Restating the meaning of monetary policy taken from Mises' Wiki, I understand it as the manipulation of money supply advocated by both the monetarist and Keynesian school of economics through central banking to maintain economic growth and limit unemployment. Only the Austrian school criticizes monetary policy for its destructive results on the economy such as redistribution of wealth, business cycle and other disastrous economic distortions. In this article, I want to explore further this idea of monetary policy as seen in US economy. To accomplish this goal, I glean relevant ideas from four US Congressional Records in the past taken from Ron Paul's book, The Pillars of Prosperity.
The Foolishness of Existing Monetary Policy
In December 1, 1982, then US Congressman Ron Paul described the American monetary policy as foolish. It was so because of the reliance to centralized monetary planning, which only strategy to boost the economy was to increase the money supply. This made the stock market that time soar. For Dr. Paul, that was just a temporary economic relief resulted from additional paper money together with the manipulation of interest rates. The American monetary policy was foolish for the decision makers ignored long-term results such as economic stagnation, higher rates of unemployment, soaring interest rates and runaway inflation.
Above is the description of US monetary policy 31 years ago. The Fed is still committed to such folly. Since such folly is presented as wisdom by professional economists through mainstream media, no wonder almost all countries in the world are following the American example.
After 15 Years
Fifteen years after that 1982 US Congressional Record, the US was still persistent in its foolish monetary policy. In March 5, 1997, the US House of Representatives recorded Ron Paul's exchange of ideas with Allan Greenspan about the conduct of monetary policy. Each shared their point of view about CPI and currency debasement. For Dr. Paul, CPI discussion was a diversion from the real issue. He identified that currency debasement was the real issue that would have the following results: higher price of goods, malinvestment, distorted interest rates, higher deficits, benefits for few and economic suffering for many.
The content of the Congressional Record after three months and that's July 22 was just a repetition of the previous one. The only relevant material I found was the identification of those who benefit and those who suffer from currency debasement. So those who benefit are the early users of credit and they include people who borrow, the bankers, the big business and the government. Those who suffer are the middle class, the late users of credit and the little guy.
IMF and the Asian Crisis
After two previous banking committee hearings, another hearing was made one year later. This happened in February 24, 1998. I find the discussion on the role of IMF and the impact of US monetary policy on Asian crisis very important.
For Dr. Paul, the real mission of the IMF is not to help the poor of developing countries, but to assist multinational banks and corprorations. The record of the IMF proved this point particularly in relation to the impact of IMF's structural adjustment programs in Africa and Latin America. Instead of economic development, what Ron Paul saw was an increase in poverty, major cutbacks in health and education and increase in unemployment.
After dealing with the failure of IMF, Dr. Paul raised the issue about the connection of Asian crisis to US domestic monetary policy. From this we can see that the consequence of the foolishness of American monetary policy is not only limited on their shores. Countries in Southeast Asia were also affected. Ron Paul explained this connection:
"...we certainly do export a lot of our currency. More than 60 percent ends up in foreign hands. And it serves a great benefit to us because it is like a free loan...so we get to export our inflation...So again, we get to export our inflation, and the detriment is the consequence of what we are seeing in Southeast Asia" (Pillars of Prosperity, 2008, p. 180).
Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.