April 28, 1998 CONGRESSIONAL RECORD — HOUSE H2375 PERSONAL EXPLANATION cially in the New York and Connecti- viding reserves for foreign central Ms. MILLENDER-MCDONALD. Mr. cut areas influenced by the New York banks to further expand their own Speaker, during roll call vote 110, 111, financial center. CEO compensation is credit. Think of this: Money can be bor- and 112, which is H. Con. Res. 218, S. astronomically high, while wages for rowed in Japan at Depression-era rates Con. Res. 37, and H.J. Res. 102, I was the common man have been held in of 1 percent and then reinvested here in unavoidably detained because my check. The cost of all entertainment is the United States either in more treas- flight has just gotten in. Had I been not cheap and rises constantly. Art ury debt earning 5 or 6 percent, or rein- present, I would have voted ‘‘yes.’’ prices are soaring, as is the price of tickets to athletic events. Buying vested in our stock market, which is f stocks with a 1.8 percent dividend yield currently climbing at a 20 percent SPECIAL ORDERS is not cheap. These prices are inflated. annualized rate. This sounds like a per- The cost of education, medicine, and fect deal for today’s speculators, but The SPEAKER pro tempore (Mr. GIB- general services are expensive and ris- there is nothing that guarantees this BONS). Under the Speaker’s announced process will continue for much longer. policy of January 7, 1997, and under a ing. In spite of Government reports show- Perfect situations never last forever. previous order of the House, the follow- ing food prices are not rising, many Some of the euphoria that adds to the finan- ing Members will be recognized for 5 constituents I talk to tell me food cial bubble on Wall Street and internationally minutes each. prices are always going up. It seems is based on optimistic comments made by our f every family has difficulty compensat- government officials. Political leaders remind us time and again that our budget is balanced EXCHANGE OF SPECIAL ORDER ing for the high cost of living and taxes and the concern now is how to spend the ex- TIME are always inflating. There is no doubt that many Ameri- cess. Nothing could be further from the truth, Mr. PAUL. Mr. Speaker, I ask unani- cans know the salaries of the CEOs, because all the money that is being used to mous consent to claim the time of the athletes and entertainers are astro- offset the deficit comes from our trust funds. gentleman from North Carolina (Mr. nomically high. The wages of the aver- In other words, it's comparable to a corpora- JONES). age working man, though, has not kept tion stealing from its pension fund in order to The SPEAKER pro tempore. Is there up. Workers feel poorer and resentment show a better bottom line in its day-to-day op- objection to the request of the gen- grows. erations. Government spending and deficits tleman from Texas? Even with all of Wall Street’s eupho- are not being brought under control. Tax rates There was no objection. ria, Main Street still harbors deep con- are at historic highs, and all government tax- f cern for their financial condition and ation now consumes 50 percent of the gross the future of the country. Many fami- national income. THE BUBBLE It is now commonly believed that the East lies continue to find it difficult to pay Asian financial crisis is having no impact on The SPEAKER pro tempore. Under a their bills, and personal bankruptcies our economy. But it's too early to make that previous order of the House, the gen- are at a record high at 1,400,000 per kind of an assessment. Our president remains tleman from Texas (Mr. PAUL) is recog- year. Downsizing of our large corpora- popular, according to the polls, but what will it nized for 5 minutes. tions continue as many manufacturing be like if there's any sign of economic weak- Mr. PAUL. Mr. Speaker, the big ques- jobs are sent overseas. ness? There could then be a lot of ``piling on'' tion is how history will play the cur- This current financial bubble started and finger pointing. rent financial situation if all the great in mid-1982. At that time, the money wealth accumulated in the last 10 years supply, as measured by M3, was $2.4 PROBLEMS AND VICTIMS dissipates in a financial collapse. trillion. Today it is over $5.5 trillion. The basic cause of any financial bubble is According to an article in The New That is a lot of inflation, and money the artificial creation of credit by a central bank (in this case our Federal Reserve). Artifi- Republic, Greenspan is not only held in supply growth is currently accelerat- cially creating credit causes the currency to high esteem on Wall Street, he is seen ing. as Godlike. One trader is quoted as say- Although the money supply has been depreciate in value over time. It is important to ing, ‘‘When things go well, I hold significantly increased in the past 16 understand the predictable economic problems Greenspan’s picture between my hands years and financial prices as well as that result from a depreciating currency: 1. In the early stages it is difficult to forecast and say, thank you. When things go other prices have gone up, Government poorly, I also take the photo in my exactly who will suffer and when. officials continue to try to reassure the 2. Inflated currency and artificially low inter- hands and pray.’’ And he is not alone American people that there is no infla- est rates result in mal-investment that pro- on Wall Street in heaping praise on tion to worry about because price in- duces over capacity in one area or another. Greenspan. This comes as close to idol- creases, as measured by the Govern- 3. Wealth generally transfers from the hands atry as one can get. ment’s CPI and PPI, are not signifi- of the middle-class into the hands of the very Alan Greenspan took over the Fed a cantly rising. wealthy. (The very poor receiving welfare gain few months before the stock market Stock prices, though, are greatly in- a degree of protection, short of a total destruc- crash of October, 1997. In the 10 years flated. If we had an average valuation tion of the currency.) that Greenspan has headed the Fed, $2 of the Dow Jones Industrials for the 4. Prices indeed do go up, although which trillion of new credit has been created past 87 years, as measured by the PE prices will go up is unpredictable, and the CPI as measured by M3. Banks threatened ratios, the Dow would be a mere 4,100 and PPI can never be a dependable measure- by bankruptcy in the early 1990s re- today, not over 9,000. And the Dow ment of a monetary policy driven by loose ceived generous assistance from the would be much lower yet if we took the credit. Fed policy of low interest rates and average price-to-dividend ratio or the 5. The group that suffers the very most is rapid credit expansion as a response to price-to-book ratio. the low-middle-income group (those willing to the recession of 1991. Fed fund rates The NASDAQ is now selling at 85 stay off welfare, yet unable to benefit from any were held at 3 percent for well over a times earning. There is no doubt that transfer of wealth as stagnant wages fail to year. This generous dose of Fed credit most stock prices are grossly inflated protect them from the ravages of the rising has fueled the 5-year superboom on and probably represent the greatest fi- cost of living). Wall Street. nancial bubble known in history. There are probably several reasons why this We are endlessly told no inflation ex- A lot of foreign money has been used current economic boom has lasted longer than ists. But inflation is strictly and al- to buy our stocks, one of the con- most others. The elimination of the Soviet ways a monetary phenomenon and not sequences of computer-age financial threat has allowed a feeling of optimism not something that can be measured by a technology and innovations. Our nega- felt in many decades, and there has subse- government consumer or producer tive trade balance allows foreign gov- quently been tremendous optimism placed on price index. ernments to accumulate large amounts potential economic development of many Even so, there currently is signifi- of our treasury debt. This serves to world markets in this age of relative peace. cant price inflation for the fancy dampen the bad effect of our monetary There is also very poor understanding re- homes throughout the country, espe- inflation on domestic prices, while pro- garding economic interventionism, the system H2376 CONGRESSIONAL RECORD — HOUSE April 28, 1998 most nations of the world accept today. To- dropped significantly. The peak occurred in THE PRICE OF GOLD day's interventionism is not close to a free mid-1997Ðtoday these holding are slightly Another reason for the central bankers market. The great Austrian economist Ludwig lower. greater recent success is that they have been von Mises consistently pointed out that inter- THE CRUELEST TAX OF ALL quite willing to cooperate with each other in ventionism always leads to a form of social- This process of deliberately depreciating a propping up selected currency values and ism, which then eliminates the apparent bene- currency over time (inflation) causes a loss in driving down others. They have cooperated fits of interventionism. purchasing power and is especially harmful to vigorously in dumping or threatening to dump A good example of how interventionism those individuals who save. AIER (American gold in order to keep the dollar price of gold leads to the destruction of a market can be Institute for Economic Research) calculates in check. They are all very much aware that seen in the recent tobacco fiasco. First, the to- that 100 million households since 1945 have a soaring gold price would be a vote of no bacco industry accepted subsidies and protec- lost $11.2 trillion in purchasing power. This confidence for central-bank policy. tionism to build a powerful and wealthy indus- comes out to $112,000 per household, or put Washington goes along because it is fur- try. Then, having conceded this ``nanny'' role another way, over 5 decades each one of tively, but definitely, acknowledged there that to the government, Big Tobacco had no de- these households lost $2,200 every year. a free-market, high gold price would send a fense when it was held liable for illnesses that Although many households are feeling very bad signal worldwide about the world financial befell some of the willing users of tobacco wealthy today because their stock portfolios system. Therefore, every effort is made to products. Now, the current plan of super tax- are more valuable, this can change rather rap- keep the price of gold low for as long as pos- ation on tobacco users will allow the politicians idly in a crash. The big question is what does sible. It's true the supply-siders have some in- to bail out the individual farmers who may be the future hold for the purchasing power of the terest in gold, but they are not talking about a injured by reduced use of tobacco products dollar over the next 10 or 20 years? gold standard, merely a price rule that encour- (destruction of the market). This half-trillion- THE END IN SIGHT? ages central-bank fixing of the price of gold. dollar tax proposal hardly solves the problem. Reassurance that all is well is a strategy Most defenders of the free-enterprise system Just as in the 1920's today's productivity in Washington are Keynesians at heart and has fooled some economists by keeping found at the end of a boom cycle. Government revenues are higher than anticipated, and will not challenge interventionism on principle. prices down on certain items. Certainly com- Instead of making sure that policy is correct, puter prices are down because the price of many are feeling richer than they are. The more inflated the stock market is as a con- central bankers are much more interested in computer-power has dropped drastically, yet seeing that the gold-price message reflects this should not be interpreted as an ``absence'' sequence of credit creation, the less, reliable these markets are at predicting future eco- confidence in the paper money. Thus gold has of inflation. Innovation has kept prices down in remained in the doldrums despite significant the computer industry, but it fails to do so nomic events. Stock markets can be good pre- dictors of the future, but the more speculative rising prices for silver, platinum, and palla- when government becomes overly involved as dium. However, be assured that even central it has in other technological areas, such as they become, the less likely it is the markets will reveal what the world will be like next banks cannot ``fix'' the price of gold forever. medical technology, where prices have gone They tried this in the 1960's with the dumping up for services such as MRIs and CAT scans, year. The business cycleÐthe boom-bust cycle of of hundreds of millions of ounces of American not down. historyÐhas not been repealed. The psycho- gold in order to artificially prop up the dollar by LEARN FROM JAPAN logical element of trust in the money, politi- keeping the gold price at $35/oz., but in Au- The most important thing to remember is cians, and central bankers can permit financial gust 1971 this effort was abandoned. that perceptions and economic conditions here bubbles to last longer, but policies can vary as THE SOLUTION can change rapidly, just as they did last sum- well as perceptions, both being unpredictable. mer in the East Asian countries with the burst- The solution to all of this is not complex. But ing of their financial bubble. They are now in CENTRAL BANKERS no effort is going to be made to correct the deep recession. The goal of central bankers has always problems that have allowed our financial bub- Even though Japan first recognized signs of been to gain ``benefit'' from the inflation they ble to develop, because Alan Greenspan has difficulty nine years ago, their problems linger create, while preventing deflation and prolong- been practically declared a god by more than because they have not allowed the liquidation ing the boom as long as possibleÐa formida- one Wall Street guru. Because Alan Green- of debt, or the elimination of over capacity, or ble task indeed. The more sophisticated and span himself understands Austrian free-market the adjustment for real estate prices that successful the central bankers are as techni- economics and the gold standard, it is stun- would occur if the market were permitted to cians, the larger the bubble they create. ning to see him participate in the bubble when operate free of government intervention. The In recent years, central bankers have had he, deep down inside, knows big problems U.S. did the same thing in the 1930s, and I greater ``success'' for several reasons. First, lurk around the corner. Without the motivation suspect we will do exactly what Japan is doing due to the age in which we live, international- to do something, not much is likely to happen once our problems become more pressing. izing labor costs has been a great deal more to our monetary system in the near future. With our own problems from the inflation of convenient. It is much easier for companies to It must be understood that politicians and the last 15 years now becoming apparent, either shift labor from one country to another, the pressure of the special interests in Wash- their only answer so far is to inflate even or for the company itself to go to the area of ington demand that the current policies of more. the world that provides the cheapest labor. spending, deficits, artificially low interest rates In its effort to re-energize the economy, the This has occurred with increased rapidity and and easy credit will not change. It took the Bank of Japan is increasing its reserves at a ease over the past two decades. complete demise of the Soviet-Communist 51 percent rate. This may be the greatest ef- Central bankers have also become more so- system before change came there. But be fort to ``inflate'' and economy back to health in phisticated in the balancing act between infla- forewarned: change came with a big economic all of history. Japan has inflated over the tion and deflation. They are great technicians bang not a whimper. Fortunately that event years and will not permit a full correction of and are quite capable of interpreting events occurred without an armed revolution . . . so their mal-investment. The Bank of Japan is and striking a balance between these two hor- far. The amazingly sudden, economic events doing everything possible to inflate again, but rors. This does not cancel out the basic flaw occurring in East Asia could still lead to some even with interest rates below 1 percent there of a fiat currency; central bankers cannot re- serious social and military disturbances in that are few takers. place the marketplace for determining interest region. OECD measurements, the M1 and quasi- rates and the proper amount of credit the The key element to the financial system money have been increasing at greater than economy needs. under which we are now living is the dollar. If 20 percent per year in East Asia. In the United Central bankers have also had the advan- confidence is lost in the dollar and a subse- Stats, M3 has been increasing at 10 percent tage of technological changes that increase quent free-market price for gold develops, the a year. It is estimated that this year the U.S. productivity and also serve to keep down cer- whole financial system is threatened. Next will have a $250 billion current account defi- tain prices. It is true that we live in an informa- year, with the European currency unit (ECU) citÐcontinued evidence of our ability to export tion age, an age in which travel is done with coming on line, there could be some serious our inflation. ease and communication improvements are adjustments for the dollar. The success of the We are now the world's greatest debtor, astounding. All of these events allow for a big- ECU is unpredictable, but now that they are with an approximately $1 trillion debt to foreign ger bubble and a higher standards of living. indicating some gold will be held in reserve, it nations. Although accumulation of our debt by Unfortunately this will not prove to be as sus- is possible that this currency will get off the foreign holders has leveled off, it has not tainable as many hope. ground. April 28, 1998 CONGRESSIONAL RECORD — HOUSE H2377 NATIONALISM or our willingness to bail out the IMF, resorting b 1800 However, I continue to have serious res- to monetary inflation is the only option being Now we need to address this problem ervations regarding the ECU's long-term suc- considered. We can rest assured that inflation in a much more comprehensive way. cess, believing that the renewed nationalism is here to stay. And that is what this legislation does, within Europe will not permit the monetary uni- With daily pronouncements that inflation is recognizing that every year tobacco-re- fication of countries that have generally not dead, the stage is set for unlimited credit ex- lated diseases kill 3 million people in trusted each other over the centuries. In Ger- pansion whenever it becomes necessary. Just this world, and if the trends continue, many, 70 percent of the people oppose enter- as deficit spending and massive budgets will it is estimated that in the next 25 years ing into this new monetary agreement. If eco- continue, we can expect the falling value of we will be up to a level of 10 million nomic problems worsen in EuropeÐcurrently the dollar, long term, to further undermine the deaths a year as a result of tobacco. the unemployment rate in Germany and economic and political stability of this country This legislation that I have intro- France is 12 percentÐthe European union and the world. duced for myself and for a number of may well get blamed. Until we accept the free market principle our colleagues in a bipartisan effort ad- The issue of nationalism is something that that governments cannot create money out of dresses five major areas. First, we seek cannot be ignored. Immediately after the col- thin air and that money must represent some- to establish a worldwide code of con- lapse in East Asia, Malaysia began shipping thing of real value, we can anticipate a lot duct for U.S. tobacco companies. We out hundreds of immigrants from Indonesia as more confiscation of wealth through inflation. basically are saying, do not market to- a reaction to their economic problems. Re- f bacco to children anywhere, and alert sentment in Germany, France, and England is INTRODUCTION OF THE INTER- consumers to the dangers of your prod- growing toward workers from other countries. uct everywhere. The Marlboro man has The same sentiment exists here in the NATIONAL TOBACCO RESPON- SIBILITY ACT OF 1998 hardly vanished. He has just taken a United States, but it's not quiet as bad at this trip around the world to a school or a particular time because our economy is doing The SPEAKER pro tempore. Under a youth-oriented magazine in someone better. But in the midst of a deep recession, previous order of the House, the gen- else’s country. the scapegoats will be found and alien work- tleman from Texas (Mr. DOGGETT) is Last August, at the very time these ers will always be a target. recognized for 5 minutes. high-paid, high-powered tobacco lobby- The greatest danger in a collapsing financial Mr. DOGGETT. Mr. Speaker, today I ists were trooping around the Capitol bubble is that the economic disruptions that am introducing the International To- asking us to endorse the settlement, follow might lead to political turmoil. Once seri- bacco Responsibility Act of 1998, a bill one of these tobacco companies pro- ous economic problems develop, willingness to adopt a truly responsible policy on vided all-expense-paid vacations to to sacrifice political liberty is more likely, and nicotine addiction. Miami Beach for Latin-American re- the need for a more militant government is too With the recent forced disclosure of porters so that they could hear com- often accepted by the majority. documents, we have learned, in the pany representatives announce that re- No one has firmly assessed the Y2K prob- words of the tobacco companies them- strictions on smoking and advertising lem, but it cannot bode well if a financial crisis selves, the treachery they have en- were scientifically unsound. That is comes near that time. Certainly a giant com- gaged in in targeting America’s chil- the kind of hypocrisy that we are deal- pany like Citicorp and Travelers, who have re- dren. Less well-known is the activity ing with. Two decades ago, the United cently merged, could really be hurt if the Y2K they have had around the world to ad- States set a higher ethical standard problem is real. Since the markets seem to be dict the children of other countries. with regard to bribery. We can do the discounting this, I have yet to make up my Since 1990, while Philip Morris sales same thing with regard to tobacco. own mind on how serious this problem is have risen by a little less than 5 per- The second part of this bill is to going to be. cent here in the United States, they strengthen last year’s prohibition on WASHINGTON MENTALITY have grown by more than 80 percent our Government promoting tobacco Every politician I know in Washington is abroad. Only last Thursday RJR Na- abroad. awestruck by Greenspan. The article in The bisco posted some bad news: They had The third is to recognize that public New Republic reflects the way many Members about an 11 percent drop in their to- health advocates around the world lack of Congress feel about the ``success'' of bacco earnings. But the news was not the resources to combat the very se- Greenspan over the last ten years. Add to this all bleak. As the New York Times re- ductive practices perfected in addicting the fact that there is no significant understand- ported, the analysts said that the com- our children of these United States to- ing of the Austrian business cycle in Washing- pany’s tobacco sales grew impressively bacco companies. And so it sets aside ton, and the likelihood of adopting a solution in some areas like Romania, where some revenues from any settlement to to the pending crisis, based on such an under- they more than doubled. The analysts help establish an American Center on standing, is remote. noted there was extremely good vol- Global Health and Tobacco and to help Liberals are heedless of the significance of ume in market share growth in Eastern fund efforts through the Department of monetary policy and its ill effects on the poor. Europe and Russia. Health and Human Services to discour- They have no idea that the transfer of wealth The big tobacco companies that dis- age tobacco use worldwide. from the poor to the rich occurs as a result of avowed the settlement now, originally, A fourth issue is to address the mat- monetary policy and serves to hurt the very when they entered that settlement, ter of cigarette smuggling which is al- people they claim to represent. Liberals stick they knew they could pay any pen- ready going on and actually helps some to the old cliche that all that's needed are alties they owed for what they did to of these companies open up new mar- more welfare benefits. They are, I'm sure, in- our children by going and addicting kets. fluenced by the fact that if more welfare bene- children in someone else’s backyard. I And finally, we encourage the in- fits are handed out, they can count on the think that is wrong. If America is to be volvement of the United States in an Federal Reserve to accommodate them. Un- called a world leader, it must also lead International Framework Convention fortunately this will continue to motivate them in the battle to save the lives of young on Tobacco Control. This convention to argue for a loose monetary policy. people around this planet. would be similar to the international The debate so often seems only to be who Last year, this Congress took some campaign to ban land mines, because should get the expanded credit, the business- constructive action when it adopted an we have a real mine here threatening banking community or the welfare recipients amendment that I authored to an ap- the future of the children of this world. who will receive it indirectly through the mone- propriations bill to stop the American For our Government to allow compa- tization of an ever-expanding government defi- taxpayer from having to be an unwill- nies to pay their debts at home by cit. In Washington there is a craving for power ing accomplice in promoting the ac- hooking children abroad to nicotine ad- and influence, and this motivates some a lot tivities of these tobacco companies diction and pushing them down the more than their public display of concern for abroad by involving improperly, I path to cancer, heart disease and em- helping the poor. think, and now it is against the law, physema would be an unprecedented Whether it's Japan that tries to inflate their the Trade Representative’s office and act of hypocrisy. currency to get out of an economic problem, our various consulates around the After so much talk about a global to- or the East Asian countries facing their crisis, world. bacco settlement, it is time to pass