In this speech to Congress, Ron Paul outlines the path to recovery: Liquidation of bad debt, a new work ethic, a sound currency, and a free society.
Audience: U.S. House
Ron Paul: “Mr. Speaker, it’s been said and all too often ignored: if you live beyond your means you will be forced to live beneath your means. Living and consuming on borrowed money always end. Lenders even in an age of inflation have their limits. When living extravagantly, it seems the good times will continue forever. But when the bills come due and the debt with interest needs to be paid, the good times end.
The fiction that the appreciating prices of houses and stocks and other assets serve as savings is always self-limited and ends with pain. Without a source of newly borrowed funds once the value of stocks and houses depreciate, the individual comes to the realization that hard work and effort are required to produce sustained wealth.
Working minimally is replaced with working maximally to survive as well as to pay for the extravagance of previous years. The consequence is more work and a diminished standard of living.
A nation that has lived beyond its means for a long period of time must go through a similar process. Once the national debt grows to an extreme proportion as ours had, there’s no possibility of it being paid off in a conventional sense. Default and liquidation are required, but sovereign states that enjoyed the ruthless power to tax and create new money, always resort to paying their bills by deliberately depreciating their currency.
This makes it hard to identifying the victims and the beneficiaries. Today’s middle class and poor are suffering and the elite are being bailed out. And all the while, the Federal Reserve refuses to tell the Congress exactly who has benefited by its largesse.
The beneficial corrections that come with a recession of debt liquidation and removing the mal-investment are delayed by government bailouts. This strategy proved in the late 1930s to transform a recession into a great depression and will surely do so again.
We have become the greatest debtor nation in the world. The borrowed money was not used to build our industries but was used mainly for consumption. The fact that the world trusted the dollar as the reserve currency significantly contributed to the imbalances of the world financial system. The fiat dollar standard that evolved after the breakdown of Bretton Woods in 1971 has ended. This is a consequence of our privileged position of living way beyond our means for too many years.
At present, all efforts worldwide are directed towards salvaging a financial system that cannot be revived. The only tool the economic planners have is the creation of trillions of money out of thin air. All this does is delay the inevitable and magnifies the future danger.
Central bank cooperation in the scheme will not make it work. Pretending the dollar is maintaining real value by manipulating the price of gold, the historic mechanism for measuring a currency’s value, will work no better than the effort of the 1960s to keep gold at $35 an ounce. Nevertheless, Bretton Woods failed in 1971 as was predicted by the free market economists, despite these efforts.
This crisis we’re in is destined to get much worse because the real cause is not acknowledged. Not only are the corrections delayed and distorted; additional problems are yet to be felt. The commercial property bubble, the insolvent retirement funds, both private and public, state finances and the university trust funds. For all these problems only massive currency inflation is offered by the Fed.
The real concern ought to be for a dollar crisis which will come if we don’t change our ways. Even massive bailouts cannot work. If they did, no person in the United States would ever have to work again.
We need to wake up and recognize the importance of sound money. We need to reintroduce the work ethic. We must once again cherish savings over consumption. We must recognize that an overextended foreign policy has been the downfall of all great nations. And above all else, we need to simply believe once again in a free society – that which made America great.”