Time to Listen to Ron Paul? « Emac's Stock Watch

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 30^th 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."

377 Comments

Time to listen to him? Should have nominated him! Might be to late now. This last year WAS the time to support him and his ideas in the MSM instead of laugh. It was a sham and a shame.

March 26, 2008 at 11:49 am

Flo

Paul is a visionary. He seens the results of our actions years before the news hits the stands. He understands the working of our economic system and puts the other candidates to shame. Ron Paul needs to be in the news. People need his insight and knowledge. America is on a fast train headed for a wreck. Paul has a bipatiasan plan to save Social Security. No one is talking about it. What is wrong that we wait till after the train wreck to look at our tracks?

March 26, 2008 at 11:47 am

Michael

Elizabeth MacDonald please do what you can. Talk to your friends, talk to reporters, get the message out about Ron Paul. If you guys realy get motivated you could ask fox report more on Ron Paul and if Fox doesn't aggree you could even strike which would get large amounts of media coverage I would assume. You guys have alot of power to get the message out to those older people who don't use the internet. You could play a crucial role in this revolution. Things might be good now for people with high paying jobs but that will not last for the long term for peoples children and their children think about them. Please use your inside positions to talk to people many other people would have a much harder time being able to speak to. Please the people need help, we are struggling and you could make a huge difference.

March 26, 2008 at 11:46 am

a-ron

For crying out loud we need a president with wisdom and insight into reality. The concept of the American constitution is too important to neglect for the sake of our future as a free society. Do yourself a favor America read more about the dollar and how it is being destroyed, and read more Emac!

March 26, 2008 at 11:45 am

Stuart Roberts

Was that the sound of a few folks waking up? Ron Paul is, unfortunately, going to be looked back upon as the "seer" no one paid any attention to very shortly. Best economic advice I've heard in the last few weeks? "Invest everything you can NOW, in precious metals: gold, silver and copper-jacketed lead." The fertilizer is gonna hit the ventilator very soon, now, people.

March 26, 2008 at 11:43 am

Paul F.

Thank you for the honest and insightful reporting. Why is Ron Paul being ignored? Perhaps another story worth reporting.

March 26, 2008 at 11:41 am

Desiree

Great article. Dr. Paul has been saying this for years and we Americans need to listen and learn from him before it's too late. The Federal Reserve System is un-Constitutional and therefore illegal. Our Founding Fathers were very clear, NO Central Banks! Down with the Federal Reserve Fraud! Ron Paul for president!!

March 26, 2008 at 11:41 am

Hugh

Amen Sister!

March 26, 2008 at 11:40 am

Adam

Dr. Paul has been warning us of the pending economic disaster for the last year but organizations such as Fox and ABC have only criticized and mocked him when he has done so. Our country will be bankrupt if we continue down the same path of overspending and printing money and it doesn't seem like anyone cares. McCain, Clinton, Obama, NONE of the other leading Presidential candidates speak about the economic problems we face and none of them will do anything to correct the issue. The democrats health care plan will only further the problem just as McCain's 100 year war plan will do. It's sad really. It's sad that we're watching our Empire collapse and the only thing people are concerned about is a 'woman' in office, a 'black' man in office, or not offending the current party. When do we vote for integrity and for a different direction? Ron Paul is the only candidate who speaks of real change in this Country. He is the only candidate who addresses the fact that we are spending our children and grand children into bankruptcy. Ron Paul is the only candidate speaking of the devaluation of the dollar and is the only candidate who addresses the fact that we need to get back to a more stable currency. Wake up America! Don't be one of these people: youtube.com/watch?v=7zsr0UpVjoE

March 26, 2008 at 11:38 am

Tesh

Wait, this is on Fox? Where were you months ago? You're just now starting to understand that fiat money and inflation are bad for the economy? And you're finally realizing that Ron Paul has something to say about it? The time to listen to Ron Paul has been the last twenty years as he's argued pretty much the same points. The time to listen to Ron Paul was when he started his presidential campaign. The time to listen to Ron Paul was when he answered questions intelligently in debates, despite attempts to ignore and mock him. Listening to him now is still a good idea, but it is almost too little, too late.

March 26, 2008 at 11:37 am

tim, minnesota

Thanks for a great review of our economic situation. Even better thanks for crediting the only currently active presidential candidate Ron Paul for being an economically wise person. www.ronpaul2008.com folks and get behind the only candidate who knows what is going on and how to fix this mess.

March 26, 2008 at 11:32 am

Paula

Thank you for your article on Ron Paul. Its frustrating watching the economy go down the tubes and none of the candidates know what they are talking about except for Ron Paul. What is going on now, happened to the Roman Empire. America needs to wake up and listen to Ron Paul. He knows what is going on and can lead America out of this mess.

March 26, 2008 at 11:29 am

Jacques Poirier

Well, the good doctor is still around. Why don't you call him up and show him some interview time, for a change?

March 26, 2008 at 11:27 am

Lars

Hi Elizabeth. that is the best article on the current problems I have read in the main media so far. It is important people begin to realize the problems we are in before it is too late.

March 26, 2008 at 11:27 am

joey

Watch it! You might be labeled a kook. Ron Paul also says that real economic growth comes from long term savings and market dictated interest rates. What a crazy guy! "We're all Keynesians now" bwaaaahaaaaaahaaaaaaaaa

March 26, 2008 at 11:26 am

Hot 27 yo Female

What else we aren't hearing publicly is that the US Government is trying to collapse the dollar, to replace it with the Amero. Why replace it with the Amero? Because by then, the US will have lost it's soverignty and government as we have ever known it - along with Canada and Mexico. The North American Union will be completed, with 1 currency, and eventually merged with the EU, ASEAN, and the Bilderberg superpower will control the world by force. Why aren't people paying attention to this? Because you are psychologically programmable. Why are you angry that I posted this? Because you are stubborn and you don't want to find your way out of what you think you know, and you don't want to admit you are wrong.

March 26, 2008 at 11:25 am

Walksthisway

I'm impressed that FOX news has openly admitted to the needs of the economic platform of Ron Paul to bring this country ontrack again. A cautious thumbs up to Fox. Thanks Ms. McDonald

March 26, 2008 at 11:25 am

Jim

The time to listen was before he was run out of the race for POTUS. The America you and I grew up in is gone in four years time. With or without Ron Paul. It's too late now.

March 26, 2008 at 11:24 am

Vlad

Excelent report. Its true. In economics, Ron Paul is the only political voice of reason. He has some good ideas also on what your country should be ;) But that's a different issue.

March 26, 2008 at 11:21 am

Robert

Well, its nice to see someone is saying something. This man has been talking about the same thing for the past 20 years or so. What makes people want to listen now, the dollar is actually falling and half of what he says is true. Well, I have personally looked at the other half and its true as well. All of it and more and more people will become aware. My suggestion is if you value your job in journalism. START TELLING THE TRUTH. like this article, kudos Fox you got it right. Heres hoping that my career in journalism will lead me to continue the truths that are hidden amongst the pages of the internet in so called public forums. You want a candidate for change. You want a candidate that will listen to the people when they say the war is wrong. You want a candidate that will not lie about his record its public right to read it. You want a candidate that will not flip flop on the issues, there are videos of him online saying the same things 20 years ago. maybe with a bit more fire tho. You want a candidate that will make sure the economy doesnt crash, hire an economist You want a candidate that will help fix health care and SS, hire a doctor that has even at times treated patients with no money instead of taking government money. You want a candidate that can run a campaign with no loans, no federal matching money, even no donations from companies with special interest. You want a candidate that truly tells it like it is. You want Ron Paul. Thats the truth as I see it, find it for yourself. Wikipedia.com

March 26, 2008 at 11:21 am

BBurns

Fantastic article Ms. MacDonald! Finally someone is printing what some of us have been jumping up and down screaming for years. This country is doomed if we continue on the current course.

March 26, 2008 at 11:20 am

Brian Davis, Delray Beach, FL

Wow. A positive article on Ron Paul from foxnews. There might be hope for the GOP yet...

March 26, 2008 at 11:20 am

Marc

It is way past time to listen to Ron Paul. He should have been listened to from the beginning. Doing so now would be a good step. Better late than never.

March 26, 2008 at 11:18 am

Valeria

Ron Paul has been telling you all right along what the problem was. Well you reap what you sow. When pundits don't listen and don't report fairly and accuratly to the people of course its going to fall.

March 26, 2008 at 11:17 am

Ryan

Thank you for finally getting a good word in about Ron Paul, a little late but better late than never.

March 26, 2008 at 11:16 am

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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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Time to Listen to Ron Paul?