March 26, 2008 10:37AM
Time to Listen to Ron Paul?
By Elizabeth MacDonald
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.”
March 28th, 2008 at 1:37 pm
Ron Paul has fought for this country in the Air Force, and he has fought for us in Congress for decades, WHY ARE YOU PEOPLE WAITING UNTL OUR DOLLAR IS DESTROYED BEFORE LISTENING TO HIM? ARE YOU REALLY SO STUPID TO VOTE FOR PEOPLE WHO HAVE NO ECONOMIC KNOWLEDGE?
VOTE RON PAUL, SAVE OUR DOLLAR
March 28th, 2008 at 12:53 pm
If this isn’t a wakeup call to vote out Obama, Hillary, and Mc Cain then Americans should retire their citizenship and go live somewhere else, because your wasted vote on those 3 socialists are ruining the beautiful America I love and I want to seriously see some change. Americans laughed at Ron Paul at the early debates when this was his motivation speech. Fox, CNN, and CSPAN refused to give this wonderful man the publicity he deserved. Now Americans are going to vote in 1 of 3 Anti American socialists who believe we should pay for a Greenhouse global tax when China is the worlds biggest polluter. AL Gore failed to mention china in his Biased movie.
Ron Paul2008
March 28th, 2008 at 11:53 am
Great article and right on the (ahem) money. Everyone needs to start listening to Dr. Paul before it is too late.
March 28th, 2008 at 11:42 am
The author indicates a less-than-nuanced understanding of the money creation process. The real issue is how the money is issued, which is not by central banks but by commercial banks. With a debt-based monetary system run by private banks we end up with the government paying hundreds of billions in interest where it could issue its own money and pay zero interest. In addition, she’s off by $10T in her numbers of dollars held by foreign central banks ($2T, not $12T).
Dennis Kucinich, who gets (got) even less coverage than Ron Paul, also advocated getting rid of the FED. A real answer is not only getting rid of the FED but also getting rid of the fractional reserve banking system that actually creates money. The FED is only their cartel.
March 28th, 2008 at 11:36 am
Wow good article, and from fox news? thanks
March 28th, 2008 at 10:41 am
This is the best thing I’ve ever heard or read from FOX news. I didn’t even think FOX was capable of reporting the truth. I hope you still have your job tomorrow. Welcome back to the world of true and wise conservativism. The real Republican party is being resurected as we speak, join your local Republican party chapter today to see how you can help. We would love to have a spokes person like you to help rid us of the corruptness that has given our party and country a bad name.
P.S. Would love to see your public endorsement of Ron Paul. Everything you said took a lot of guts. You are a real patriot!
March 28th, 2008 at 10:28 am
Its a crying shame what Fox did to RP in New Hampshire, but I give you credit for being one of the few mainstreamers to see wisdom in at least part of what he was saying.
Honestly though, its too late and America is done for, now. I’d expect the next president to be the last.
March 28th, 2008 at 10:18 am
Friends of Liberty,
I’ve just completed reading every response below and I must say I am encouraged. Sometimes I feel like I’m the only one out there that has a clue to what is going on. Ten years ago, I was apprehended at the WalMart for making announcements over their intercom system as to the danger of Chinese products flooding the US market, the loss of our manufacturing base, and the greed and deceit behind the well conceived plot. I also voted for Ross Perot, who was mocked - but had the right idea for our country economically.
It is us, the people like you and I who have responded to this article - and who know that there is something seriously unjust and unneccesary occurring in (and to) this country…and it is US who make up the last bastion of freedom. Americans are an amazing breed. The evil forces (CFR controls the media, Commie China and Russia, The New World Order elitists, privately owned Fed Reserve, etc) who continually work against us on all fronts are aware of American resolve. My advice to you…Never give up, never surrender! It’s NEVER too late - and when things deteriorate enough that the TV-fed masses awake, they will look for leadership. That is you. Continue to engage everyone one you meet and take every opportunity to talk about the situation. People are finally waking up to the “China effect”. But they still deny that they’ll be pressured to give up their guns…wait and see, wait and see, that is coming sooner than you think. History shows us that small numbers with a righteous cause can overcome larger adverseries. In the words of Samuel Adams “It does not take a majority to prevail…rather an irate, tireless minority keen on setting brushfires in the minds of men”.
Don’t you love the forefathers?
Dr. Paul realizes that he may not be the annointed one, but is doing his part to shovel a path for the next soldier to pick up the torch of liberty and drive on - so his efforts are not in vain if he doesn’t become president. There were many prophets before Jesus.
Prepare yourselves physically, mentally, and prayerfully for the days ahead so you are not surprised. Teach your children. When things seem the worst, do not despair. Say to yourself, like Adm. John Paul Jones “I have not yet begun the fight!” If provided with the right direction, I believe our people would be willing to unite like they did during WWII and make sacrafices to bring about the change needed here in the USA and return to a free nation, unencumbered by one sided treaties, false alliances and costly involvements in foreign affairs. Better to do it voluntarily than out of necessity.
Remember, “veritas vos liberabit” the truth will set you free!
RON PAUL for president!
In God We Trust!
March 28th, 2008 at 9:40 am
That was a nice report but a bit late don’t you think.
The Congressman Dr. Ron Paul is the way the truth and the light and the media crucified him.
I’m calling my county GOP chairperson to be considered as a GOP delegate and I urge the other RP supporters here to do the same in their districts. There is that chance left for our country but then it’s all over. I’m packing my bags.
March 28th, 2008 at 9:06 am
Elizabeth MacDonald -
I am glad and please you are posting this important comment and analysis. However in general is well said but there are some IMPORTANT facts that need to be restituted and are as follows:
Today’s “Dollar” is not “Greenback as you stated. Greenback was the name given to US notes issued by Lincoln to pay for the civil war after going to the PRIVATE Banks and being told the government will have to pay double digits interest for it after he decided based on the US CONSTITUTION that the US Government ash the right to print his own money so he did. The name came from because the distinct color Green it had.
The primary difference between the United States Note and the Federal Reserve Note is that a United States Note is created by the government directly as a bill of credit, and thus there is no interest for the Government to pay for the creation of that dollar. A Federal Reserve Note, on the other hand, is bank currency, and the U.S. has to pay interest on the treasury bonds that it gives the Federal Reserve System in exchange for the right to produce a like quantity of Federal Reserve Notes. This, in turn, increases the tax burden on the people. Abraham Lincoln advocated the use of United States Notes because they avoid the usury and debt multiplication aspects of debt-based currencies, and thus save the Government immense sums of interest. Thomas Jefferson also believed that the issuing power of money should rest with the US Treasury, and not the private banks. He noted in the debate over The Re-charter of the Bank Bill (1809) that, “[…]the issuing power should be taken from the banks and restored to the people to whom it properly belongs.”
Second correction.. it sounds as your are mixing Dr. Ron Paul comments.
Congressman Dr. Ron Paul warns us of “THE FEDERAL RESERVE” NOT the US government that has “systematically undermined” our current currency by manipulating the economy with inflations, deflations with a so call “ELASTICITY” currency.
Good lord! Where are those Congressman and congresswomen that really cares for this country? Where? So we can eliminate the FED once and for all and WE the PEOPLE start having control of our own currency.
Yes indeed the money supply gets expanded and our debt to Private Banks increase by the US government asking the Fed to enter in their computers billions more and request the Treasure to Print PAPER Money.
This is INSANE AMERICA.. WAKE UP!!!!