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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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Karen Engh

Well I think that Citi Bank is behind all of this! They were financing Enron the fake energy crises, they are up to their eyeballs in the sub-prime mortages and who has purchased all the gas cards? Texaco/Conoco/Uno cal etc. it is Citi Bank when one market dries up they move on the the next market. Who owns Citi-Bank? What happened to the Anti-Trust laws and the laws against having one entity control a market? This is going on right under the American Public's noses! I don't know about the Stock Market but my guess is they are dirty there as well

March 26, 2008 at 12:41 pm

ClayR

Wow! Elizabeth, you must not value your job. You forget that the corporation that you work for systematically worked to devalue Ron Paul the candidate; from hosts demeaning the man on national televised debates to even denying him to one of the debates. Shame on Fox. Now we all will pay as the financial pain will be heightened due to the continuing delay of financial correction.

March 26, 2008 at 12:41 pm

Chris

Wow great article! I have to say though, I'm pretty shocked to see FOX News reporting something about this.. Is this the same FOX News that belittled and ridiculed Ron Paul from the time he announced his candidacy until now??

March 26, 2008 at 12:41 pm

Christine

Over 800,000 people actually listened and voted for Congressman Paul because they took the time to listen and research what he has been saying about the current dollar crisis for decades and specifically over the last 6 yrs. Unfortunately the rest of the country has been so dumbed down that they cannot appreciated the simple truths he proposes. If the average American had an attention span longer than a gnat they would take the time to read Congressman Paul comprehensive economic plan and appreciate the blunt honesty with which he proposes getting us out of this mess. Unfortunately, the media didn't understand the impending economic crisis either and derided, marginalized and generally blacked out his warnings. The general public fell for it. It is not too late as contrary to the media's pushing of McCain, who admits he doesn't have a clue about economics and would rely on the very people who have gotten us into this mess to advise him, the nomination is not fully his. McCain is only "presumed" to be the nominee and Congressman Paul is still in the race. Perhaps more media coverage like this will wake up the rest of this country to an actual solution, albeit a tough one. This country would be a much fiscally heathier and safe place with President Paul.

March 26, 2008 at 12:38 pm

Kick

I am glad to see Fox news finally give Congressman Ron Paul some credit for his warnings and wisdom of a failing system. I hope this is not 'too little ~ too late', because Dr. Ron Paul is the only candidate who supports and defends our Constitution of the United States, therefore, the only presidential candidate worthy of being recognized and being elected our next president. No matter who walks away with the Gold, Ron Paul will forever wear the Crown of liberty and peace for every American for standing up for our Constitution. Ron Paul won this election, a long time ago, unnoticed by most, due to CENSORSHIP of the MEDIA to hold him back and, blind fold the people who never heard of this great man. To keep this man banned from our television screens was a low blow to everyone who believes in justice. I am extremely ashamed of our Government, our Media and, everything it stands for, for what they have done to silence Congressman, Dr. Ron Paul. Again, thank you for this article! God Bless America.

March 26, 2008 at 12:37 pm

Maat Justice

"We’ve heard time and again conservatives say deficits don’t matter." Those weren't conservatives! Those were neo-cons, which are in fact neo-liberals in conservative clothing. Khrushchev was right... Communism brought us down from within without ever firing a shot. Never call those creatures conservatives. Nothing could be further from objective reality.

March 26, 2008 at 12:34 pm

ricknhouston

Again, Ron Paul has hit the nail top dead center ..... but is anybody listening? I doubt it! The world's largest flock of sheep being led, one after the other, straight over the edge of the cliff! It is truly sad!

March 26, 2008 at 12:30 pm

MMB

I really wish the media gave Ron Paul this kind of coverage while it was still possible for him to be the Republican nominee for President.

March 26, 2008 at 12:29 pm

Will

Thank you for a great article. I've been watching Ron Paul's predictions come true. It's frightening. Why won't people listen? Why would voters ignore him? It baffles me.

March 26, 2008 at 12:28 pm

Tom Richardson

Iceland is the canary in this mine. Their current account deficit is 25% of their GDP and they now are at the mercy of hedge funds. To stave off a currency collapses their central bank has had to raise interest rates to 15%.

March 26, 2008 at 12:25 pm

Frank

We love how the slip in the "positive" effects of NAFTA within a story that otherwise almost doesn't mention Ron Paul as much as the economic mess we're in. FOX is simultaneously refusing to condemn NAFTA as part of the North American Union, which will forever eliminate the dollar anyway, and leave us with the Amero, and giving almost no attention to Ron Paul other than at token moments. FOX sickens us. With NAFTA, there won't be any closing of the border to allow only legal citizens in and out. Ron Paul voted AGAINST NAFTA and CAFTA because, despite their names, they are NOT about "free trade" any more than the "PATRIOT" Act is patriotic. Corrupt government officials give their laws nice-sounding names precisely to distract the masses who, they know, will likely not verify their claims.

March 26, 2008 at 12:23 pm

mike

very well said. this article puts a lot of issues in perspective for me.

March 26, 2008 at 12:22 pm

Tim

I think this is a great article. Unfortunalty, most polititians do not want to correct the issue because it will be painful and the majority of americans lack the understanding of exactly how important this is. This was my main reason for supporting Mr. Paul for President, due to his understanding of how the ecomomy works. One thing to keep in mind when you are looking at Obama or Hillary, the federal government cannot give you anything without taking something away from you. So all those promises of universal healthcare means higher taxes plain and simple.

March 26, 2008 at 12:14 pm

JD

Amen! Finally, the message is spreading. We need address the root cause of our current economic problems before its too late.

March 26, 2008 at 12:07 pm

Mythic Mystic

Dr. Paul has been warning about this for as long as he has been in Congress. We had a chance to change our direction in this nation, but between the media and others calling Dr. Paul a kook or saying he "has no chance" and the public ignorant on how our economy and nation should be run, it's no wonder we are in big trouble now. Dr. Paul is not a savior but his supporters know that his ideas (which are that of our founders) are sound and proven when put into historical context. McCain, Obama, or Clinton will not take the steps needed to correct our mistakes. Those "Media Anointed" candidates are too enthralled by the "Central Bankers" and have no idea what their oaths of office even mean. I doubt those three have ever read the Constitution, Bill of rights, or any founding documents. If they knew history they would have known what happened when we had the Articles of Confederation before the Constitution was enacted. What happened then? WE PRINTED TOO MUCH MONEY!!!! Those who do not see the wisdom and logic of Dr. Paul's argument do not know history and are susceptible to government/corporate/media propaganda. Don't worry the economy is doing fine. Too bad this article is too late for Dr. Paul to become POTUS. We may have saved this nation if more people realized it sooner. See ya in the bread line! Oh wait, I’ve got my storable food so I WON’T see you in the bread line because I have my own food. The REVOLUTION is aware if the REAL problems. Isn’t that “Crazy” or “Cult-Like”, it’s sad if it is thought so.

March 26, 2008 at 12:05 pm

Shane Savoie

It's a shame that the only candidate for the GOP nomination that has a truly conservative stance on government spending had to be someone with so little chance of election. For all of his faults, Ron Paul is the only one who "gets it" on the economy issue. I don't care who many advisors he may rally around him; John McCain knows less about money than he does about ethics. With a teacher like Charles Keating, that should be a surprise.

March 26, 2008 at 12:03 pm

Web Smith

The time to listen to Ron is well past. Thirty years ago, before nine trillion dollars had been stripped out of American pockets, the economy could have been resurrected without too much suffering. At least now, we know where to get the blocks when its time to rebuild. We can start by reminding Congress, as Congressman Crockett once did, that money is not their's to give. The one thing to keep in mind is that Federal Reserve notes are not legal tender.

March 26, 2008 at 12:02 pm

Scott from Texas

Will we listen? The main stream media ignored Ron Paul for the past year and laughed at him for telling us the truth and now you expect the nation to wake up and listen? I hope that we will before it is too late.

March 26, 2008 at 12:01 pm

Gasil

You Guys at fox and the media have done everything in your power to eliminate Ron Paul and in the process have lost me has a veiwer because of your Corpgov propaganda . Now you want people to listen to Ron Paul ? You wouldn't even give him a seat at the debate in the Early contest . He is the only candidate telling the truth and Ya'll have ignored him while promoting the very problems that got us here the wars and Wall Street

March 26, 2008 at 11:59 am

Wow! Elizabeth, dust off your resume. A balanced and fair piece from Fox? Unfortunately you won't be allowed to write credible pieces for long. If Ron Paul was right on this, wait until you see his stands on all the other issues. Forget McClinbama. p.s. buy silver.

March 26, 2008 at 11:55 am

Robert Moore

Finally, someone that gets it! Ron Paul is my hero. He is dead on and I will support him and anyone running for public office that earns his stamp of approval. I love this country too much to see it destroyed by an unconstitutional central bank.

March 26, 2008 at 11:54 am

Aaron

Until we address the roots of our problems we will never solve them. Our fiat currency, the idea that government should take care of us financially or protect us from ourselves, and building and maintaining a global empire are the roots of our economic and security woes. The weak dollar, housing bust, loss of manufacturing base, and other maladies are the fruits of those fundamental decisions our government--both Republican and Democrat has made. Perhaps more important than those, the social problems we face (breakdown of the family, rampant homosexuality, abortion, drug use, etc.) are not results of a lack of government action, they are the results of rejecting spiritual (Biblical) and moral absolutes. Main-stream media and entertainment have dumbed-down Americans to the point they act primarily on feelings not facts. Therefore, we are on a collective ride towards increasing tyranny, socialism, globalism, and fascism.

March 26, 2008 at 11:54 am

Dave

I can't believe you work for fox how can it be that something sensible came from fox???

March 26, 2008 at 11:53 am

SunTzu360

How about this, end the war, save some money by returning our troops to america, end the federal reserve so the dollar cannot be debased, set up a Oil-Gold-Silver-Platinum backed currency (or just back the dollar with it when it gets back on track), and then stop taxing people and maintain a smaller government (at least for 8 years) to regain our footing on the debt. We promised the American people social security, but what happens when the government spent all the money for social security? Most Americans live in financial fantasy land, where they believe the government has and ENDLESS supply of wealth, however its not true, we are running on loans from china we should all be ashamed to elect presidents who spend spend and spend, then when their term is up, they say "Oh well, not my problem anymore" Then when the next person goes in, they are depressed by the sheer amount of debt that they inherit, so they give up and spend more and more like the last one.

March 26, 2008 at 11:53 am

TimG

I want to extend my Kudos to Fox for this article. It is unfortunate that the many warning and messages of Ron Paul get attention only after the damage has been done. Ron Paul was the only one screaming that we are in economic trouble induced by the Fed, the unconstitutional war in Iraq, and our federal budget deficit spending and we are in for some trouble if it continues. In fact, many pundits felt it wise to call Paul a crazy, kooky old man. Now the we can see that his message of the Fed devaluing the dollar was true, heads are turning to realize that his honesty is what was so crazy about his message. At a time when most in our Congress offer blank checks for the President do to as he pleases and a time when the American public expect to be lied from by the politicians, only one sane voice would indeed come off a crazy. His revolutionary message is one that we all should be paying much closer attention to. Thank you for posting your thoughts on Ron Paul's message and the fact that it was right on from the economical sense.

March 26, 2008 at 11:52 am

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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