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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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SteveMartin

Outstanding article! If only FOX wasn't so full of neocons who can't see the impending crisis through their love for war. Ron Paul might be leading the Republican race today were it not for people like the talking heads at FOX who decided to lock him out of the NH debate over people who he trounced before and after that event.

March 26, 2008 at 2:01 pm

K A Sulko

We need to listen to Cong Ron Paul before it's too late! Well written article -- gives the general public something to think about.

March 26, 2008 at 1:56 pm

Joe

People should have listened to Dr. Paul when they still had a chance. It is now too late I'm afraid. Amerika is now past the point of no return and the house of cards is beginning to fall. All three of the other candidates have no clue how to handle this situation. They do not understand economics. My prediction, 50% chance the economic system is going to crumble into the abyss by the end of 2008. 100% chance it will collapse by the end of 2009. Get ready people, we are all in for a very rude awakening.

March 26, 2008 at 1:52 pm

Vinnie

Thanks for the great article on our terrible economy and Dr. Paul. It would have been nice to mention that he is still in the Presidential Race, even though his numbers are way off McInsane's. If the FEC actually investigates McCain's campaign finances, he could be in BIG trouble and even face jail time! If that were to happen, Dr. Paul could shock the nation.... but we'll see if they do their job. It seems that you have a grasp on what is REALLY going on today and the urgency needed to fix it. However, I think we're too late and heading for the Amero real fast! Again, thank you for the good article!

March 26, 2008 at 1:47 pm

Chris Regener

Great article, keep 'em coming!

March 26, 2008 at 1:47 pm

badmedia

Yes, we seriously need to start listening to Ron Paul.

March 26, 2008 at 1:43 pm

Akston

I had stopped watching or reading regular Fox News after they excluded Ron Paul from their debate just before the New Hampshire primary. I'm glad my search for news on the internet led me to this article. The issues raised in this article are exactly why I feel it's so important for Ron Paul to get a fair hearing by the American public. He seems to be the only candidate for the presidency that actually sees the financial brick wall we're accelerating towards. I still hold out hope that there will be enough conservative Republicans at the convention in September to send the message that our national government is spending America into disaster. Maybe there's time to reverse the trend, but we sure as heck won't spend our way out, socially or militarily. When your family is up to the ceiling in debt on the verge of chapter 11, do you promise everyone new "free" services and spend money telling your neighbors how to live? Or do you limit your spending and try to get out of the way of family members who are producing income?

March 26, 2008 at 1:43 pm

deralaand

First FOX NEWS destroys Ron Paul...now they appear to be agreeing with him by allowing this piece to be published. I would say that if you fear for your quality of life today...you would do everything in your power to ensure that Ron Paul's insight be followed to the letter. ...or we are doomed.

March 26, 2008 at 1:36 pm

TPMalone

I have just become very interested in the dollar and our current status quo. I am amazed that Dr. Paul, among many others, have been warning of this for years, and years. There is a solution, but the medicine is tough to swallow. The only medicine is a complete revamp of our monetary policy to a sound currency. Gold and Silver only legal tender. If you have a stable currency that is difficult to inflate (counterfit) you will have stable prices. Sound money will also lead to savings because the value does not change as time goes on. We will also have to agree on wars and foreign policies since they will come directly out of our pockets. I believe that this medicine is the only solution but will not be taken. Too many Government officials make too much money off of the status quo, and will not want to relinquish their power of money to the us citizens. Neither will the banks for that matter. Our current actions by the FED are only treating the symptoms of this larger and more grave problem. No one asks "How did we get here?" It's like a bandaid over a bullet wound.

March 26, 2008 at 1:26 pm

jd

People are so blind.....Ron Paul was the only conservative we have to restore our great nation. Now, because of those who call Dr. Paul a "kook" we will be paying the price (along with their children and their children) for years to come.

March 26, 2008 at 1:24 pm

william mcniff

Very few listen to Ron Paul on economics or Newt Gingrich on Politics and government, but they should.

March 26, 2008 at 1:19 pm

LibertyNH

wow, an article from fox that doesn't slander or marginalize Ron Paul but in fact encourages readers to listen to what he's saying... I'm amazed... where were you 6 months ago when it would have done some good? he wnated to save America with his bid for the presidency but the media did nothing to help and everything it could to hinder, now all he can do is say: I told you so...

March 26, 2008 at 1:18 pm

Aaron Benfield

Why aren't there more people like you? Why did this story take so long to print?

March 26, 2008 at 1:15 pm

MJ

Thank you for publishing this article and providing this forum. This is what so many of the Ron Paul supporters have been growing increasingly concerned about. We are concerned that the entitlement minded CONSTRUCTIONISTS care more about their pet projects and pandering to their pet groups rather than having true prosperity in mind. Hopefully the nation will wake up and listen to the man who has warned time and time again about economic dilemnas (including the savings and loans scandal.) This article inspires me to give to Dr. Paul's campaign. Thank you. I hope others will join me. He seems to be the only politician that understands the economic principles of a free market.

March 26, 2008 at 1:14 pm

Mike Siedlecki

EXCELENT article! Short of using crayons, I'm not sure how your points could be made more clearly.

March 26, 2008 at 1:11 pm

spinnikerca

Good article. I hope they are listening, finally! But from what I can see from the recently released economic plans of Obama, Clinton and McCain, Ron Paul is still the only candidate who appreciates the problem properly. Inflow has to exceed outflow, and spending cuts are necessary, immediately.

March 26, 2008 at 1:11 pm

Ernie Gurzler

I wonder if this is a sea change at Fox or have your long term prospect for employment at Fox has been reduced to nil? I don't doubt that Foxes official policy is to tell the truth, but how can you say that Ron Paul has the correct outlook on the economy? You have noticed the elephant in the living room!

March 26, 2008 at 1:09 pm

Linda Benis

Dear Ms. MacDonald: Thank you for this Article, because all of us know that the news media has not only been unfair, but extremely rude for keeping Congressman Ron Paul from our television screens in America! Why would you do this? Don't you see what is happening here? Don't you want to see this war end, our jobs restored to chase the upcoming 'depression' from our sight? Why would the Media keep the truth from the world like this? I'll tell you why, because there would be NO DIRT to find on this candidate, and your ratings would drop due to lack of gossip. America needs truth ~ and you can give it to them, if you only would. Please lift this BAN on Ron Paul, before it is too late. I would hate to meet you in a FEMA camp somewhere, fighting for our lives, because of our freedom being destroyed. Thanks for this article. Ron Paul ~ The King of the Constitution!!!

March 26, 2008 at 1:06 pm

Layne Buck

Finally! Ron Paul has been lampooned by Fox and trhe other media outlets for his "crazy" ideas on sound monetary policy and limited role of government. I hope more people listen to his message and ACT on his message before it is too late.

March 26, 2008 at 1:03 pm

Andy Moore

Fox News admits Dr. Paul was right about this the whole time? What's going on?

March 26, 2008 at 1:01 pm

Helge Skjeveland

Ms. Mac Donald and Ron Paul are correct. The introduction of fiat money created by the Fed, pursuant to the Federal Reserve Act of 1913, eventually led to the Roaring 20s' boom in stock bought on margin, then collapse and depression. I have created a spawning image that graphically shows the effect this has had, and our exponentially telescoping national debt. We are in BIG trouble unless we can discipline ourselves, and remedy the situation.

March 26, 2008 at 12:59 pm

AKK

Yes, it is time to listen to Ron Paul.

March 26, 2008 at 12:56 pm

Bill Fangio

Excellent article. And it is way past time to listen to Dr. Paul. So, perhaps you can explain why Fox and others were so keen to marginalize him during the nominee selection process? You know very well we are just left with twiddle dee and twiddle dum.

March 26, 2008 at 12:53 pm

Stephan

Dr. Paul has been speaking about the weakening dollar for decades. When will we finally listen?

March 26, 2008 at 12:49 pm

Ron Gutierrez

Wow. I couldn't have said it better myself! Bravo!!!

March 26, 2008 at 12:45 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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