Ron Paul: My Answer to the President

Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy – all the capital misallocation, all the malinvestment – and prevent the market’s attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over – not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments – investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”

Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?

Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day – and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end… It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects – the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul


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  • KLM

    I know what I am writing has nothing to do with this subject, but will say that I thought Ron was an upstanding person until I found out that he is the cause of many hard working taxpayers being denied Fema’s help! Yet, the Katrina’s are still able to suck Fema dry! You, RON PAUL should be totally ashamed of yourself for turning your back of the hard working Texans, who by the way work and pay taxes being refused for assistance they truly need, while still allowing the blood sucking, crime provoking Nola’s to get assistance that wasn’t truly deserved, in most instances! SHAME ON YOU RON, and to think i thought you would have made a great president, NOT! What you have done is just all out sorry on your part, perhaps you should have to walk in these poor, hard working taxpayers shoes just for one day to see what they are having to endure!!! SIGH!

  • Joe

    Ron, I apologize!!!

    I didnt pay enough attention to you in the primaries. Now I’m listening very closely.

    I am committing to get three of my Republican friends to pay attention now as well. I’ll make sure they get 3 each and so on…Hopefully this tactic will get people listening to you now.

  • joe lopez



  • Annonymous

    Hello Ron Paul;

    I commend you for your courage, intellegence and love of this country that is not the same since I was a child, even in the depression, there was not the gut fear that most of us feel now. We had little but we were okay, family units, etc. Now we have GWB setting up a system his granddady wanted, one world bank, one world government, to the dismay of us all…May God Help us!! I am writing your name, Ron Paul, on my ballot on election day, to let them know, that you are the one that should be in Washington!!! I hope we can upset the apple cart and get you elected by write in!! Thank you for loving this country, for standing up for what is right is this corrupt and money grubbing government!! May God Bless You and keep you safe!!!

  • Tom

    Abolish the Fed – bring back a monetary system backed by gold and silver coin – get the gov’t out of education
    Abolish the personal income tax even though it has never been a tax but a fraud !!
    Right now Americans are Voluntarily following All 10 planks of the Communist Manifesto – The real enemies against our country are right in Washington DC !!
    [email protected]

  • Uncle B

    Tender spot hurting a lot? Other side too? bruises on your face and body throbbing? Is that blood running out your nose, skirt above your head in the wind, panties torn and soiled, titties swelling and turning blue by the minute, lost on the roadside, hoping not to die? Did you recognize the tail lights of the limo that threw you off? Was it the same limo that picked you up at election time, promising a good decent clean ride? Will you ever learn? Last time these guys did this to you, your sons were killed in Iraq and your retirement fund spent to do it, your taxes went up, you did not get destroyed by the weapons of mass destruction, that were never found. Poor stupid American. Our heart-felt prayers from Canada go out to you!

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  • mike

    Ron, you are an amazing man. Your economic policy is perfect and you are even capable of putting it in words that most people can understand. thank you for that.

    with that said, I will now be bold enough to say that none of it will happen. no one votes for US in congress. no one knows what the constitution is (except ron of course.) and quite frankly, none of them care. trying to make the washington politicians care about the little is guy is about as easy as making Bin Laden love the United States. its never going to happen. all that can be done realistically is ousting this fascist regime and ensuring that a socialist movement doesnt replace it. but with all the money and media in the world against that notion, i fear the change can only be brought about by taking up arms.

    i pray im wrong.

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  • Dan Beaulieu

    “Have you talked to Barack Obama?”

    Barack Obama is no better than GWB. You’ll see… they are all puppets. That’s why Ron will only be president through revolution.


  • anonymous

    My family appreciated this message a lot, and it got my father wanting to read more about your policies and ideas. Thank you Ron Paul for making so much SENSE.

  • Eugene

    First, thanks Ron Paul that this did not
    get passed as fast as they hoped, that
    alone is worth something, I’m a little surprised and very thankful to the independent voices in Congress that made
    themselves heard, hope you can defeat this altogether, I know this will be a heavy lift.

    Maybe a small recession is exactly what we need, like surgery, get rid of the gangrene, healthy body survives, instead of nourishing the gangrene.

    Since “Vox populi – vox Dei,” the government should listen to that voice, and reverse its own foolish course, instead of trying to “sell” the plan to us like a shady salesman with a stinky product. We did not elect them to build consensus and be popular with their colleagues, we elected them to defend our interests with sweat and blood, if needed!

  • Mr. Paul, I have partially translated your letter into catalan and can be read in my blog now. I understand that you main and only worry is the American public, but I assure you that the disinformation regarding the Paulson plan is amazing in Europe.

  • Brian

    I have to say that I am an avid reader. Following your recent discussions about the Austrian School of thought on the Economy, I studied it myself. My question is this: if this really is what is happening… if by passing this plan, we are screwing ourselves in the long run, then what the hell is going on with everyone else in Washington?

    I think JOHN is right. Out of the two candidates, I feel that Obama would be more open to listening; unfortunately, the Democrats seem to be taking a stance on the wrong side of the fence at this time. It is ludicrous, because they seem more in favor of the original plan then the Republicans do and I haven’t been in agreement with Neo-Cons lately.

    How else do you get the word out? Are you telling these guys your view point, or do they not take you seriously? What happens behind the closed doors? Does everyone there think they are an expert?

    All three of the current big-name politicians (Obama, McCain, and Bush) have a habit of stammering when asked a question to the degrees you were asked on Fox yesterday. You sailed right through it and the confidence was evident. Does no one else realize this?

    How many Senators are on your side?

  • Bob Fitz

    As always, many thanks to Ron Paul for pointing out the issues and lack of real leadership at the helm of this nation. I think some sound prescriptions for action are in order.

    Congressman Paul, you’ve helped us understand what’s broken. Can you outline a proactive vision for long-term Monetary Reform and make recommendations for action in the immediate and near term?

  • JOHN

    Have you talked to Barack Obama? I mean really talked to him about the economy. This crisis would be good chance to get moderate changes made. I beleive if you calmy talk to him about some of the more moderate options you know of to get us closer to the right track, he will listen. Don’t take it to excess, and keep an open mind, but you could possibly make a difference. A bigger difference than you make just by being the great man that you are.