April 20, 2024

Ron Paul Talks About Economic Collapse and Lack of Federal Reserve Transparency

dickensIn an interview with CNBC, former GOP presidential candidate Ron Paul endorsed the efforts of his son, Senator Rand Paul, to hold up the nomination of Janet Yellen as Federal Reserve Chairman until laws are passed requiring more transparency from the Fed.

Senator Rand Paul has introduced legislation for an “Audit the Fed” bill which would require the Federal Reserve to disclose the details involving trillions of dollars the Fed has provided to both domestic and international financial institutions.

According to Ron Paul, “We don’t know the details of the trillions of dollars that were used to bail out banks and central banks around the world and corporations during the crisis.  The numbers that they give you I don’t think are all that revealing.”

Ron Paul has been one of the few voices in the American government pushing for financial responsibility by both the Federal government and the Federal Reserve.

After the most recent capitulation by Republicans to reduce the exponential increase in Federal government debt and spending, Ron Paul lamented the hypocrisy of the deal to end the government shutdown.

The latest spending-and-debt deal was negotiated by Congressional leaders behind closed doors, and was rushed through Congress before most members had time to read it. Now that the bill is passed, we can see that it is a victory for the political class and special interests, but a defeat for the American people.

The debt ceiling deal increases spending above the levels set by the “sequester.” The sequester cuts were minuscule, and in many cases used the old DC trick of calling reductions in planned spending increases a cut. But even minuscule and phony cuts are unacceptable to the bipartisan welfare-warfare spending collation. The bill also does nothing to protect the American people from the Obamacare disaster.

US debt to gdp

Members of Congress and the public were told the debt ceiling increase was necessary to prevent a government default and an economic crisis. This manufactured fear supposedly justified voting on legislation without allowing members time to even read it, much less to remove the special deals or even debate the wisdom of intervening in overseas military conflicts because of a YouTube video.

Congress surrendered more power to the president in this bill. Instead of setting a new debt ceiling, it simply “suspended” the debt ceiling until February. This gives the administration a blank check to run up as much debt as it pleases from now until February 7th. Congress can “disapprove” the debt ceiling suspension, but only if it passes a resolution of disapproval by a two-thirds majority. How long before Congress totally abdicates its constitutional authority over spending by allowing the Treasury permanent and unlimited authority to borrow money without seeking Congressional approval?

private debt gdp

Hopefully, those of us who understand sound economics can convince enough of our fellow citizens to pressure Congress to make serious spending cuts before Congress’s reckless actions cause a total economic collapse.

debt monster

Sound advice Mr. Paul, but the odds of preventing an economic collapse decline with each additional dollar borrowed by the government and each additional dollar printed by the Federal Reserve.  Debt at all levels is out of control and has overcome the ability of the nation to service the debt. Ironically, the only way to prevent a collapse today is through the Ponzi scheme method of further printing and borrowing which puts off the day of reckoning.

Realistically, Ron Paul has been ignored by the public and his fellow legislators for decades.  The odds of controlling the growth of debt by the U.S. and other major industrialized countries is almost zero since legislators are elected based on promises to extend the social welfare state and serve special interests.

The odds of central banks reducing quantitative easing is even more remote since an absence of money printing would hasten the economic collapse Mr. Paul warns about.  The future collapse predicted by Mr. Paul seems inevitable at some point and the only concern of an investor should be finding a safe haven for wealth preservation.

Ron Paul Accuses The Federal Reserve of Devastating America

While Wall Street cheers the Federal Reserve’s decision to engage in perpetual quantitative easing, Congressman Ron Paul says the Fed is devastating the U.S. economy through its blatant manipulation of interest rates.  According to Ron Paul, manipulating interest rates to the zero bound level has caused a massive misallocation of capital, destroyed the purchasing power of the U.S. dollar and will eventually lead to another financial crisis.

Ron Paul’s warnings have been routinely dismissed by both Wall Street and his colleagues in Congress.  The majority of the American public know that something is seriously wrong with our financial system but can’t quite connect the dots between the Fed and lower wages and higher prices.  Those who do understand how the Fed is destroying the U.S. economy and are worried about preserving their wealth, should simply copy the investment strategy of Ron Paul who has gone all in on gold and silver.

By Ron Paul

One of the most enduring myths in the United States is that this country has a free market, when in reality, the market is merely the structural shell of formerly free institutions. Government pulls the strings behind the scenes. No better illustration of this can be found than in the Federal Reserve’s manipulation of interest rates.

The Fed has interfered with the proper function of interest rates for decades, but perhaps never as boldly as it has in the past few years through its policies of quantitative easing. In Chairman Bernanke’s most recent press conference he stated that the Fed wishes not only to drive down rates on Treasury debt, but also rates on mortgages, corporate bonds, and other important interest rates. Markets greeted this statement enthusiastically, as this means trillions more newly-created dollars flowing directly to Wall Street.

Because the interest rate is the price of money, manipulation of interest rates has the same effect in the market for loanable funds as price controls have in markets for goods and services. Since demand for funds has increased, but the supply is not being increased, the only way to match the shortfall is to continue to create new credit. But this process cannot continue indefinitely. At some point the capital projects funded by the new credit are completed. Houses must be sold, mines must begin to produce ore, factories must begin to operate and produce consumer goods.

But because consumption patterns have either remained unchanged or have become more present-oriented, by the time these new capital projects are finished and begin to produce, the producers find no market for their goods. Because the coordination between savings and consumption was severed through the artificial lowering of the interest rate, both savers and borrowers have been signaled into unsustainable patterns of economic activity. Resources that would have been used in productive endeavors under a regime of market-determined interest rates are instead shuttled into endeavors that only after the fact are determined to be unprofitable. In order to return to a functioning economy, those resources which have been malinvested need to be liquidated and shifted into sectors in which they can be put to productive use.

Another effect of the injections of credit into the system is that prices rise. More money chasing the same amount of goods results in a rise in prices. Wall Street and the banking system gain the use of the new credit before prices rise. Main Street, however, sees the prices rise before they are able to take advantage of the newly-created credit. The purchasing power of the dollar is eroded and the standard of living of the American people drops.

We live today not in a free market economic system but in a “mixed economy”, marked by an uneasy mixture of corporatism; vestiges of free market capitalism; and outright central planning in some sectors. Each infusion of credit by the Fed distorts the structure of the economy, damages the important role that interest rates play in the market, and erodes the purchasing power of the dollar. Fed policymakers view themselves as wise gurus managing the economy, yet every action they take results in economic distortion and devastation.

Unless Congress gets serious about reining in the Federal Reserve and putting an end to its manipulation, the economic distortions the Fed has caused will not be liquidated; they will become more entrenched, keeping true economic recovery out of our grasp and sowing the seeds for future crisis.

Ron Paul – “The World Will Abandon The Dollar As The Global Reserve Currency”

In August Ron Paul accused the U.S. Treasury “guilty of counterfeiting dollars” by virtue of its monopoly power on money in America.  Paul noted that the expanding role of the Federal Reserve in monetizing government debt has resulted in a massive debasement of the purchasing power of the U.S. dollar.

Continued reckless money printing by the Federal Reserve and massive government deficits will ultimately result in the loss of confidence by holders of  U.S. dollars.  Ron Paul sees the U.S. dollar inexorably losing its status as global reserve currency unless the dollar is backed by precious metals or commodities.

Evidence of the horrendous loss of purchasing power by the U.S. dollar is not hard to understand.  The average citizen sees it everyday as higher prices and lower incomes relentlessly lower our standard of living.   The systematic destruction of the U.S. dollar’s purchasing power can be seen in a chart published by the Federal Reserve Bank of St. Louis.

How Long Will the Dollar Remain the World’s Reserve Currency?

By: Congressman Ron Paul

We frequently hear the financial press refer to the U.S. dollar as the “world’s reserve currency,” implying that our dollar will always retain its value in an ever shifting world economy.  But this is a dangerous and mistaken assumption.

Since August 15, 1971, when President Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold, the U.S. dollar has operated as a pure fiat currency.  This means the dollar became an article of faith in the continued stability and might of the U.S. government.

In essence, we declared our insolvency in 1971.   Everyone recognized some other monetary system had to be devised in order to bring stability to the markets.

Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it– not even a pretense of gold convertibility! Realizing the world was embarking on something new and mind-boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC in the 1970s to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence backed the dollar with oil.

In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite radical Islamic movements among those who resented our influence in the region. The arrangement also gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as the dollar flourished.

In 2003, however, Iran began pricing its oil exports in Euro for Asian and European buyers.  The Iranian government also opened an oil bourse in 2008 on the island of Kish in the Persian Gulf for the express purpose of trading oil in Euro and other currencies. In 2009 Iran completely ceased any oil transactions in U.S. dollars.  These actions by the second largest OPEC oil producer pose a direct threat to the continued status of our dollar as the world’s reserve currency, a threat which partially explains our ongoing hostility toward Tehran.

While the erosion of our petrodollar agreement with OPEC certainly threatens the dollar’s status in the Middle East, an even larger threat resides in the Far East.  Our greatest benefactors for the last twenty years– Asian central banks– have lost their appetite for holding U.S. dollars.  China, Japan, and Asia in general have been happy to hold U.S. debt instruments in recent decades, but they will not prop up our spending habits forever.  Foreign central banks understand that American leaders do not have the discipline to maintain a stable currency.

If we act now to replace the fiat system with a stable dollar backed by precious metals or commodities, the dollar can regain its status as the safest store of value among all government currencies.  If not, the rest of the world will abandon the dollar as the global reserve currency.

Both Congress and American consumers will then find borrowing a dramatically more expensive proposition. Remember, our entire consumption economy is based on the willingness of foreigners to hold U.S. debt.  We face a reordering of the entire world economy if the federal government cannot print, borrow, and spend money at a rate that satisfies its endless appetite for deficit spending.

Ron Paul – “U.S. Treasury Guilty of Counterfeiting Dollars”

When Ron Paul retires after his current term in Congress, one of the most notable voices for a sound currency and protection of civil liberties against a despotic government will be gone from the official Washington scene.  Although Paul was never able to rein in a government that assumes more power over our lives with each passing minute, his warnings gave Americans the opportunity to understand the threats to their financial future and personal liberties.

What may be one of Ron Paul’s last legislative efforts is his campaign to allow competing currencies in the United States in order to break the monopoly on money by the Treasury and Federal Reserve.

I recently held a hearing in my congressional subcommittee on the subject of competing currencies.  This is an issue of enormous importance, but unfortunately few Americans understand how the Federal Reserve and Treasury Department impose a strict monopoly on money in America.

This monopoly is maintained using federal counterfeiting laws, which is a bit rich.  If any organization is guilty of counterfeiting dollars, it is our own Treasury.  But those who dare to challenge federal legal tender laws by circulating competing currencies– at least physical currencies– risk going to prison.

Like all government created monopolies, the federal monopoly on money results in substandard product in the form of our ever-depreciating dollars.

Yet governments have always sought to monopolize the issuance of money, either directly or through the creation of central banks. The expanding role of the Federal Reserve in the 20th century enabled our federal government to grow wildly larger than would have been possible otherwise.  Our Fed, like all central banks, encourages deficits by effectively monetizing Treasury debt.  But the price we pay is the terrible and ongoing debasement of our money.

Allowing individuals and business to use alternate currencies, especially currencies backed by gold and silver, would expose the whole rotten system because the marketplace would prefer such alternate currencies unless and until the Fed suddenly imposed radical discipline on its dollar inflation.

Sadly, Americans are far less free than many others around the world when it comes to protecting themselves against the rapidly depreciating US dollar.  Mexican workers can set up accounts denominated in ounces of silver and take tax-free delivery of that silver whenever they want.  In Singapore and other Asian countries, individuals can set up bank accounts denominated in gold and silver.  Debit cards can be linked to gold and silver accounts so that customers can use gold and silver to make point of sale transactions, a service which is only available to non-Americans.

The obvious solution is to legalize monetary freedom and allow the circulation of parallel and competing currencies.  There is no reason why Americans should not be able to transact, save, and invest using the currency of their choosing.  They should be free to use gold, silver, or other currencies with no legal restrictions or punitive taxation standing in the way.  Restoring the monetary system envisioned by the Constitution is the only way to ensure the economic security of the American people.

After all, if our monetary system is fundamentally sound– and the Federal Reserve indeed stabilizes the dollar as its apologists claim–then why fear competition?  Why do we accept that centralized, monopoly control over our money is compatible with a supposedly free-market economy?  In a free market, the government’s fiat dollar should compete with alternate currencies for the benefit of American consumers, savers, and investors.

As Austrian economist Ludwig von Mises explained, sound money is an instrument that protects our civil liberties against despotic government. Our current monetary system is indeed despotic, and the surest way to correct things simply is to legalize competing currencies.

Ron Paul is routinely dismissed as a naif by the Federal Reserve and Treasury.  Yet a quick look at the  chart of the purchasing power of the U.S. dollar (published by the St. Louis Fed) proves the legitimacy of Ron Paul’s concerns.  Federal Reserve policies have resulted in the systematic destruction of the purchasing power of the consumer dollar.

Will Ron Paul be successful in his quest to legalize a competing U.S. currency?  Let’s look at Paul’s track record.

Of the 620 bills that Paul had sponsored through December 2011, over a period of more than 22 years in Congress, only one had been signed into law – a lifetime success rate of less than 0.3%.   The sole measure authored by Paul that was ultimately enacted allowed for a federal customhouse to be sold to a local historic preservation society (H.R. 2121 in 2009).

Although Ron Paul’s crusade against corrupt government and the Federal Reserve is a losing battle, the value of his message is invaluable.   Ron Paul has seen the future of constant U.S. dollar debasement and positioned his personal portfolio heavily into gold and silver – something that the average American should think about.

75% Of Americans Believe The Fed Should Be Audited – Why It Won’t Happen

Most Americans under 30 have a strange sense of unease that something is very wrong with the way things are going in America.  If you are 60 or older and can remember with nostalgia how life in America was prior to the days of blatant  and corrupt crony capitalism, you know for sure we are heading in a very wrong direction at an accelerating pace.

I can remember the days when the average worker could support his family without putting his wife to work, without having to give up on having children, without having to worry about banks going under, without having to worry about an implosion of the financial system and without the expectation that the government would provide handouts to solve every little one of life’s problems.

Gradually, it has begun to dawn on the average American of all ages that the Federal Reserve may be at the heart of the nation’s financial problems.  Much has been written about this, but two graphs sum up the situation quite nicely.  Since the Federal Reserve was created in 1913, the value of the dollar has declined to a fraction of what it was once worth and since the abandonment of the gold standard, government debt has reached levels that are no longer sustainable without further debasement of the paper dollar.  The American public is beginning to connect the dots.

Ron Paul has been a lonely voice in spreading the message about the Fed but has finally reached a milestone with the House passage of his proposed “Audit The Fed” legislation.  In an update Ron Paul notes that 75% of the American public supports his bill according to a recent poll.

Last week the House of Representatives overwhelmingly passed my legislation calling for a full and effective audit of the Federal Reserve.  Well over 300 of my Congressional colleagues supported the bill, each casting a landmark vote that marks the culmination of decades of work.  We have taken a big step toward bringing transparency to the most destructive financial institution in the world.

But in many ways our work is only beginning.  Despite the Senate Majority Leader’s past support for similar legislation, no vote has been scheduled on my bill this year in the Senate.  And only 29 Senators have cosponsored Senator Rand Paul’s version of my bill in the other body.  If your Senator is not listed at the link above, please contact them and ask for their support.  We need to push Senate leadership to hold a vote this year.

Understand that last week’s historic vote never would have taken place without the efforts of millions of Americans like you, ordinary citizens concerned about liberty and the integrity of our currency.  Political elites respond to political pressure, pure and simple.  They follow rather than lead.  If all 100 Senators feel enough grassroots pressure, they will respond and force Senate leadership to hold what will be a very popular vote.

In fact, “Audit the Fed” is so popular that 75% of all Americans support it according to this Rasmussen poll.  We are making progress.

Of course Fed apologists– including Mr. Bernanke– frequently insist that the Fed already is audited.  But this is true only in the sense that it produces annual financial statements.  It provides the public with its balance sheet as a fait accompli: we see only the net results of its financial transactions from the previous fiscal year in broad categories, and only after the fact.

We’re also told that the Dodd-Frank bill passed in 2010 mandates an audit.  But it provides for only a limited audit of certain Fed credit facilities surrounding the crisis period of 2008.  It is backward looking, which frankly is of limited benefit.

The Fed also claims it wants to be “independent” from Congress so that politics don’t interfere with monetary policy.  This is absurd for two reasons.

First, the Fed already is inherently and unavoidably political.  It made a political decision when it chose not to rescue Lehman Brothers in 2008, just as it made a political decision to provide liquidity for AIG in the same time period. These are just two obvious examples.  Also Fed member banks and the Treasury Department are full of former– and future– Goldman Sachs officials.  Are we really to believe that the interests of Goldman Sachs have absolutely no effect on Fed decisions? Clearly it’s naïve to think the Fed somehow is above political or financial influence.

Second, it’s important to remember that Congress created the Fed by statute.  Congress therefore has the full, inherent authority to regulate the Fed in any way– up to and including abolishing it altogether.

My bill provides for an ongoing, thorough audit of what the Fed really does in secret, which is make decisions about the money supply, interest rates, and bailouts of favored banks, financial firms, and companies.  In other words, I want the Government Accountability Office to examine the Fed’s actual monetary policy operations and make them public.

It is precisely this information that must be made public because it so profoundly affects everyone who holds, saves, or uses US dollars.

Will the bill pass the senate, considering the incestuous and corrupt self dealing relationships between too big to fail banks, government and politicians?  Probably not in our lifetimes, but at least public awareness of the problem is growing.  Ron Paul might have added in his update that the vast majority of Americans no longer believe they are ruled with the consent of the governed.

Would Auditing The Fed Send Gold Higher?

By Vin Maru

The House Passes H.R. 459 Bill from Ron Paul to Audit the Fed

July 25, 2012 should go down in history as the date the Federal Reserve may become fully accountable to the US government. A motion to pass the bill as amended was unanimously approved by the house to require a full audit of the boards of governors of the Federal Reserve System and banks. This will be done by the Comptroller General of the US before the end of 2012 and they are required to issue their report within 12 months of enactment.  The votes in the House in the bill’s passing this was 326 yea votes to 99 nay votes with 7 non votes.  Interestingly enough it was the Republicans that strongly supported this bill with 239 yea and 1 nay vote, while the Democrats voted 88 yea and 98 nay.

There are many hurdles ahead of this bill before it takes effect; it still has to be ratified by the Senate and the President.  However, finally getting approved in the House is a step in the right direction.  Even if it does pass how much effect will the audit have in reality?  Probably not much since the banking institution known as the Federal Reserve operates outside of any law.  Even if they are found guilty of any wrong doing in managing the value of the US dollar or being involved in rigging the Libor rate, who will be there to prosecute them?  Remember they operate outside the law, so even if they are found guilty, it will be the US citizens and holders of paper/digital US dollars that will somehow pay for it.

In a world where bank’s losses are socialized, the Federal Reserve (the banker for banks) misconducts have always been socialized on the people.  Of course, this socialization of losses by the Fed has been taking place ever since its illegal inception.  In 1913, the Federal Reserve stole the power to issue and control money by introducing the Federal Reserve note, something we call the US dollar.  Since then, it is estimated that the dollar has lost 95% of its purchasing power by way of inflation (the increase of the money supply), so it really has only 5% left to go.   As the value of the US dollar moves towards its intrinsic value of zero, gold and silver as true money has only one way to go and that is up.

Usually first reactions are correct and looking at this news the value of the US dollar reacted negatively, while gold went higher in most major currencies around the world.

Could This be the Catalyst that Gold Needs for a Major Break Out to the Upside?

In a manipulated market, it’s tough to say, but the fact that there is support for auditing the Fed and making it accountable is definitely a step in the right direction.  With the recent news about major banks manipulating the Libor rate, any investigation into the Fed’s involvement is most welcome and has to be gold-positive.  Recently, we have been writing about how gold is moving towards the financial system with several different proposals for making it a tier 1 asset class and its use as collateral by financial institutions. If these proposals take effect, they are planned for January 2013, which coincides nicely with this audit being completed by the end of 2012.

Normally, the summer doldrums represent the lows in price for precious metals with a significant rally occurring in the fall and winter.  With this recent down turn, we have most likely seen the lows, and there are many catalysts for G&S to move higher into next years.

For example:

1. Food inflation is rising with this drought.

2. Gold could carry a zero risk weighting on bank books by Jan 2013 (BIS and FDIC are proposing this).

3. Paper currencies are Fiat, essentially worthless, but they will be used to create inflation, there is no other choice at the moment—QE to Infinity.

4. Market manipulation by bullion banks will be overrun by physical buyer (mostly now coming from central banks).

5. The investment community is only 1% invested in gold; historically this has been 5-10%.

6. Political tensions with Iran could heat up again later this year or early next, causing higher oil prices and as such gold.

7. More banking manipulation and scandals are emerging this summer, the Libor scandal is just the tip of the iceberg.

8. They system for true price discovery is broken, regulators have failed and the LBMA & Comex have lost all control and credibility.

9.  The price suppression by the west will be overrun by the East and physical buyers. The West cannot win this paper game.

10. MOST importantly: GOLD and SILVER is a hard asset and it has a history of over 5000 years being REAL MONEY. This paper/digital money has been only in place over the last 100 years and is doomed to fail.

Now is the time to be investing in gold and silver, during this consolidation.  A long period of consolidation is usually followed by a major move either to the upside and downside.  Given gold and silver’s favourable fundamentals, the break out will most likely be to the upside as gold moves towards the financial system.  Today’s positive price action could be the start of a new trend higher going into the fall and early next year.  If this trend plays out, there will be several opportunities to trade in and out of several precious metals ETFs.  The gold miners are great value compared to gold and we have been evaluating several that have great upside potential and production growth.

The key is to be ahead of the curve before it happens, take a position and place a tight stop loss in case this is a fake break out and gold continues to correct lower against its fundamentals.  If the correction in gold is over and we are at a start of a new trend higher over the next year, this summer will prove to one of the best buying opportunities we have seen in a very long time.  Significant profits could be made buying gold and many of the producers during the summer doldrums and then selling into the fall and winter, the only question is are you positioned to take advantage of a trend change in gold when it happens.

If you enjoyed reading this article and are interested in protecting your wealth with precious metals, you can receive our free blog by visiting TDV Golden Trader.


Ron Paul Calls Central Bank Intervention A “Form of World Wide Quantitative Easing”

Central banks, spear headed by the U.S. Federal Reserve, launched a massive joint effort to provide liquidity to a European banking system that was teetering on the verge of collapse.

The six central banks involved in the emergency lending program were the U.S. Federal Reserve, the Bank of Japan, the Swiss National Bank, the Bank of England, the Bank of Canada and the European Central Bank.  The central bank actions provided European banks with cheap access to  funding through U.S. dollar swap lines.  Under dollar swaps, the U.S. Federal Reserve supplies dollars to foreign central banks which in turn lend the dollars to banks that need U.S. dollars to meet funding needs denominated in U.S. dollars.

In a joint statement, the six central banks said “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”  As one European bank after another appeared to be on the verge of collapse, the calls for central bank intervention to “save the world” had become deafening.  Today, the central banks obliged, effectively endorsing the theory that more debt is the solution to the debt crisis.

In an early day interview on CNBC, Ron Paul gave his take on the massive central bank intervention, calling it “a form of worldwide quantitative easing.”

Ron Paul also noted that the central bank actions “penalize the American people” and that the Federal Reserve actions will simply result in “more debt and more inflation.”

Ron Paul said the Fed is doing the same thing that it has done for the past 40 years.  “Spending excessively, running up debt, printing up money, and manipulating interest rates.  We’re up against the wall now, it doesn’t work anymore. Lowering interest rates is essentially impossible.   That’s what they’re desperately trying to do today.  But, you know, when our interest rates to the banks are down to zero, what are they going to do next?  Used to be that Congress would just spend more money and that would help.  How can they spend more money when there’s no more money in the Treasury?”

The answer to Ron Paul’s last question is obvious and should deeply concern every American.  Funding needs of the Treasury will continue to be supplied by the Federal Reserve with printed money and the U.S. currency will continue to lose value.  The rising price of gold has reflected the systematic destruction of our currency.  Based on the predictable response of central banks worldwide to print their way out of the debt disaster, there is effectively no upside limit to the price of gold.

Ron Paul Blames Destructive Fed Policies For Housing Crash And Economic Bust

Ron Paul explains better than anyone else the destructive economic forces unleashed by Federal Reserve monetary policies.  According to Paul,  loose monetary policies and manipulation of interest rates has caused “every single boom and bust that has occured in this country since the bank’s creation in 1913.”

In a Wall Street Journal editorial, Ron Paul explains exactly how the Fed has wrecked the economy, why they are clueless for the reasons behind their failures and why further Fed actions will only further exacerbate the problems caused by the Fed in the first place.

Adding new money increases the supply of money, making the price of money over time—the interest rate—lower than the market would make it. These lower interest rates affect the allocation of resources, causing capital to be malinvested throughout the economy. So certain projects and ventures that appear profitable when funded at artificially low interest rates are not in fact the best use of those resources.

Eventually, the economic boom created by the Fed’s actions is found to be unsustainable, and the bust ensues as this malinvested capital manifests itself in a surplus of capital goods, inventory overhangs, etc. Until these misdirected resources are put to a more productive use—the uses the free market actually desires—the economy stagnates.

Yet policy makers at the Federal Reserve still fail to understand the causes of our most recent financial crisis. So they find themselves unable to come up with an adequate solution.

The Fed fails to grasp that an interest rate is a price—the price of time—and that attempting to manipulate that price is as destructive as any other government price control. It fails to see that the price of housing was artificially inflated through the Fed’s monetary pumping during the early 2000s, and that the only way to restore soundness to the housing sector is to allow prices to return to sustainable market levels. Instead, the Fed’s actions have had one aim—to keep prices elevated at bubble levels—thus ensuring that bad debt remains on the books and failing firms remain in business, albatrosses around the market’s neck.

If the Fed would stop intervening and distorting the market, and would allow the functioning of a truly free market that deals with profit and loss, our economy could recover. The continued existence of an organization that can create trillions of dollars out of thin air to purchase financial assets and prop up a fundamentally insolvent banking system is a black mark on an economy that professes to be free.

Fed policies have pushed the U.S. and global economies to the precipice of a full blown depression.  What are the odds that they  reverse course and follow Ron Paul’s recommendations?  Zero, in my opinion.  Bernanke still believes in the fantasy illusion that creating more dollars at zero interest rates will somehow ignite economic growth.  The Fed blindly ignores the fact that in all of recorded human history, once great powers that incurred massive debt loads have all failed.

Ron Paul concludes that the Fed will continue its self defeating policies because of  the pressure to “just do something”.  And right on cue, former Federal Reserve Vice Chairman Alan Blinder recommends (in his own concurrent Journal editorial) that the U.S. government needs to incur whatever amount of debt is necessary to cure the housing crisis.  Blinder’s idiotic recommendation comes on the heels of previous failed and costly housing programs that cost billions and futher delayed the recovery in housing by keeping unqualified homeowners in homes they can’t afford to be in.

Here’s Blinder’s advice on How to Clean Up The Housing Mess, which is the exact opposite of Ron Paul’s free market solutions.

Given the huge magnitude of the aggregate gap between house values and mortgage balances, a comprehensive anti-foreclosure solution requires hundreds of billions of dollars.

So what can be done now? There is no silver bullet; we need different remedies for different types of (actual or prospective) foreclosures. And to succeed, we must overcome the three barriers. Foreclosure mitigation is expensive. It will encounter political resistance. It probably requires bending some property rights.

Blinder’s new spending plans and previous similar ones have cost the Government trillions, tremendously debased the dollar and accomplished nothing except to make the case for owning gold even more compelling.


The Road Map To Sound Money and Restoring the Dollar – Ron Paul’s Proposal

“Road Map to Sound Money: A Legislative Hearing on H.R. 1098 and Restoring the Dollar”.

Ron Paul’s efforts to restore a sound currency in the United States continued this week as hearings were held on his proposed legislation that would allow American citizens to chose from among competing currencies.  Ironically, the one man whose proposals could ultimately save the U.S. financial system from collapse, was completely ignored by the mainstream press who provided zero coverage of H.R. 1098.

H.R. 1098, introduced by Ron Paul in March is known as the “Free Competition in Currency Act of 2011”.  According to Ron Paul, “This bill eliminates three of the major obstacles to the circulation of sound money: federal legal tender laws that force acceptance of Federal Reserve Notes; “counterfeiting” laws that serve no purpose other than to ban the creation of private commodity currencies; and tax laws that penalize the use of gold and silver coins as money.”

Ron Paul noted that gold and silver have constituted sound money throughout history.  Loss of confidence in the dollar and profligate deficit spending by the government have caused people to flee to gold and silver as a store of value.  Paul noted that “Even central banks have come to their senses and have begun to stock up on gold once again.”

Presently, the use of gold and silver by citizens is being severely punished by the government.  Ron Paul cited the case of Bernard von NotHaus, creator of the Liberty Dollar, who was convicted of counterfeiting for creating his own gold and silver currency and another individual who was “convicted of tax evasion for paying his employees with silver and gold coins instead of fiat dollars.”

H.R. 1098, according to Ron Paul, would allow citizens to maintain the purchasing value of their money and prevent the government from conducting excessive borrowing which will enslave future generations with debt.

Testimony at the hearing for H.R. 1098 was given by Dr. Lawrence Parks, Foundation for the Advancement of Monetary Education, and Dr. Lawrence White, Professor of Economics, George Mason University.

Dr. Parks, who presented 63 pages of prepared remarks, opened by stating that the current monetary system is not in conformity with the Constitution, is dishonest and unstable and in the process of “blowing up.”

Selected excerpts from Dr. Parks testimony:

With no exceptions, the history of legal tender irredeemable paper-ticket-electronic money is that its purchasing power always approaches its cost of production: ZERO!

With gold-as-money, and without the banking system creating money out of nothing, the amount of financial leverage would be de minimis with no possibility of collapse. Because legal tender irredeemable paper-ticketelectronic money can be created without limit, there is no market based self-correcting mechanism to limit financial leverage. Especially at a time when those who engage in leverage do not bear the full risk of loss, but are able pass the risk on to the public through the banking system, whose balance sheet and liabilities are de facto guaranteed by the public, financial collapse is a certainty.

Many think that the Great Depression was a “market failure.” Mr. Greenspan has written extremely eloquently that the Great Depression was in fact caused by the Federal Reserve feeding too much credit into the banking system, i.e., enabling the banking system to increase leverage too much.

Dr. Parks notes that the price level of the U.S. was stable until President Nixon defaulted on the U.S. promise to redeem dollars for gold.


Dr. Parks says that because the U.S. dollar is the reserve currency of the world, when the dollar collapses, the global financial system will also collapse, plunging most of the world into poverty and war.

Dr. Parks admits that as a “practical matter, absent the debacle of a complete collapse, there can be no abrupt changes to our monetary system.”

The continual appreciation of gold against paper money suggests that the monetary system will not be reformed in time to prevent a financial disaster.   The ongoing debt crises in Europe and the U.S. also provide little hope that governments will diverge from their path of monetary disaster as they seek to cure too much debt with more debt.   The only survivors at the end of this mad experiment with fiat money will be those holding the eternal sound currency of gold and silver.

Ron Paul Goes All In On Gold and Silver

Rep. Ron Paul, a long time critic of the Fed and advocate of the gold standard, is all in on gold and silver.  Ron Paul has consistently warned of the dangers of a Fed gone wild on easy money and a Government that has borrowed itself into financial oblivion.

The “Honest Money” essay on the Ron Paul website is an all time favorite explanation of how money and inflation work and has drawn almost 6,000 comments.

What, then, is fiat money? It’s exactly what we just talked about: money that can be inflated or increased at the push of a button at the say-so of a powerful person or organization. Nowadays most dollars are just blips on a computer screen and it’s extremely easy for the Federal Reserve to create money out of thin air whenever they want to.

As you can see, inflation and fiat money are very seductive and beneficial to those at the top, and very dangerous to everyone else and the nation as a whole. That’s exactly what Henry Ford was talking about. He knew that every country that relies too much on fiat money is ruined sooner rather than later.

There is only one possible solution to the inflation problem: Stop creating money out of thin air. But we’re already in such a mess that the only way to have a real impact on the money supply is to increase interest rates so that people pay back their loans and borrow less money from the banks, which decreases the amount of money in circulation. However, higher interest rates might very well crash the economy. So the Fed’s current “solution” to overcoming inflation is… creating even more of it.

Fiat money is a dangerous addiction. Even if the Fed found a way to stop inflation, as long as the current system persists the temptation will always be there to resume pushing the easy money button. That’s why we need to get back on the gold standard and eliminate the Federal Reserve altogether.

In order to protect the purchasing power of his savings, Ron Paul has implemented the sound advice that he has been dispensing to America for many years.

As disclosed in Barron’s this weekend, Ron Paul’s top 10 holdings listed in required financial statement disclosures show that his portfolio is 100% in gold and silver mining stocks.  Ron Paul apparently also owns gold bullion, but the disclosure of asset holdings that may be considered as collectibles is not required.

Without getting into a discussion of the merits of a diversified investment portfolio, Ron Paul’s 100% investment allocation to gold and silver demonstrate his integrity.  If someone believes that the Government is persistently and continually debasing the value of the currency, why would you not invest exclusively in gold and silver?

Ron Paul has taken steps to protect himself from the disastrous affects that Federal Reserve policies will ultimately have on the value of the U.S. currency.  The average American would be well advised to follow his lead.

Here is Ron Paul’s portfolio as disclosed by Barron’s.

Ron Paul portfolio - courtesy Barron's