent is sacrosanct thirdly there's a whole bunch of how shall i say trial balloons being pushed forth by the media talking about currency depreciation and why it's acceptable so there's a time roughly about a year and a half ago when jeffrey garton jeffrey garton had a minor role in the nixon administration was an undersecretary of i think commerce in the clinton administration went on to be dean of the management school at yale university wrote five books sometimes uh publisher of articles and business week member of the council and foreign relations so he publishes an article in the financial times something to the effect we have to get ready for a week of dollar and he says in the financial times the united states is going to have to camouflage a slow motion default camouflage in other words not really explain to the people what they're doing but there's no question at all that the obligations of this government of of all the local and state governments and all the other debts these obligations are not going to be met people's pensions are going to be lost then this was followed up just recently by a professor from harvett professor rugoff who published the piece saying that once every 75 years or so we have to have extra inflation maybe six seven percent in order to get rid of this debt and this was legitimatized further by fluid naras a senior writer from the near of times very senior guy he wrote an article sometimes inflation is not evil so what they're really doing is setting us up for the depreciation of the dollar and we know from history that once this gets started once this gets out of the can there's no way to put it back in the can other things about this competition and money well it's true that you can make contracts in gold however in regular life if you should have a contractual dispute with somebody and it gets settled in the courts that judgment is going to come down in the irredeemable paper ticket money and also it's also noteworthy that the people in the financial sector have gotten the international monetary fund in 1978 to add a provision to the articles of agreements like their bylaws to prohibit member countries from linking their currencies to gold and only to gold i mean these folks have really knocked themselves out to get gold out of the monetary structure and i think part of the response should be that um the reason they did that is so that they could garner uh uh unearned profits i have good evidence to show that i think i'm pissed my time i don't know if you want to see some of that evidence i'm asking you a question should i put it up thank you yeah um what put up um um put up slide number 57 please i'm sorry uh 56 56 we have that that's not it well why don't we i'm sorry it's that's uh let's just postpone that and come back to it we'll have time to come back to it okay i'd like to so if you go back to 1980 there you go the money supply in this country is defined by the federal reserve at that time was m3 was something on the order of two trillion dollars and the market capitalization of the stock market was roughly a trillion the financial sector portion of that was roughly five percent roughly 50 billion you zip ahead to 2007 now all created flat out of nothing with no work now the money supply is something on the order of 13 trillion the stock market capitalization is approaching 20 trillion and now the value of the financial sector firms is something like four trillion dollars went from 50 billion to four trillion forget about the bonuses think stock options and these folks have garnered just an incredible amount of money they don't even know what to do with it that would not have been possible if we had an honest monetary structure and the way they got away from the monetary structure honest monetary structure is they got gold out of the system and the legal tender laws helped do that so really you have to get rid of legal tender okay thank you i want to move on i i want to yield time to the vice chairman of the committee the gentleman from north carolina walter jones mr chairman thank you very much and uh dot the parks and dot the white thank you very much for your testimony today and i'm going to take a little different approach i am not an expert in financial matters of this uh monetary but i've learned a lot from my good friend ron paul and being part of the liberty caucus and it has uh at least exposed me to some some individuals like yourself that could help me become more interested in the issue of monetary policy i am one that uh very much concerned as most americans are that we are headed down a road of no return and when i listen to your testimonies both and i listen very carefully it brings me to a question that the average working american which i'm part of that group by the way um when do we know that we get to a monetary point of no return is that when that collapse comes is that something in your opinions that you see happening sooner rather than later and what should the average person what will make the average person realize that we're in a collapse as it relates to the strength of the dollar well i think we're getting mixed messages right now if we look at the exchange value of the u.s dollar it's declined precipitously the last couple of years we look at the price of gold of course that's shooting through the roof and those are telling us that people don't want to hold their wealth in dollars they want to move it into something they think is safer on the other hand if you look at the inflation index bonds or if you look at long-term bonds those are not signaling the expectation of high inflation but i'm not sure how much we can trust those signals anymore because the federal reserve now has a policy of buying 30-year bonds to drive their prices up and drive their yields down so that signal may be jammed a little bit but when we see all those signals indicating that high inflation is coming um then we know we have a big problem on our hands and of course we don't just have a monetary problem we also have a fiscal problem we have a problem of uh an unsustainable debt going forward and the two issues are of course related as dr parks mentioned uh there's been talk about how we need inflation in order to relieve our fiscal national debt in real terms but that's nothing more than a default sort of behind a very thin veil in the form of the value of the dollars being paid back is reduced by half instead of the debt is clearly cutting explicitly cut in half but it's the same thing uh so when that becomes sort of respectable talk then we have to be very worried uh do you i'm not sure if i can identify you know exactly a tipping point but when we see uh inflation get into double digits and we'll know uh we're in big trouble i would say that uh collapse can come at any moment and the amount of leverage in the system uh is beyond belief put up a slide number 71 please this is a slide showing the amount of derivative bets that banks have made all over the planet it's something north of 600 trillion dollars that's 71 and where this data comes from the bank for international settlements which is sort of like an umbrella organization for all the central banks it has sovereignty by the way but one of the things it does is they calculate all these derivative bets uh that's um site 71 that's not it there you go so after the last tide to gold was broken which was in 1971 as you can see from this chart basically the only derivative bets you had with things like commodities corn soybeans or whatever but after the last tide to gold was broken you started to have volatility in interest rates big volatility and big volatility in foreign exchange rates and people who are in business and people who trade between countries need to hedge that now the banks have made incredible number of bets on this according to the bank for international settlements the amount at risk that can be lost is something like 30 40 trillion dollars 30 40 trillion dollars and this is worldwide in this country according to the office of the control of the currency the amount of derivative bets is something in the order of 200 trillion and of that one bank jp morgan chase has something like 80 trillion dollars worth of derivative bets these these bets by the way uh you have counter party risk and that's what happened with aig that's why they really had a bail aig aig owed money to a bunch of banks if you let aig go down then those bank balance sheets become impaired but also in this business of inflation they have changed the methodology of how they compute the cpi multiple times since the clinton years put up slide 27 please there's a guy who's a scholar for us his name is john williams uh he's in retirement now he used to be an establishment uh economist with clients like bowing and ibm and what he does is he calculates the cpi using the consistent methodology from the 1980s that's that top blue line versus what the bureau of labor statistics tells us today and as you can see uh on a consistent methodology basis inflation is already and has been running 10 11 percent for like 25 years the understatement of uh of the cpi these are innovations such as hedonic pricing geometric weighting substitution who knows what these people are talking about they really lull people into thinking well it's not as bad as it is uh i've prepared an analysis go to chart number 28 please these are my uh healthcare premiums for oxford while i had oxford and i compared the year on year increases by 29 with the medical component of the cpi let's have the next slide please with the medical component of the cpi and my insurance premiums this is everybody in the whole country they're going up 15 percent a year but the medical component of the cpi is going up four percent a year so they mislead people on that and of course people who are seniors who get self-security those benefits are key to the cpi uh disabled veterans um uh people who have cost of living uh uh escalations and union contracts and of course holders of treasury inflation protection bonds these people are all being cheated but the tipping point comes you don't know how it is because of the leverage it's the leverage that always brings you down and the leverage is beyond belief and like i say it could happen while i'm talking here you don't know what it's going to be thank you chairman no i will stay for another question thank you um i have a couple follow-up questions uh i'd like to ask um start with uh dr white um you know we've had this uh system of money since 1971 where there's uh no connection to gold and the dollar has been used as a reserve currency like slightly less degree now than it was you know even a year ago but it's still the major reserve currency and uh most of the countries hold hold dollars and then they uh pyramid their doubt and inflate their own currencies from this has there been many times in history that it's been this uh significant this big this worldwide with a fiat currencies i know we've had fiat currencies uh you know for as long as we can date i mean people have have to base the currency in different manners but has it ever been this big is this a special phenomenon or is this something that you can go back in history and say well it was sort of like this 200 years ago or 300 years ago and and we worked our way out of it how do you put this in perspective in history well as far as the international monetary system goes the international monetary system was never a fiat system it was the international silver standard and the international gold standard and of course there's no potential for runaway inflation when you have a metallic currency it's only mined to one two percent of this stock is produced each year the stock of gold just doesn't grow that fast and in fact that makes it possible to have an international monetary system it's not controlled by any one country and so countries can join knowing that it's safe from political devaluation from the interests of any one country undermining the system countries that have adopted the dollar or who fixed their own exchange rate to the dollar do so when they think the dollar is the most popular currency in world markets but as you mentioned as the dollar becomes a little shakier they start to shy away and or it's china most importantly has moved from basing their currency entirely on the dollar to now a basket of of currencies so we're starting to see other countries starting to back away from the dollar in that sense i think the the move to the create the european monetary system provides some real competition to the dollar as an international reserve currency and we can only hope that that will give the fed a signal that there's somebody they don't want to inflate faster than of course it seems to be a race to the bottom right now if we were successful and had something like we're proposing and we had a competing currency what would happen with the concept of fractional reserve banking would that would more laws have to be written or uh would they follow the same pattern that we have today how do you think that would work that's a very good question i mean if uh private gold and silver coins begin to be popular people are going to want to have bank services denominated in gold units or silver units whatever it is that they find attractive and we i'm not sure we really have a sort of legal barrier against the fed controlling that parallel banking system the way they control the current banking system so it might be necessary to construct some barriers and say here are the rules for this parallel banking system it it doesn't have deposit insurance it doesn't have control by the federal reserve system uh as to reserve ratios or investment portfolios so we would need to think about that if we got to the point where there was a big demand for those services i might follow up on that and ask both of you what your opinion is of fractional reserve banking you know in the free market circles there's a disagreement you know to to a large degree on i know Rothbard was very adamant to his position of no fractional reserve banking but what what what is your opinion about what would be proper and and Larry you can ask answer as well about whether we should have rules on what the banks uh declare as well i think the basic rule should be freedom of contract and as long as people make informed fractional reserve contracts with their banker i have no problem with that and historically that seems to have been what was more popular if you have a fractional reserve then you don't need to pay storage fees to the vault keeper who's keeping your gold and you may even get interest on your account balance so it's an attractive deal it doesn't have to be based on hoodwinking the customers customers brought their money to fractional reserve banks because they got a better deal the other thing worth noting is that you can't really have circulating paper currency which is more convenient than carrying around coins for many purposes unless you have fractional reserve banking because if it was a warehouse receipt the warehouse needs to know who to charge the storage fees to but if it's an anonymous circulating note like we're accustomed to how do they know who to charge the storage fees to so i don't know of any historical examples of circulating warehouse receipts but there are plenty of examples of pay to the bearer on demand in gold or silver circulating bank notes do you have an opinion on fractional reserve banking first year first question put up a slide number 73 this has to do with the size the amount of fiat money out there slide 73 please this is a analysis that's put together by bekinzi global and in 1980 the amount of financial securities was roughly i don't know looks like 18 trillion by the end of 2009 it was close to 200 trillion last year it hit something like 212 trillion now i don't know if you can see on that chart but at the very top it's in red and that's gold so all the rest is in it's irredeemable paper ticket money u.s. and foreign money or securities denominated in irredeemable paper ticket money the nice thing about this bill is that it leaves everything in place leaves the dollar in place leaves the federal reserve in place and it really facilitates a transition and for everyday purposes it really doesn't make any difference to people whether they use an irredeemable paper ticket a token or whatever they go to work they get paid they buy stuff who cares where it comes becomes important is for future payment for people's pensions for people's annuities for people's savings and there they want to know in the future that they're going to have what they have and so in that way this bill is very important for future transactions people will want gold and we have precedent in this country where this kind of thing was instituted and that was after the civil war you recall the civil war was financed with greenbacks at one point the greenpants were discounted roughly 50 percent against gold and the white people looked to protect themselves afterwards as they put a gold clause in their contracts so when they got paid later on they got the same amount of gold they were expecting when the united states issued liberty bonds in for the first world war they had a gold clause in the bonds now as the fractionaries reserve lending uh i agree with dr white but i want to add something to that and that is the its fraction reserve lending that got us into trouble uh from the get go and the reason is the banks have engaged in fraud in their basic banking relationships right from the beginning and so for example banks told people that they were depositors they're not depositors they're unsecured creditors and secondly people told people they could get their money back on demand well in fact and in law when these people put money into a bank it's not their money anymore it's the bank's money to do which with as the bank wishes um if banks want to do fraction reserve lending they need to do what i call full disclosure they have to tell people right out uh we're going to lend this money to somebody else or whatever that you may not be able to get it back some people may want to take that gamble but my guess is they won't ordinary people put money in the bank for security for safety they don't want to have it in the mattress they want it might be stolen or be lost or whatever uh they're not interested in making interest on their on their savings they just want it to be safe those people are not going to be involved in fraction reserve lending um as to uh marie rothbart's point of view marie was talking always about a gold back dollar that is a mistake and again you have to go back to what a dollar is a dollar is a weight of silver there's no such thing as a gold back piece of silver um and uh the trouble with what marie did is he didn't go back further than the coinage act of 1792 where hamilton defined the dollar as 371.25 grains of silver the notion was if that of hamilton could define the dollar one way we could define it another way that is not true but again the beauty of this hr 1098 bill is that we don't really have to address those issues i think what will happen is that for long-term transactions people will start using a gold clause and over time there'll be a transition during that period all the irredeemable paper ticket money will go away the federal reserve will go away uh again there's no possibility in my view as a practical matter of uh having some kind of discontinuity in our monetary system getting rid of the fed but this act is really important and we need to bring people up the curve on why it is thank you uh congressman jones mr chairman thank you i um i want to uh go a little bit off your expertise but i think you will have um some very uh helpful comments i've uh said two of them at the worst votes that ever made since i've been in congress one was the vote to go into right and the second one was the repeal of glass stigl now i realize this doesn't deal exactly with monetary issues but we do have banks you've made reference to banks uh many times in your comments about monetary policy do you feel that when glass stigl was repealed by the by the congress that it it helped the banking world or created opportunities for greed and for mistakes dot the white star a few and dot the parks well greed is part of the human condition glass stigl did not do anything to change that uh there's a fellow his name is um um his last name was warburg was the son of a paul warburg what was his name remember there's one of uh franklin roosevelt's advisors and he wrote a book in the 1930s it was called the money model which really led to this business with glass stigl and what they were complaining about in those days was using bank money in the security for to speculate the securities market bank money it was understood was money that the bank created created out of nothing as opposed to regular money gold and silver and so the purpose of glass stigl was really to keep the banks from oval leveraging and when glass stigl was passed now the banks could oval leverage in a big way i have charts that put them up for you it shows you what happened to the banks let me just get that out start with chart number 67 please and we'll go right right through them so if you go before the last tie to gold is broken look at bank revenues i mean they're tiny what are banks doing they're uh processing payments they're handling the check clearing system but after the last tie to gold was broken look what happened to bank revenues went up to something like 800 plus billion dollars this is just the passing paper and go to the next slide and look at bank net income after the last tie to gold was broken went up to something like a hundred and i don't know 130 billion dollars at its peak i mean this is after paying compensation to employees go to slide 70 please look what happened to bank employee compensation so the whole notion of all this business of allowing the banks to leverage up this was enormously beneficial to employees to the banks themselves over the period after the last tie to gold was broken banks paid out over a trillion dollars in dividends a trillion dollars in dividends and just a couple years ago it turns out while our balance sheet said oh good they had to get i don't know two trillion dollars from the federal reserve i mean all this money that they paid out and bonuses and whatnot if it's not real profits and the only reason they were able to do that is because they were able to leverage up and the only reason they were able to leverage up is because we have irredeemable paper ticket electronic money legal tender if you had gold and silver money you'd be back on that curve before the before the last time the gold is broken and it's the banks that really have corrupted the system but again it's probably counterproductive to point fingers really what we want to do is have a transition and again the whole system is going to collapse no matter what uh it's it's urgent that we test this bill in order to facilitate a transition to an honest monetary structure understand Dr. White will you comment on Glass-Steagall as well I would say the repeal of Glass-Steagall had very little to do with the financial crisis the problem and there would be absolutely no objection to repealing Glass-Steagall that is letting commercial banks align or merge with investment banks and insurance companies if it weren't for deposit insurance and if it weren't for the too big to fail doctrine if those had not been in place then somebody wants to form a financial supermarket okay we'll see if that will fly it's no skin off our nose but when we begin to guarantee the liabilities of investment banks which are highly leveraged which are not like commercial banks which are not even part of the payment system that's really an invitation to trouble and when the Federal Reserve Bank of New York intervened in the Bear Stearns failure and took up the bad assets so that JP Morgan Chase would buy the rest it's not the first sort of too big to fail action but it's the one that sort of sticks in my craw I mean that that was really a bad policy and I don't think it had that much to do with the repeal of Glass-Steagall but if we treat investment banks like they're entitled to too big to fail protection then we're really asking for trouble and that's really what needs to be undone thank you sir can I add to that please you know if you have gold and silver as money gold as money this too big to fail stuff doesn't even come up the only reason you have this is because of the irredeemable paper ticket money you could never have this kind of leverage with gold and in fact the money-centered banks they have leveraged their balance sheet something like 30 to 1 impossible if you had an honest monetary system so it really one feeds into the other and this whole business with too big to fail the lender of last resort federal deposit insurance first federal deposit insurance is not insurance it's just a subsidy to the bank and the reason it came about is that after the banks failed in 1933 they were failing before 1933 people were not putting their money back into the banks and so they passed that legislation to induce people to put their money back into the banks as far as the lender of last resort comes about again that's the result of bank leverage and the only reason you have so much leverage with the banks is because they misrepresented depositors so if i were to borrow money from you say i want you to lend me ten thousand dollars what's the first thing that goes to your mind i would think how what's the collateral how am i going to get the money back what are you going to do with the money but if you lent it to a bank and and they say well this is a deposit now you don't do the counterparty surveillance so it's really a function of what constitutes the money and i think you have to go back and realize that what we call our money today our dollar this is just a dishonored promissory note and in fact one of the quotes i have for you and i'll stop right here is after franklin roosevelt closed the banks in march 5th 1933 a lot of people were caught short there was a question whether they should print script and here's a quote from uh william wooden uh then roosevelt secretary of the treasury he says the federal the federal reserve at let's us print all we need and it won't frighten the people get this line now it'll look like state it will look like stage money it'll be money that looks like real money this is the secretary of the treasury telling you that this stuff is really in effect stage money but it looks like real money this is not real money that we have folks this is this is just a piece of paper gussied up with seals and whatnot is dishonest and we need to fix the dishonesty thank you i have one more question uh for dr white if we moved in to a period of time where we had competing currency we have one group of people thinking a dollar equals the federal reserve notes and let's say we or somebody decides that a dollar equals 371 grains of silver and we use an old silver dollar that could be competing but the definitions are obviously completely different how do you think it would be resolved when it comes to paying your taxes because they won't they won't allow i think this is part of the reason there will be a lot of resistance because i'll think because people some people have tried this you know paying salaries with with old silver dollars and oh that's a dollar you know i'm not i don't have to pay any taxes on this so but it's a real problem because if they think that anybody i mean we we want uh you know to get rid of some of the uh inhibitions to competing currency but if if the people who use silver dollars had no taxes to pay it would be a tremendous advantage i think we could win that argument but what do you think the irs and the tax people are going to say about this and do you have an idea how that could be resolved well i'm sure the irs would like the taxes to be paid in the equivalent of what they would be if all the transactions had been done in federal reserve notes it would be an interesting exercise to look at around the world and see if there are other countries that have faced this problem of having taxes denominated in multiple currencies i i really don't know that much about it myself but it it seems like not a very important problem i mean on tax day you need to have some exchange rate between the different currencies people might be allowed to pay in or you require them to convert their own books into whatever the uh official currency for tax purposes is but 364 days of the year that that shouldn't bother them yeah i mean it's it's pretty easy with software these days to convert one column of figures into another column of figures it seems like in the computer age we could probably work that out rather well if i made one dollars a profit and silver was you know forty dollars maybe it could be worked out but of course the more ideal would be not to have the income tax and we wouldn't have to worry about problems like that so okay and walter is gone okay i think that will conclude and this this hearing is now adjourned thank you