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  • March 26, 2008 10:37 AM EDT by Elizabeth MacDonald

    Time to Listen to Ron Paul?

    Time to listen to Texas Congressman Ron Paul, the lone voice of reason in Congress today who's got to feel like he's shouting into a field of cotton with his repeated warnings about the dangers of a collapsing dollar, while the administration goes AWOL on the problem.

    The dollar just hit a record intraday low against the euro on reports that consumer confidence levels have dropped to levels not seen since the post-Watergate era. It is down 7% year to date against the Chinese renminbi, it's weaker than the Japanese yen and the Canadian loonie.

    The joke is the greenback is now only stronger than the Mexican pesos and the Zimbabwe dollar, an overstatement for dramatic effect, to be sure.But since hitting a peak in 2002, the dollar has lost about a quarter of its value against a trade weighted basket of currencies.

    A weak dollar acts as an anvil around the neck of the US economy and consumers. Rising inflation is essentially a tax on consumers, so are rising energy prices, and that double whammy threatens to undermine the purchasing power of the rebate checks due out in May--backed by printing even more dollars.

    A bellwether event of significant import to our nation's finances happened this past January 1 with little notice. That's the day the first baby boomer was allowed to retire. A new federal report wearily warns once again for the umpteenth time that the nation faces some $60t in Social Security and Medicare unfunded liabilities alone.

    We've heard time and again conservatives say deficits don't matter. To say that deficits don't matter is like saying ketchup is a vegetable or trees cause pollution.

    The $406b the US pays annually in interest on the $9t in federal debt alone would rank as the world's 30th largest economy.

    That annual interest cost surpasses the gross domestic product of Belgium, and is bigger than the GDP of Denmark and Hungary combined. The $406b would cover the annual cost of investigating Medicare fraud.

    Stack all those one dollar bills making up our $9t deficit (and that doesn't include the $60t in unfunded liabilities for Medicare and Social Security) and you would reach the moon and back. "Printing money cannot create wealth, if it could counterfeiting would be legal," economist Brian Wesbury has said.

    Even Milton Friedman, the Nobel Prize-winning economist and a forceful advocate for laissez-faire economics, got so sick of the way central bankers were willy nilly printing money in the ‘70s, he advocated that the government should replace the Federal Reserve with a computer. "Money is too important to be left to central bankers," he quipped.

    Broad zoom: The US economy has spent all of a year and four months in a downturn over the last two and a half decades. During that time we've seen a market crash of 22% in 1987, the S&L crisis, four wars, three financial crises (Mexico, Asian flu and Russian debt crises), the blow up of the hedge fund Long Term Capital, two asset bubbles (dot com and telecom). Since the Bush tax cuts of 2003, the US economy added the equivalent of China's GDP--and government spending has boomed.

    Now Federal Reserve chairman Ben Bernanke has both cut rates at a breakneck speed and pumped a massive amount of monetary stimulus into the markets to cure the credit crisis. I still think he is doing his level best to fix a crisis not entirely of his own making. The question now is, will Bernanke yank the liquidity punch bowl when the economy returns to trend growth in 2010 or 2011 as the central bank projects?

    Let's hope so, because the case for a weak dollar is, to me, well, weak. Namely, that a lame greenback softens the housing and credit crises as it fuels profits at US exporters whose goods are now dirt cheap in the eyes of foreign customers. Strong foreign sales at places like Boeing and Caterpillar reportedly added 1.4% to US growth in the second quarter of 2007. But exports make up just 13% of GDP. Consumers make up a larger 70%.

    It's no surprise consumer confidence is as weak as it was in the '70s. LBJ had promised this country it could have both guns and butter in the ‘60s, so the Federal Reserve gunned the printing presses to pay for spending on entitlement programs and for the Vietnam war. For the first time, too, politicians got their mitts on taxpayers' Social Security funds, after Democrats passed a so-called "unified budget" in the late ‘60s.

    All that spending caused the dollar to nosedive in the 1970s amidst an oil embargo that sent oil costs, priced in dollars, soaring. Paul Volcker, then Fed chairman, enacted rapid rate hikes hitting 21% by 1979, and the Treasury went so far as to sell $6.4b in "Carter bonds," largely denominated in Deutschemarks, to prop up the dollar. Gold got ripped off its mooring of an average $35 an ounce in the ‘70s, and in 1980 it hit a record $835 an ounce, around $2,250 in today's prices.

    Gold acts as a dew line for inflation. We essentially have a good handle on how much gold there is in the world and potentially below ground. When gold rises in price, it signals we are printing too many dollars, which indicates a concurrent drop in the greenback's value. Over the last seven years, gold and oil prices have risen in lockstep, up 239% and 267% respectively. If the dollar had also risen in value at the same rate, oil would be selling at about $30 a barrel.

    But now central bankers say that because of the weak dollar, they've seen capital losses carved out of an estimated $3.34t worth of US dollars they hold in foreign currency reserves; Japan holds the most dollars, China is second. The fear is they may unload these plunging greenbacks en masse to cut their losses and run--which would really tip the US into a protracted recession. Already reports out of China show government officials there willing to rotate future planned investments out of US treasurys into other investments.

    Countries pegged to the dollar are rightly saying, too, that we are exporting inflation to their shores. Saudi Arabia is a land that has had nearly zero inflation since 1998, but recently inflation soared to 7% annually, despite the fact the country is flush with petrodollars.

    Congressman Paul rightfully warns us when he says the US government has "systematically undermined" the US dollar by expanding "the money supply at will for financing war or manipulating the economy with little resistance from Congress--while benefiting the special interests that influence government."

    It's not just the US gunning the mints. Goldman Sachs figures that three-fifths of the world's broad money supply growth came from emerging economies over the past year or so. Three-fifths. That's gigantic.

    Goldman Sachs says the growth in Russia's M3 measure of broad money grew 51% over the last year or so, India by 24%, and by 20% in China, Saudi Arabia, South Africa and Brazil. That's three times as fast as the US and the rest of the developed world, and it's faster than their GDP growth rates. It's the fastest pace in decades.

    All that loose money is pouring into commodities, stock exchanges around the planet as well as bond markets--it's largely why our long-term bond yields have been historically low, spurring a dramatic increase in mortgage borrowing, as mortgage rates typically track the 10-year Treasury note.

    Watch out here--emerging economies are just as susceptible to minting lots of money due to political pressures, including things like paying for wars, or calming local populations clamoring for higher pay and more jobs.

    What can be done stateside?

    The administration needs to state more emphatically that it supports a strong dollar. A stronger dollar would draw liquidity back into the credit markets, lower inflation risks, cut oil prices and restart economic growth, notes Bear Stearns economist David Malpass.

    Presidential candidates vilify NAFTA and free trade, when the weak dollar is partly to blame for problems like jobs lost to overseas operations, Malpass adds.

    "Empires fail because they run out of money, or more accurately, run out of the ability to spend or inflate," Congressman Paul warns. "We need to control spending, immediately, before it is too late."

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Aaron Benfield

interesting...the most commented, but not the most viewed story on fox today? Hannity must be trying to keep the reins tight.

March 26, 2008 at 3:22 pm

Leonardo

Any man who returns the unused potion of his annual budget and ran his campaign with no corporate influence, no debt and 5 plus millions left in the bank, CASH!!! Now, who do you think I should trust my money with? Economic 101 Class is now in session...

March 26, 2008 at 3:22 pm

FreedomPundit

Thank you for a positive article about Ron Paul. I'll pass it on with a note to my friends saying "I told you so." BTW, Fox, "we told you so" months ago. Now if you can just find a way to politically ruin McCain, there may be hope yet.

March 26, 2008 at 3:20 pm

TJ

To late Elizabeth. We all loved the last 15 years and profited off all the extra money. It will end sadly. Thank you for trying to get the word out. Dr. Paul had been saying this for 30 years.

March 26, 2008 at 3:17 pm

Adam W

This article can hardly make up for Fox's marginalization Ron Paul's campaign over the past few months, but its certainly a good start. Its good to see that not everyone in the media machine is not a robot. A big thank you to Elizabeth MacDonald. Vote the for only candidate who has any economic sense. Vote Ron Paul.

March 26, 2008 at 3:15 pm

Dagny

Many have said that Ron Paul doesn't stand a chance of becoming the nominee because he's "too honest," "too ethical." So instead we should continue electing folks who are neither honest nor ethical? Isn't that how we got into all this trouble to begin with? Obama certainly comes across as more sincere, more "real," than Clinton, but that is not enough! The country is in serious financial trouble and needs a leader who truly understands the issues and is willing to stick his/her neck out to speak the truth! McCain, Clinton, Obama = more of the same politically-motivated, self-interested "change" we've been getting for far too long. Ron Paul = real "change" based on following the Constitution, and a market that is actually "free," something this country has not seen in more than 50 years! If you care about the troops languishing in Iraq and Afghanistan, if you care about what kind of country they will return home to, if you care about the next generation of Americans enjoying the fruits of liberty, if you care about your own ability to survive a collapsing dollar, then there is only one candidate to get serious about, and not surprisingly he is the humblest among them. Become a delegate for Ron Paul. Be a part of history in St Paul, MN. this Fall. Stand up for America, for the Constitution, for economic AND political liberty, for the truth in a world filled with liars. God help us.

March 26, 2008 at 3:14 pm

Tracy

FOX & AMERICA FINALLY LISTENING TO THE RON PAUL REVOLUTION??? We have been fighting to take back this country and you called us extreme! We now we hope you are up!! We have been trying to save this country and all you people have done is make fun of us & Paul. Now wake up America!! Mc Cain IS NOT THE NOMINEE he has only & HE DOESN'T KNOW ANYTHING ON FISCAL OR MONETARY POLICY. RON PAUL DOES!!!! He is the smartest one up there. Now if you google or yahoo or go to www.ronpaul2008.com see his videos, see truth America or we will be living in a third world country because of your ignorance!!!

March 26, 2008 at 2:57 pm

jd

As Juan McCain says: "Um, my Friends, We Need More Sunshine".....HaHa, and you folks thought Dr. Paul was "kooky"....The three idiots that the MSM picked for yall is going to bankrupt America..... Voters for Hillarous: "She would be good for America because she is a woman" Voters for Hussan: "He would be good for America because he is black" Wake up People and save this great Nation...it is not to late..go Dr. Paul

March 26, 2008 at 2:55 pm

Ronald Albers Sr

Thank you, we were all waiting and waiting and waiting and waiting. Thank you again. Ron

March 26, 2008 at 2:49 pm

joanne

I appreciate the news--The debasing of the dollar is deliberate--the Amero has already been printed to replace the dollar when it completely crashes. Ron Paul is one of very few honest politicians that realizes what is going on. The collaspe isn't only the dollar---it is the end of our sovereignty. The good doctor was a threat to the plan and that is why there was no coverage for his campaign.

March 26, 2008 at 2:46 pm

Tom

Terrific article Miss MacDonald, Feed it to Hannerty & O'Reilly & watch them eat humble pie

March 26, 2008 at 2:42 pm

Terri K

Thank you Elizabeth. I've been listening to Ron Paul for many years. And he's right and our economy wouldn't be in the dire straights we're in had Bernanke, et. al. listened to Ron Paul too if for no other reason than the definition of insanity being doing the same thing over and over again and expecting a different result. As a member of the middle-class, I am intimately familiar with what the weak dollar does to my pocketbook and how inflation hurts, bites and stings. Let me add that Bush is delusional if he thinks that this little economic stimuus check, for which money has to be borrowed, is going to turn the economy around. Drastic spending cuts would be a great start. I'd suggest we start with cutting spending on all of our overseas adventures and foreign aid. It's time to take care of America first.

March 26, 2008 at 2:42 pm

Eric D

It is high time that we start listening to and taking seriously these things that Ron Paul has been saying for the past 30 years. The Constitution only allows for the government to issue money, not private central banks. Also, that individuals may only be taxed one of two ways, and that is through a direct apportioned tax and excise taxation, as stated in Article 1 Sections 2 and 9. Those that drafted our Constitution understood the problems and corruption that arose when such limitations were not in place, and these concepts are just as applicable today as they were back then.

March 26, 2008 at 2:34 pm

Dagny

Indeed we should all have been paying close attention to what Ron Paul has been saying for roughly the last 30 years! Dr. Paul has been patiently educating on the perils of the unconstitutional Federal Reserve "controlling" US monetary policy, as opposed to the Congress which the Constitution gives the only legitimate auhthority to. Unfortunately, Congress has failed to "represent" us in this all important area, just as they have failed to represent us in EVERY other area they have been entrusted with. Ron Paul IS truly "the one exception to the Gang of 535." Dr. Paul remains in the race, looking forward now to having a voice at the Republican National Convention. Let's hope that, in spite of the successful silencing of his message of peace, prosperity, and freedom during his campaign, come September everyone will have an opportunity to hear his consititutional prescription for what ails us. Perhaps by then we'll be ready to listen. www.ronpaul2008.com/issues

March 26, 2008 at 2:29 pm

Michael

Kudos to you Elizabeth. If only a fraction of the people working for Fox wrote articles like yours, I would actually believe Rupert Murdoch isn't a demon.

March 26, 2008 at 2:28 pm

Jack Straw

Well done. It is scary to think how the monetary and banking policies of this country really work. We have a fundamentally flawed system, and I would argue we've come to the point of no return. It's hard to imagine this system continuing on such a grand scale. I would say we are in for a depression...and there's a good chance of a worldwide financial/banking meltdown. Here's to the good life!

March 26, 2008 at 2:28 pm

dshinn

Time to listen to Ron Paul was really prior to Jan 08, and the time to take action was in the primaries. Many people did, but many more listened to mainstream media largely marginalize him. Now you give him some credit for knowing what he was talking about. Well, better late than never. The Ron Paul Revolution is not about Ron Paul, but on the principles espoused in his platform -- ideas that make sense to get our country back on track -- and this movement continues. It's not to late to hop on board.

March 26, 2008 at 2:27 pm

Sandra

This is really scarry! Why aren't more people trying to do something about this situation? Somebody needs to get this story out in the media so taxpayers will understand and demand something is done about it.

March 26, 2008 at 2:23 pm

Cal M

Well written article ... working for a multinational company, I see the effects of the weak $$ on a daily basis, particularly when purchasing services/ supplies overseas ..

March 26, 2008 at 2:19 pm

ralph salas

Finally Faux news is taking Ron Paul seriuously...hmmm...i wonder what is going on? do you think Ron winning delegates in various states has softened up the NeoCons?

March 26, 2008 at 2:19 pm

Margaret

It is LONG PAST time to listen to Ron Paul, a GENUINE Presidential candidate. I don't understand Fox's REFUSAL to cover this man. Seems clear to me and to many others that Fox WANTS the economy to collapse, and when it does, Fox and all their people will be part of those held responsible to the people. Your JOB at Fox is to bring us ALL THE NEWS, and report it fairly, NOT to bury or 'burn' the ONLY candidate that even understands the problem and can, perhaps, help us solve this before it is too late.

March 26, 2008 at 2:18 pm

donald

As a Canadian neighbour, I am one of those people who have agreed with Dr. Paul's statements for a long long time now. We just hope that America will have the courage to face up to the current problems that are clearly dismantling it bit by bit. The foundation is crumbling from within as it were. There is a larger threat from within than there ever was from abroad. We sincerely hope that more people will listen to Dr. Paul, because the truth that he speaks is simple and clear. It is time to pay the piper. Things have to change and gov't won't do it. We are rooting for the American people. Hang in there, get interested in the issues and become a part of it, as this is a major turning point in your U.S. history. American has to come back from the mall and start understanding that this is the final analysis.

March 26, 2008 at 2:17 pm

Myk

It's a shame that it wasn't "time" to listen to Paul back when he was the ONLY person talking about this, in the beginning stages of his bid for presidency. It's a shame no one listened to him at all....Good Luck Fellow Americans, because no one we are going to currently elect will make a damn bit of difference. We should be outraged but we are not. Fox it seems is still too busy talking about pointless petty arguments on the campaign trail, still trying to connect Iraq with 9/11 and still trying to convince the public that they are fair and balanced. Shame on Fox. I really hope you think about this very closesly. If our dollar falls even more and we face a depression again, we will not be able to "stay the course" in Iraq, we will not be able to keep taxes "lower" we will not be able afford to do anything and that includes keep us "safe" from the evil terrorists tat seem to be living under our beds.

March 26, 2008 at 2:16 pm

John

Too little too late Fox. I am convinced that you media people are the most idiotic, dumb-down morons of our society. It wouldn't matter much of course except the fact that you media folks have a lot of influence to the mass. Until the media rectifies all the damage over the decades of false reporting and cover-ups, YOU ARE ALL ENEMIES OF THE PEOPLE!!! How do you all sleep at night knowing that you are all corporate/government slaves depriving the American people of information. Shame on all of you.

March 26, 2008 at 2:15 pm

Adam 13

What? A pro Ron Paul fox news article? Pigs fly!

March 26, 2008 at 2:01 pm

about this blog

  • Elizabeth MacDonald is the stocks editor for Fox Business Network. She is recognized as one of the top prize-winning business journalists in the country, and has received 14 awards, including the top prize in business journalism, the Gerald Loeb Award for Distinguished Business Journalism, and the Newswomen's Club of New York Front Page Award for Excellence in Investigative Journalism.

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