GOLD & Technology Stocks
Congressman Ron Paul Talks
About Gold, Oil & the Economy
Mar 17, 2006
the third time I have had the honor of interviewing U.S. Congressman
Ron Paul. If Thomas Jefferson were alive today, I believe Ron
Paul might be the only lawmaker that most revered Founding Father
would endorse as one who has followed the Constitution that those
brave revolutionaries gave us. In fact, one former U.S. Congressman
told me Ron Paul was the only lawmaker left in Washington that
paid attention to the Constitution. And like the Founding Fathers
of our Republic, Congressman Paul believes that as a lawmaker
he is a servant of the people rather than an elitist seeking
to be served. And so, Dr. Paul has made it a practice of running
his office so frugally that he ends up giving some of the money
he is entitled to back to the taxpayers.
Ron Paul is also a medical
doctor. He served his country in Vietnam as a flight surgeon.
Then he became an obstetrician during which time he delivered
some 4,000 human infants into the world. The point is, Dr. Paul
had a successful career before running for public office. He
doesn't need Washington for personal reasons or selfaggrandizement.
But in my view, Washington and America need Dr. Paul and others
like him who will serve the People by following the Constitution.
In a prior interview, Congressman
Paul told me that he decided to run for Congress after studying
Austrian economics. He knew then that if the freedoms, liberties,
and prosperities enjoyed by our great country were to endure,
we would have to return to a system of honest money - in other
words, a monetary system that was based on gold and/or silver
as indeed our Constitution mandates. Ron Paul is one very unique
political figure that I am extremely honored to learn to know.
I think most of our readers agree with most, if not all, of Dr.
Paul's views on political economy, but even if you don't, the
purity of motives for his service is reason enough to respect
him. I hope you enjoy the following conversation, which I had
with Dr. Paul on Friday, March 10, when he spoke to me via phone
from his home in Texas.
TAYLOR: Dr. Paul, I want to thank you again
for allocating your precious time to talk to our subscribers.
Many of my subscribers follow you in part through our weekly
newsletter, and of course on television when you appear. Many
of my subscribers deeply admire you because you stand for the
principles outlined in our Constitution, even when doing so may
not be politically correct. But you also make sense. After seeing
you on TV, my 82year-old mother, who only had 10 years of
education but who is as honest and sensible as anyone alive,
said that you were "the only one that made any sense."
On the other side of the education spectrum is former Congressman
Robert Bauman, J.D., who paid you a tremendous compliment a few
years ago at an offshore conference in Mexico. When I told him
that I had recently spoken to you, he replied, "Ron Paul
is the only one left." When I asked him what he meant by
that comment, he said, "He is the only one in Washington
who follows the Constitution." Richard Russell told me he
thinks Senator Byrd should also be considered in that select
group. I think Richard said that because of Senator Byrd's firm
stand for the explicit requirement in the Constitution that Congress
should declare war before our President sends troops into battle.
I am thankful to Senator Byrd for his position on that issue,
but I'm not aware of Senator Byrd's ever discussing another explicit
mandate of the Constitution - namely, that our currency was supposed
to be comprised of gold and silver. Are there any other lawmakers
in Washington besides you who take that stand?
CONGRESSMAN PAUL: I've casually tried to find that out,
and the general reaction I get is not hostility but total amb
ivalence or ignorance of the issue. They just don't think it
is important. Some are sympathetic but not interested enough
to do anything about it.
TAYLOR: I believe most people simply don't
understand or care about the issue of fiat money. Could you summarize
the economic problems that paper money leads to, and perhaps
give some examples of problems that have surfaced over the past
decade or so?
CONGRESSMAN PAUL: I think they don't see any harm because
they haven't really studied history. If you have studied history,
you will know it is harmful. There is no historical example where
paper money has lasted for a long period of time. It works for
a while until the trust in that money is totally undermined,
and then it ends up in an economic calamity, for the most part,
in runaway inflation or other serious dislocations.
We have essentially had worldwide
fiat currency since 1971. We have not had runaway inflation,
but we have had serious problems with inflation - serious erosion
of the value of the dollar - which undermines some very innocent
people, say, like your mother who may be frugal and save her
money and put it in CDs and not speculate. Because of the distortions,
she ends up getting interest rates that are very low. At the
same time, the value of her savings goes down instead of up.
So, there are a lot of people who are hurt with this system.
But the biggest flaw in the
way people think today of inflation is that they buy into the
argument that inflation is rising prices alone, rather than looking
at what the Fed is doing. When the Fed creates new money, they
undermine the value of the money, and that is inflation. Sometimes
that causes stock prices to go up like the NASDAQ bubble that
emerged from inflation. Or sometimes it might be a housing bubble,
and other times it may flow into bonds and sometimes into commodities,
and other times into the CPI.
Sometimes price increases are
hidden from us by government statistics, or the prices are held
in check to a degree by increases in productivity. But there
is still a great deal of harm done because artificially low interest
rates cause businesspeople and savers to do things differently
than if there was a market economy and a normal savings rate.
Under normal market conditions, you get more favorable economic
balance. When interest rates are distorted, that contributes
to malinvestment and over investment and excessive debt accumulation
that ends up in economic downturns that very often can be quite
TAYLOR: I believe the economic downturns,
at least under Greenspan's tenure at the Fed, were sort of delayed
or curtailed by even more promiscuous money creation. Would you
agree with that?
CONGRESSMAN PAUL: Yes. He gets the credit for keeping
it together. He was able to bounce back and forth. He created
one bubble and we lived off that a bit, and it collapses and
then he creates a new bubble. We had a couple of recessions that
were not overly severe, and the establishment now gives him a
lot of credit. History will show that he has created a great
deal of harm to us and to our currency. But right now it seems
as though we have lucked out in many ways because he, in technical
fashion, was able to prolong the inflationary boom. But a time
will come when that correction will have to come, and I happen
to believe the correction will be more severe because he was
able to keep it together. But it is rather ironic that the marketplace
today - the establishment - rewards a person like Greenspan.
His book deal is running around $9 million. It will take a little
time and study and historic analysis to put the blame where it
TAYLOR: Hopefully, people will properly ferret
out the blame and put it where it is deserved. I'm amazed at
the level of reverence Mr. Greenspan was paid by most of your
colleagues down there in Washington. They treated him almost
like he was God.
CONGRESSMAN PAUL: Your point is well taken. It's interesting
that the blame for the Great Depression was misplaced. They blamed
the gold standard. We all remember that wonderful article that
Greenspan wrote in the Objectivist, "Gold
& Economic Freedom." He was right on that. He blamed
the Great Depression on the lack of a gold standard or the abuse
of the gold standard. He said all the right things. Of course,
he has rejected those ideas in his later years when he was able
to join the establishment.
TAYLOR: Is there any way he could have joined
the establishment and become Federal Reserve chairman if he had
taken any other position?
CONGRESSMAN PAUL: No, he couldn't have, because he had
been working for a short time to undermine or get rid of the
Fed. It is remarkable that he took those early stances and he
was still acceptable to the establishment. As late as 1981, when
we had our Gold Commission Hearings, he testified in favor of
gold. Times were rough then, because gold was very high and interest
rates were very high. People were worried about the dollar. Volcker's
policy, which was to tighten up things, pulled the dollar out
of its nosedive. Greenspan testified in favor of gold-backed
bonds at that time. That is probably the last time I have ever
heard him say anything favorable about gold.
TAYLOR: Aside from economic difficulties,
do you see threats to our Constitution that result from fiat
money? Do you see any threats to our personal liberty? Could
you give some examples?
CONGRESSMAN PAUL: I think they are connected, because
fiat money allows governments to spend without restraint and
to run up deficits. As long as the government can print money
to buy up these Treasury bills, the politicians are overly tempted
to be irresponsible. They have no restraints placed on them.
That encourages the welfare spending, which basically is almost
always unconstitutional. It also encourages the building up of
the world empire, because you can buy military weapons and impose
yourself on other countries around the world.
The fact that they have gotten
off the gold standard and rejected the admonition that only gold
and silver could be legal tender means that the Constitution
was circumvented on the money issue. That was evidence of a diminished
respect for the Constitution. That has expanded quite a lot since
then, because even with the issue of war, we finance war with
illegal money, and so now we can go to war without Congress declaring
it. Congressmen have been negligent on the money issue and on
the war issue. And of course, Congress participates in this unconstitutional
approach to regulating and running the economy and getting into
the welfare business. So I think it is all connected and is a
real lack of respect for the rule of law.
I tell my people back home
who might be sympathetic toward the Department of Education that
it's "fine and dandy if this country wants the federal government
to run education, but then just change the Constitution. But
if you do these things without changing the law - changing the
Constitution - it means there is nothing left of the Constitution."
And of course I don't think there is much left when you see what
happens under the Patriot Act and some of the other bills that
are being passed. Our personal liberties are not being protected.
Government is supposed to be there to protect us. And here we
see the government undermining our liberties, rather than doing
what they are supposed to do.
TAYLOR: The Constitution so clearly states
that gold and silver are to be our legal tender. How could the
courts refuse to enforce this very obvious law established by
CONGRESSMAN PAUL: It is awfully disturbing and it isn't
something that happened recently. The gold clause was ruled unconstitutional
after Roosevelt got in and confiscated the gold. The government
confiscated the gold and then reneged on its responsibility to
pay in gold. We complain a lot now, but can you image when those
things happed in the 1930s how outraged people were? But then
it became acceptable. Fortunately, there have been some reversals
, like in 1976 when it became legal to own gold again. So if
we keep working on it, we can have victories, but they are few
and far between.
TAYLOR: So probably you would be hard pressed
to find other members of Congress who would see a connection
between honest money and liberty. Is it that they simply don't
understand the connection?
CONGRESSMAN PAUL: They don't understand. They have not
thought much about it. I do my best to call attention to it,
but I think we'll almost have to have a monetary crisis before
they will think about it. But back to your point that who gets
the blame is pretty important. If Alan Greenspan doesn't get
blamed - if inflation of the money supply doesn't get blamed
- we will just invite more problems and more authoritarianism,
and that won't be good.
TAYLOR: I think you and I both believe that
the promiscuous money creation by the Fed will ultimately lead
to the destruction of the dollar and our monetary system. When
that happens, or as it approaches, do you think the Fed might
once again confiscate our gold in order to disguise the problem?
In other words, might they blame the messenger (gold), rather
than the real reason for gold's rise vis -àvis paper money?
Secondly, if you think there is a chance that the authorities
might make owning gold illegal once again, do you think it would
be equally likely that they would confiscate silver?
CONGRESSMAN PAUL: I think it's possible for both gold
and silver; and I know many people who are worried about it.
I remember asking panelists on the Gold Commission for assurances
that the federal government would never again resort to confiscating
gold, and nobody would commit to it. It may seem a bit far-fetched
today, but we should remember that governments always assert
emergency "powers" during economic crises, as our own
government demonstrated in the 1930s. Few Americans understand
the true causes of the Depression even today, and still believe
FDR's government programs magically cured the economy. So we
should understand that public anger in the event of another economic
depression may well be misdirected, and gold could be made a
TAYLOR: In your first chance to question the
new Fed chairman, you asked him about the decision not to report
the broad-based measure of money known as M-3. Chairman Bernanke
seemed to suggest the biggest reason it was discontinued was
because of the cost to the Fed and to the banks that compile
data. That seemed like quite a stretch to me, but do you have
any idea how much money it costs to compile that statistic?
CONGRESSMAN PAUL: I have no idea, but I think that is
a red herring. I didn't use that word, but I told him so. Of
course, he indicated his concern about the cost to the banking
system. But you know even banks create new money with the fractional
reserve system. And the Fed can print all the money they want
to pay their own bills , and they are not even on budget. I think
it goes back to what Mises said. He said governments will do
whatever they can to distract our attention from the fact that
the central bank is the culprit, rather than admit the end result,
which is the rise in prices. They don't want us to know what
is happening to the money supply. He (Bernanke) said look at
M-2. You don't have to look at M-3. But M-2 is growing at only
about half the rate of M-3. I don't think it is a perfect indicator,
but I think it helps us when we are trying to figure out what
they are doing to our money.
TAYLOR: Doug Noland, an Austrian thinker who
works for the Prudent Bear Fund, has pointed out that there have
been some changes in our monetary structure that perhaps make
M-3 less important than it once was in measuring money. Is it
possible that the Fed might be justified in not reporting M-3,
or should they be looking at a better measure of money? Or do
you think they simply don't want us to know how much money they
are printing, and the connection between their creation of money
and rising prices?
CONGRESSMAN PAUL: I think that is the main reason. I
would not argue with the case that it is not a perfect index.
We could look for something better, but there is no justification
for denying information. Let us decide whether it is worth anything
or not. In another way, you could argue that regardless of what
they do and say and argue and lie about, the markets eventually
are able to discount everything they did. Sometimes it's a little
slower and sometimes the markets are misled. But eventually-they
tried very hard to hold the gold price in check whether it was
at $35 per ounce or $250 per ounce - eventually they are not
able to do it. The markets are very powerful. And I think even
without M-3, it's a little more difficult for us. It's better
to have the information, but eventually the markets will figure
TAYLOR: Doug Noland looks at a whole series
of things that he thinks is more helpful than M-3 alone. One
of the items I have begun looking at, thanks to an analyst named
Charlie Clough at Merrill Lynch during the Asian crisis , was
something called Global U.S. dollar liquidity. That seems to
very closely mirror the global economic activity including inflation
CONGRESSMAN PAUL: I agree with that. I respect what
Noland does and I read his material. I think that is very important.
But I think people do keep watching M-3. I wrote a letter to
the Fed and I asked Bernanke why M-3 does not correspond with
total bank credit. I think that is some of what Doug talks about.
One of the Fed staff people wrote back to me with a rather lengthy
explanation. These others numbers can be very helpful.
TAYLOR: I am of the belief that the great
stock market bubble of the 1990s was caused by the enormous creation
of money and credit earlier that same decade, and that when the
equity market crashed, a recession was avoided by the monetary
creation of a new bubble, this time in housing. Do you agree
that the equity market's rise and fall as well as the extreme
overvaluations in our housing markets was caused by excessive
money and credit and do you believe we are in any danger of a
collapse of the housing market?
CONGRESSMAN PAUL: I think there is over-investment and
a lot of distortion, and there will be corrections. I think the
correction has already started. I have never looked at the housing
bubble - and I would not pretend to be the expert - but my sense
is that the housing bubble has not been and will never be as
dangerous as the NASDAQ bubble, mainly because I see a house
as a real asset. People use that as protection. I know that prices
go up too much and they have to be corrected, but you still have
a house. But with the NASDAQ bubble, you had ZERO worth with
many of those stocks. A house never goes to zero, but that doesn't
mean I'm trying to reassure people not to be concerned about
it (housing bubble). These people who put zero down payment and
zero interest and so forth - yes, there is going to be a wringing
out of that, but hopefully it won't be quite as devastating as
the NASDAQ bubble was. But in a way you could argue that it could
go to zero if you can't afford to keep your house. For you it
would go to zero. The house still has value. But for the individual
that bought who shouldn't have been buying, I think it's a very
TAYLOR: Mal investment caused by excessive
CONGRESSMAN PAUL: I think that is where it comes from.
And that is what I keep trying to emphasize.
TAYLOR: What would a major decline in the
housing sector do to the U.S. economy?
CONGRESSMAN PAUL: You would think it would cut back
on a lot of jobs and a lot of industries that are involved in
TAYLOR: I know that in certain parts of the
country, housing overvaluation is much more of a problem than
in other parts of the country. For example, in your district
in Texas, overvaluation may not be nearly as much of a problem
as in places like San Diego or Florida or here in New York City.
But let's say we had a very substantial mortgage default problem
over a large portion of the U.S. Do you think that Congress would
pass and that President Bush would sign a major spending bill
to try to bail out debtors and the banks?
CONGRESSMAN PAUL: FANNIE MAE and FREDDIE MAC have a
line of credit from the Treasury, and they would use it if they
had to. And I'm sure other mortgage companies would qualify.
Congress would do whatever they feel they have to do. If there
were a "housing hurricane," it would be just like a
real hurricane. You spend whatever people demand you spend and
worry about it later.
But the other way I think they
are going to prop up mortgages is by having foreign central banks
soak up our dollars. This is how they are keeping this bubble
going now. I believe the central banks have many agreements.
They own twice as much debt as the Fed does, so they are there
to monetize our debt.
TAYLOR: So it's a global effort to keep the
housing market and the U.S. economy afloat?
CONGRESSMAN PAUL: Yes. I think they are working together.
They think they are all benefiting from buying Treasuries. And
also, on Y2-K, the Fed wanted to make sure there was no shortage
of currency, so they incurred enough debt that they could print
currency against by buying a lot of FANNIE MAE and FREDDIE MAC.
They held those for a while. They had that line on the Fed chart
each week that said they didn't own any. I think that is a signal
to the foreigners that if they (FANNIE MAE and FREDDIE MAC mortgages)
ever get into trouble, the Fed will be very willing to participate
in propping them up. That could be done without any legislation
at all. If the market got real soft, the Fed could just buy that.
I think if you ever start seeing the Fed start to accumulate
those non-governmental securities (like FANNIE MAE and FREDDIE
MAC), I think that means they are getting worried about it (housing
TAYLOR: Very interesting. In a way, the whole
system seems to breed irresponsible behavior. If the government
is going to bail you out, why not buy a house with no down payment,
and then buy a bigger house and take on more debt? Doesn't this
bailout philosophy breed an irresponsible mindset and borrowing
behavior, since assurances of a bailout make people feel safer
in taking on more risk?
CONGRESSMAN PAUL: Not only do they feel it's safe to
do this , but Congress actually passes laws that tell the banks
and credit unions to do it. Under law, they are obligated to
lend irresponsibly. If all of a sudden they didn't make any loans
in a certain area of town because the people there couldn't afford
it, they get in trouble because they are mandated by law to lend
to those areas. So that again is forcing irresponsibility. Then
when problems come, what do we do? We bail them out again. My
whole contention is that there should be a limit to bailouts.
How long can we do this ? Ultimately, all of the pressure is
put on the dollar.
TAYLOR: So the dollar will suffer from all
this money creation for bailouts, right?
CONGRESSMAN PAUL: Yes. But housing is just one area.
Look at the pension funds. Look at the obligations, for example,
of all pilots' pension funds, plus Social Security and everything
else on the Federal Government. But the Federal Government has
nothing other than the authority to tax and print money.
TAYLOR: Richard Maybury has said he has never
seen or heard of any housing collapse, and I believe he also
said he has never heard of a country at war overseas ever experiencing
a depression. He has invited his readers to let him know of any
such incidents if they could. If Mr. Maybury is right, perhaps
President Bush is on the right track when he wages war in various
countries, if for no other reason than to keep our economy humming
along. Might our military intrusions not be acting as kind of
a bailout for the housing industry and the American economy in
general? Aside from the sacrifice of American lives in battle,
might the policies of President Bush and the neo-conservatives
make good economic sense?
CONGRESSMAN PAUL: I think the military serves as a distraction.
You don't become wealthier by building bombs rather than houses.
You could argue that people are employed. Unemployment went down
in Word War II, but the people didn't necessarily feel wealthier.
Not only did they have a shortage of spending funds, they also
had rationing going on. Employment was fine. People had to build
tanks and build airplanes. People were drafted and millions of
people were serving. But they were not doing anything to enhance
the economy. I would argue the case that maybe the classical
symptoms of a depression with people unemployed aren't there,
but economic benefit cannot happen except for people who make
war profits. The companies that build the airplanes did well,
but the country, as a whole, cannot become wealthier by consuming
their wealth and their energy by putting it into weapons and
killing. There is no way a country can get wealthier in that
TAYLOR: In a paper he wrote, titled, "Deflation,
Making Sure It Doesn't Happen Here," Ben Bernanke suggested
that policy makers these days had all manner of equipment at
their disposal that policy makers in the 1930s did not have for
overcoming that deflationary depression. He euphemistically suggested
that money could be delivered to the populace by helicopters
if need be to keep the consumer spending. On another occasion,
I believe he suggested the policy makers could transfuse or create
money out of thin air by having the Fed buy real estate or gold
mines. Most people on Wall Street think that is just fine, as
long as the party is prolonged. I'm assuming you think otherwise.
Could you explain to our readers what kind of trouble these unending
inflationary policies might cause?
CONGRESSMAN PAUL: It's a total illusion to think that
the printing of money can solve our problems , because what you
can't measure is the confidence factor. That is what will be
lost. Eventually, the printing of the money may appear to be
a positive factor for a time, because it results in lower interest
rates. People are reassured, because most of the time they don't
realize that rates are coming down, simply because the Fed is
printing more money. Lower interest rates stimulate the economy
, because they encourage people to buy more houses and all these
different things by taking on more debt.
But as soon as confidence is
eroded, the very same policy causes anxiety. People then become
concerned and worried and frightened, and they do less of what
he (Fed chairman) is trying to get them to do. So trying to claim
that printing unlimited amounts of money is a panacea is nonsense.
TAYLOR: Yesterday we learned that the U.S.
trade deficit has widened to another record level. When I was
an MBA student back in the 1970s, I was taught that there was
no need for a gold standard and fixed-rate currencies because
if the currencies were free to float with each other, they would
adjust to the underlying trade realities. So, if the U.S. were
running a trade deficit, its currency would fall relative to
other currencies, thus leading to reduced imports and increased
exports. And the opposite would be true too. If we ran a surplus,
our currency would get stronger, thus leading to more imports
and fewer exports. We are now having a huge, chronic, and growing
trade deficit. What happened to this flexible foreign exchange
rate theory? Why is the U.S. trade deficit never in balance?
Why is growing worse each year?
CONGRESSMAN PAUL: It's probably because of the special
nature of the dollar - that is , it is considered the world's
reserve currency. That means that the world is interpreting the
paper dollar essentially as if it were gold. They are willing
to take it and hold it. They think they are holding gold. In
essence, though, they are holding our paper and so it's an illusion.
But I think the current account deficit can continue for a lot
longer, as long as that trust holds up. But the matter of trust
could change suddenly. It could change next month. We could have
some economic or political event that would change attitudes
quickly. Then the adjustment will have to come. But for now,
they are quite content to take our dollars, and the current account
deficit doesn't seem to bother them. The fact that these currencies
do adjust on a minute-to-minute adjustment is really a free market
benefit to what they are doing. If you had rigid, tight rates,
this would not work. So in a way it is ironic that the marketplace
sort of takes care of some of these problems by making adjustments,
but I don't think they can defy this (current account adjustment)
forever because if they could, it would mean that none of us
would ever have to work again. All we would have to do is let
the government print the money to take care of us. Common sense
tells us there is a limit. No one knows where that limit is and
when it is going to hit.
TAYLOR: I believe you are a free market advocate
as much as anyone in Congress. Yet, for a change, you voted with
a large majority of others in Congress who opposed the ownership
of several U.S. port facilities foreign interests from Dubai.
. As a strong advocate of free trade, can you explain why you
objected to this flow of foreign capital into the U.S.?
CONGRESSMAN PAUL: I don't think we actually had a vote
on that. I did take a public position that I was opposed to it,
but in many ways reluctantly, because I knew there was some downside
to it. My main objection to it was that there was a government
involved in acquiring our port facilities. The other argument
I had was that the President doesn't have the authority to make
a deal with a foreign government, like President Bush did. For
the most part, Congress has deferred to the President for almost
everything. But with the President now going down in the polls,
the Congress is saying, "You can't do this without us."
In a free market, neither the
President nor the Congress should be telling the ports what to
do. If it's the port of Houston or Galveston or whatever, they
should be totally responsible for that. So I almost saw this
as a mandate to say these ports would not be dictated to by either
the President or the Congress. I never had a very comfortable
position about this because the issue wasn't even on my wavelength.
But I do fear that this is going to be settled with some type
of compromise - if Congress were to pass a law that no foreign
ownership were permitted in this country, it would be the beginning
of a major trade war. I anticipate a trade war to come, because
that is generally what comes out of inflationary conditions in
a fiat currency. This is the sentiment. I think Congress is always
ready to fight trade wars, which I don't endorse.
TAYLOR: So then, do you think this port issue
could lead to a trade war?
CONGRESSMAN PAUL: I think it could happen, but I think
it has probably been neutralized here with a compromise. If this
problem were extended to all of the OPEC countries, it could
become a serious issue. But I think we are more likely to get
a resistance from the radical Muslim world. One day they may
reject the dollar and even establish a gold standard. But I think
this Dubai issue will get settled. But events like this can pop
up - this one popped up fairly quickly. But something like this
can prompt a vicious trade war and it won't make anyone happy.
TAYLOR: In the 1970s, as inflation rose in
the U.S., foreigners began to sell their dollar holdings. To
defend the dollar, Volcker cut back the money supply growth very
sharply. In fact, I believe there was a short time when it actually
contracted. Interest rates rose to the moon. My first mortgage
here in Queens, New York, in 1982 was at 17.5%.
Now Mr. Bernanke is known as
a student of the Great Depression, and he is promising us we
will never have to suffer through something like that again.
But what do you think would happen to the U.S. geopolitical dominance
if foreigners no longer want our currency and prefer to park
ever-increasing amounts of their wealth in euros or yen or renminbi
or gold? Do you see the possibility of Mr. Bernanke's hand being
forced to tighten money and credit simply to defend the dollar
and thus enable the U.S. to retain its currency as the world's
reserve currency? And if you think that is a possibility, how
would our economy cope with substantially higher interest rates
when we now have much more debt, relative to income, than we
had in 1980?
CONGRESSMAN PAUL: Yes, that is when he will really be
in a dilemma, because I think conditions may return to something
similar to that. It may even be worse. He is going to have this
desire to inflate, because he thinks inflating the currency is
always the solution. But I can see him in a situation in which
he will really, really have to tighten up, and we could have
worse conditions than in the 1970s when we had stagflation, a
weak economy , and high inflation rates.
TAYLOR: Well, we certainly have much more
debt now than in the 1970s. We have a trade deficit now while
we had a surplus then. Foreigners own a lot more of us than they
did then. It seems to me that we could be in a more precarious
position going forward than we were in the 1970s.
On a related topic, Fed Chairman
Greenspan suggested he was not worried about our manufacturing
base leaving our country. Are you concerned about the disappearance
of our manufacturing base, and if so, what should America do
CONGRESSMAN PAUL: Yes, I am. I think it is a very bad
sign. I don't think there is any easy solution. I think it is
caused by a lot of different factors such as high wages and inflation
in this country. The fact that we have a reserve currency that
leads to foreigners taking our dollars makes it a better deal
for us to buy from overseas. Our tax structure will frequently
encourage companies to set up business overseas. So there are
a lot of things we have done that will not be changed easily
- the change in the regulatory system, the tax system, the monetary
system - at the same time recognizing that it is a benefit to
our consumers to buy cheap things overseas. To deal with all
that at one time is almo st impossible. Yes, I think it is a
very serious problem, but I don't see the solution coming here
in the near future.
TAYLOR: You have been known as the "taxpayer's
best friend in Congress." Once you said that our government
wouldn't really need to tax us at all because money could simply
be printed (that is , debt could be created) out of thin air
to pay for all government expenditures. Could you comment on
what a tax-free inflationary fiat currency system might do to
us? I think of Larry Kudlow, who I picture as a neo-con and a
supply-side economist. He would always reduce taxes but he doesn't
have any concern about printing more and more money to fund government
activities, and he is very much in favor of aggressive military
CONGRESSMAN PAUL: No, they (neo-conservatives) don't
worry about printing money or about deficits either. I don't
think we need an income tax. I think taxes should be a lot lower.
But the only way that would work is if we had a lot less spending.
We could do like they did in the early years. We could have an
income tax to fund a much smaller military. We would really be
a bastion of freedom and prosperity if we developed a system
like that with very low taxes, and not be the military policeman
of the world. I can't imagine anything being better for us than
that. Anything we can do to lower taxes and let people spend
their own money, the better.
TAYLOR: "Policeman of the world"
- that causes me to want to ask you what you think would happen
if we left Iraq. The common view is that we would see a huge
amount of chaos in that country. . . .
CONGRESSMAN PAUL: Well, chaos is what is happening while
we are there.
TAYLOR: What do you anticipate happening with
regard to tax legislation in the near term in Congress? Will
capital gains taxes be rolled back? Will we see rising personal
and corporate rates? What about this thing called the Alternative
Minimum Tax that seems to be pushing more and more Americans
further and further down the income scale? Do we have any hope
for tax relief in the near future?
CONGRESSMAN PAUL: I don't think there will be any additional
tax cuts passed. But the capital gains rate reductions and the
increased Alternative Minimum Tax exemptions will expire unless
Congress acts. I think those tax benefits are not going to be
removed. At least I hope they wont. I'm not on the inside track
on all that, but I'm sort of hoping they don't do this foolish
thing about raising taxes right now. I just wish I could talk
them into cutting some spending.
TAYLOR: If we get a Democratic Congress next
year, could things change a bit on that score?
CONGRESSMAN PAUL: If the Democrats are capable of taking
back Congress, the President may use a veto against increased
taxes, although he has not used any veto so far. Probably the
main thing on the agenda for the Democrats would be an impeachment.
I think this would be pure politics and a payback for the Clinton
impeachment, but I think it would be very high on their agenda
if they just won the House.
TAYLOR: After I spoke at a gold show in New
York, I expressed my views that because of the enormous amount
of debt that has built up in the system over the years, there
are powerful deflationary undertows at work in our economy. After
my talk, a money manager came up to me and remarked that she
thought the idea of either deflation or inflation in the future
was a very real problem. In fact, it was the issue she thought
was more important than any other for her as a person who manages
other people's money. Correct me if I am wrong, but I believe
your view is that deflation is a very remote possibility any
time soon, given the unending capability of creating money out
of thin air. Is that your view?
CONGRESSMAN PAUL: I operate on the assumption that they
are going to be able to continue to print money, and because
we don't have a dollar backed by gold, there will be no sense
of holding just dollars. So I anticipate they may be able to
print. And there is a mechanis m more in place today than during
the Depression. You can send a check to a Social Security beneficiary
or anyone else. They didn't have that in place before, so it
could be almost like a currency inflation. So Congress is capable
of printing and spending what ever they think is necessary, and
they won't hesitate to do it.
Of course the question on deflation
is whether they can do anything about a cascading debt and the
system deflating in that way. I'm sure there will be plenty of
that, but I have to assume the government will do what Bernanke
wants to do, and that is to simply pass out the cash.
TAYLOR: But again, if the foreigners say they
are not going to send us the $2 billion per day or so that we
need to live on because we don't save, interest rates could spike
up, and with the huge amount of debt, it would present some challenges
to Mr. Bernanke, I think.
CONGRESSMAN PAUL: Yes, that would mean if they don't
want our dollar, it would go down in value, you'd have inflation,
and you would have to have higher interest rates. So I would
think it would be inflationary if they don't want our dollars.
TAYLOR: Unless he was forced to tighten money
to defend the dollar, and unless he realized defending the dollar
was a lost cause, would hyperinflation then be a real possibility?
CONGRESSMAN PAUL: Well, eventually I believe they will
TAYLOR: Well, I believe that too, and yet,
this inflationary boom must eventually come to an end. As Ludwig
von Mises once wrote, "There is no means of avoiding
the final collapse of a boom brought about by credit (debt) expansion.
The alternative is only whether the crisis should come sooner
as the result of a voluntary abandonment of further credit (debt)
expansion, or later as a final and total catastrophe of the currency
CONGRESSMAN PAUL: That's where we are right now.
TAYLOR: You know, Congressman Paul, I often
examine myself and wonder what world I am living in. When I watch
CNBC, there is never any concern about these issues. Last week,
there was a debate between Dennis Gartman, a well-known Wall
Street commentator, and John Embry, a well-known Canadian analyst
who thinks gold is heading to the stratosphere. But Gartman saw
no problem with endless amounts of money and debt creation. And
I wonder, since we are all working with the same data, how we
can see the world so differently. I think it boils down to whether
you subscribe to Keynesian and monetarist economic theory or
if you lean more toward an Austrian view of things.
CONGRESSMAN PAUL: The big question is , "Where
is common sense?" I seem to get further with talking to
grade-schoolers and high-schoolers than I do with talking to
anyone in Washington.
TAYLOR: My 82-year-old mom thinks you are
the only politician who makes any sense. On the other hand, we
have all these Ph.D. economists who have been indoctrinated in
Keynesian and monetarist economics. Perhaps our education system
is providing more mis-education than education these days.
I'd like to switch topics again.
Being from Texas, you most likely have a view on the energy markets,
so I would like to ask you a series of questions, in no small
part for the benefit of our energy letter subscribers. First
of all, do you anticipate a continued rise in energy prices over
the longer term?
CONGRESSMAN PAUL: I think the price of energy is going
to go up, just because we have inflation and inflation expectations.
But I think, geopolitically, it's going to go up because of our
foreign policy. In fact, the other day we had State Department
people before the International Relations Committee and they
were agitating for a much firmer militant approach toward Iran.
And I said, "Why don't you look at the policy of Iraq? That
is a total failure. Why are you proposing to do the same thing
in Iran? You took oil from $30 to $60 by going into Iraq. It
didn't increase production. Production went down. If you pursue
this in Iran, I predict you will double oil again. It will probably
go from $60 to $120." So, I think what we are doing over
there, although it is done behind the scenes in the name of protecting
our oil, is , in fact, disrupting the supplies of oil and making
it much more dangerous to get oil out of that region.
TAYLOR: What was the response to your statement?
CONGRESSMAN PAUL: Oh, they ignored it. But the guy who
was sitting next to me said, "Oh I guess I'll go out and
buy some oil futures." So I expect oil prices to go up.
And then there is all the talk about "peak oil." I
don't worry about peak oil as much as I do about geopolitics
and inflation. If we had sound money, and if we were not provoking
wars and oil supplies, and if peak oil all of a sudden not only
arrived but the supply was decreasing much faster than we ever
dreamed of, I wouldn't even worry about it, because I have such
confidence that the price mechanism in the free market helps
us decide what to do. If we had a truly free market and gasoline
prices go to $5 per gallon, all of a sudden ethanol may be the
answer. The last thing we want is the government to be doing
this. If we let the markets handle this , we should never worry.
We don't need to worry so much about a limited supply as much
as how we mess things up after that with inflation and regulation
and radical environmentalism and geopolitical intervention. That
is where the real problems are.
TAYLOR: Certainly with energy prices rising,
there are some renewable sources of energy that are starting
to look attractive. But again, to the extent these higher prices
are caused by government intervention and wars and geopolitical
manipulation, it really distorts the markets.
Do you anticipate that nuclear
energy will provide some solutions to higher energy prices? China
and India are building nuclear plants, and they have a large
number of new plants planned for the future. Do you favor this
form of energy?
CONGRESSMAN PAUL: I think it will come. I think it is
a good answer. I have a nuclear power plant in my district. It
is another answer when energy prices go too high. I think we
are going to win on that issue, although we have lost for a good
many years, and there have not been any new nuclear power plants.
When push comes to shove, I think the American people are going
to say, "I want my house heated and lit up with electricity."
So I think we are finally going to reject some of these arguments
against nuclear power, because they are not very convincing."
TAYLOR: I don't know you very well, but I
think I know you well enough to believe you have no desire to
ever become President of the United States.
CONGRESSMAN PAUL: That's for sure.
TAYLOR: Even so, many people who know you
and revere your work would love to see that. But if you were
President, what policies would you seek to implement to make
America a freer, safer, fairer, and more prosperous place for
CONGRESSMAN PAUL: It's the respect for liberty that
is the problem. We don't have enough respect or understanding
or confidence in liberty. That is the real problem. To cut back
on government, you have to have the people understand the issue
of liberty. So, my biggest goal has been in the area of education,
as well as this little political effort I am involved in. But
oh, I guess I would get rid of the Federal Reserve, get rid of
the IRS, bring our troops home, and cut down to only about 20%
of what we are spending on the military - those things would
bring about a tremendous boom in this country, but it is just
not going to happen.
TAYLOR: That would require quite an adjustment.
A lot of people rely on government for employment and transfer
payments, etc. There would be a lot of people mad as hell if
that were to happen.
CONGRESSMAN PAUL: But we should get ready for it because
if we have a dollar collapse, there will be a revamping of government.
When that happens, do we want the same people who brought us
this chaos to be the same people to rebuild it? And what I'm
hoping is that people will believe in sound money and limited
government, the rule of law, and the Constitution. If they have
an influence on building the government, we can expect to have
a much more peaceful nation and a much more prosperous nation.
TAYLOR: I mentioned to an Austrian-leaning
group who trade ideas about economics by e-mail that I was planning
to interview you, and I invited them to raise some questions
I might ask you. One person who responded recalled your activity
at a conference in November 1983 titled, "The Gold Standard:
An Austrian Perspective." The person who passed this on
to me noted that there were some 400 people who attended the
conference. He wondered how many people would be sufficiently
conversant with sound money issues today to hold such a conclave.
In any event, my friend noted
that your segment was captioned: "The Political and Economic
Agenda for a Real Gold Standard." I understand that you
set out to suggest a possible political strategy that would "make
it possible to liberate [economic] forces and restore the monetary
role for gold."
Clearly, not much ever came
of this effort to move toward honest money that might avert what
many of us believe will ultimately be a collapse of our Western
monetary system. My friend notes this was a "disgraceful
lost opportunity, particularly given that we held all the high
ground after the extraordinary gift of the bloodless collapse
of the Soviet Union."
He concludes, "As a result,
we shall have our own collapse, and no power on earth can stop
it. The question for Rep. Paul that I would like to ask is "What
thinking is he doing now relative to a strategy
for post-collapse regeneration, now that avoidance cannot be
overcome? How do we end up with an Erhardt-type regeneration
and avoid a Bush-type repression? It seems to me this is the
only relevant consideration today for someone in public life
who actually understands what is happening.
"Secondarily, how can
we in the shadows best help?"
Assuming you believe our own
collapse is now a foregone conclusion, could you answer these
two questions? I would also like to add that other subscribers
wondered if there are other representatives we might work with
and support, who understand the problems we face.
CONGRESSMAN PAUL: I think everyone can help. I don't
think way back then they anticipated that all of a sudden Congress
would have a siege of wisdom and do the right thing. I have always
assumed that things would always get worse before they get better.
But I think compared to the early 1980s that we are much better
off. There are many more people writing about this , investing
accordingly, writing newsletters, speaking on radio talk shows,
and [communicating] on the Internet. And that to me is so important
that we grow in numbers. I have to agree with him that we are
going to have some very serious chaotic times. But that doesn't
mean we can't win. Besides, we know that if we don't make the
effort and present our case, we can't possibly win. I am very,
very concerned, but at the same time, optimistic enough to believe
that a little bit of effort put into this can be beneficial.
TAYLOR: You put an awful lot of effort into
this cause, Congressman Paul. I understand Aaron Russo, a filmmaker
and past Libertarian candidate for President, has made a film.
A friend of mine in California previewed the film and he tells
me that you are featured prominently in it. Have you seen the
film, and if so, could you tell our readers briefly what it is
CONGRESSMAN PAUL: I have not seen the film. I don't
know who else was involved and interviewed. Someone else asked
me about this earlier today. All I can say is I hope it was a
TAYLOR: Before we finish our discussion, I
understand from reading Richard Maybury's excellent publication
that there is a precious metals coin dealership that bears your
name. If there is not some law or rule some place that makes
it illegal for you to talk about it, could you tell us if this
is your business and, if so, how our subscribers might avail
themselves of this service?
CONGRESSMAN PAUL: I had a coin dealership with Bert
Blumert. It still exists. I have no commercial benefits from
it, but I still recommend it because I think he is very trustworthy.
If I could remember that number correctly, I would say it.
TAYLOR: I can look it up. I know Richard Maybury
has it in his letter. The number for Camino Coin is 800-982-7070.
CONGRESSMAN PAUL: Yes, Richard does put it in there.
He has been a friend and he knows the business is run very reputably.
I'm not allowed to be involved.
TAYLOR: Okay. For the benefit of our subscribers,
here is the number for Ron Paul Coins as published in Richard
Maybury's letter, "U.S. & World Early Warning Report."
It is 1-800-982-7070.
I would like to ask you one
last thing. If it legal and appropriate, can you tell our subscribers
how they can support you and your reelection efforts? At least,
I am assuming and hoping you will run for another term in Congress.
CONGRESSMAN PAUL: Yes, I am running. As a matter of
fact, we had our primary election this week. I did have an opponent
that ran against me on the issue that I don't support the President
enough. We had no idea of what would come of that, but almost
80% of the people said they support me even though I didn't always
support the President. I support the President, of course, when
he cuts taxes, but I don't support his unbelievably reckless
spending habits. And I have a Democrat opponent in the fall.
If anyone is interested, I would be delighted to hear from him
or her. It is very easy to get information on anything I do by
TAYLOR: Thank you, again, Congressman Paul,
for sharing your views with our readers. I know many of our readers
follow what you do. I even had a Canadian analyst tell me after
reading some of your essays that he was going to mail a check
to your election campaign. I'm glad to play a small role in helping
your efforts. I know you are a physician, so I know you revere
education, but I think my mom has it right in many respects.
She didn't have much formal education, but she has good common
sense. So, I think if education is mis -education, it's worse
than no education, and I think that is much of what we have these
days. Certainly, a great deal of damage has been done longer
term to the American economy and American liberty through Keynesian
and monetarist disinformation and those policies the resulting
policies that the mainstream adheres to. Thank you so much for
CONGRESSMAN PAUL: Okay. Thank you. It was good to talk
Mar 15, 2006
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