June 19, 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.

Why Higher Inflation And $5,000 Gold Are Inevitable

In his press conference on April 27, 2011, Federal Reserve Chairman Bernanke dismissed inflation worries, stating that “Our expectation is that inflation will come down and towards a more normal level”.   Should we believe him?  Not if you want to preserve your wealth and here’s why.

Chairman Bernanke has a perfect record of making inaccurate economic forecasts.

  • Bernanke, March 2007, prior to the historic housing crash said,  “At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”
  • Bernanke, February 2008, prior to the banking crisis that almost resulted in the collapse of the entire U.S. banking system  said, “I expect there will be some failures. I don’t anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.”
  • Bernanke, June 2008, prior to the worst recession and job losses since the 1930’s, said the danger of the economy falling into a “substantial downturn” appears to have waned.

Even if the Fed was able to keep inflation at a “benign” rate of 2% a year, the long term effects on savings are devastating.  Over ten years, a 2% inflation rate reduces the value of $100,000 to $82,034, resulting in an 18% loss in purchasing power.

According to the Bureau of Labor Statistics, inflation averaged 3.4% since 1980.  At the beginning of 1980, one dollar had the same purchasing power as $2.86 at the end of 2010.

The cost of living has spiraled upwards since the early 1970’s, correlating perfectly to the point at which the value of the dollar was decoupled from gold.  In 1971, the United States stopped exchanging dollars for gold to foreign official holders of dollars and the dollar gold standard was officially ended in 1973.

The Fed’s policy of pushing easy credit for the past 30 years to fuel economic growth has left Americans swimming in debt.  The housing collapse and declining incomes have resulted in millions of mortgage defaults and underwater homeowners.  The Government’s attempt to bailout a collapsing economy and over leveraged banks and consumers has resulted in trillions of dollars in new debt and a $1.5 trillion deficit.

Government debt has exploded to the point where the solvency of the U.S. Government is now being questioned.  Large tax increases to erase the deficit would spin the U.S. into a deep recession.  The President and Congress lack the political will to cut spending.  The U.S. has spent and borrowed itself to the eve of financial ruin and must “inflate or die” at this point (see Why There Is No Upside Limit For Gold and Silver Prices).

The Fed, with the experience of two money printing campaigns already under its belt, will have no problems extending this practice.  As Bernanke noted in 2002 before he became Fed Chairman, “The U.S. Government has a technology, called a printing press, that allows it to produce as many U.S. dollars as it wishes at no cost”.

The Fed’s cheap money policies and concerted efforts to debase the value of the dollar are just beginning, and that means the biggest move up in precious metals is still in front of us.  My minimum long term forecast for gold remains at $5,000 per ounce and silver at $170 per ounce.