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Ron Paul: The Austrian free market economists had predicted all these problems would come, and they were certainly correct in everything that they said. Of course they're not very satisfied including myself with the so-called solutions, because it looks like we're spending a lot of energy and a lot of money trying to patch a system together that is unworkable.
So we have Congress spending a lot of money, we have Treasury very much involved in trying to pick and choose which worthless asset that we're going to buy, and of course the Federal Reserve is involved in injecting trillions of dollars that nobody seems to be keeping track of.
But what we're failing to do I think is to recognize that the system no longer works, but I can understand why we do this because if Congress couldn't do this and if the Fed couldn't do this and Treasury couldn't do this, it would make us all irrelevant. And instead of looking at the causes of this, and then finding the solutions aren't going to be found here, we have to make ourselves feel pretty important.
But I think there's another reason we think we're pretty important, it's because in a way our interference in the market corrections that tried to come about since 1971 seem to work. I mean, the failure was established in 1971 with a system that had no way of automatically correcting the balance of payment and the current account deficits.
And that's where the problems have been, and economists - whether they were left or right or middle - over the last several decades have always said, this current account deficit is a big problem. And now it's totally out of hand. So here we are struggling with all these rules and shifting back and forth and really getting nowhere.
My question is directed toward, when we come to the full realization that the system is unworkable, what are we going to do, what have you thought about doing, and already we see talk in the newspapers. We see articles about a new international world reserve currency, and to me that's pretty important, because the fiat dollar reserve system is not going to work anymore, and that's the information that we have to accept and decide what we're going to do in the future.
Also, this is not new in history. Currencies have failed, financial systems have failed, and generally, to restore the confidence that everybody is talking about, they usually have to go back to a currency with integrity to it, rather than just fiat money.
And, you know, the stages is there. It's not impossible, already the central banks of the world still own 15% of all the gold that was ever mined in all of history. So they hold on to this gold for some reason, and therefore something has to give, or are we going to keep trying to waste more money and time patching this system together.
Just last week there was a report that Iran purchased 75 billion dollars worth of gold, took their reserves out of Europe, bought gold and put it in Asia. So is that a sign of the times, is that moving on?
My question is, in your meetings, and you had a meeting just recently with other central bankers, does this thought come up about a new international world reserve currency, and if so, does the subject of gold ever come up?
How do you restore the confidence? Have you recently had conversations with any central banker, and is there a move on to replace the dollar system, because the dollar system is essentially declared dead, because it's not working, but this indeed was predictable because of these tremendous imbalances that were never allowed to be corrected, and they were always patched up. We always came in. We'd spend, we'd inflate, we would run up deficits, and since '71 we've been able to correct these problems.
Could you tell me what kind of conversations you've had regarding a new reserve currency?
Ben Bernanke: Yes, Congressman. I don't think the dollar system is dead. I think the dollar remains the premier international currency. We've seen a good deal of appreciation in the dollar recently during the crisis precisely because there's been a lot of interest in the safe haven and the liquidity of dollar markets.
And the Federal Reserve has been engaged in swap agreements to make sure there's enough dollar liquidity in other countries because the need for dollars is so strong. So I think the dollar system remains quite strong.
I do agree with you very much on one point, which is about the current accounts. The current account imbalances have proved to a very serious problem. It was in fact the large capital inflows in those current accounts which created a lot of the financial imbalances we saw and have led to some of the problems we are seeing, and one of the silver linings in this huge grey cloud is that we're seeing some improvement and greater balance in our current account deficits.
Ron Paul: But does the subject of a new regime ever come up?
Ben Bernanke: No, it doesn't.
Ron Paul: And does the subject of gold ever come up in any of your conversations?
Ben Bernanke: Only in terms of the sales that the central banks are planning.