Stimulus Will Weaken The Dollar
In Monday’s conversation with Clear Channel’s Paul Westcott, Ron Paul warns that the stimulus package will weaken the dollar and lead to rising inflation over the next 6 to 12 months.
Channel: Clear Channel Radio
Date: 02/09/2009
Transcript:
Paul Westcott: We are on the phone now with Texas Congressman Ron Paul. Dr. Paul, thank you so much for being with us.
Ron Paul: Good to be with you.
Paul Westcott: Now let’s start with the so-called stimulus or as you and many are calling it a spending package. What is the bigger problem with this bill? Is it the pork spending that everyone seems to be harping on, or is it the other 750 billion dollars spending in the bill?
Ron Paul: Well for me it’s the whole principle of government intervention. We got into this mess by government spending too much, borrowing too much and printing too much money, and they’re expecting to get out of that problem by doing the very same thing. It’s like an individual who may be deeply in debt and hadn’t been working for a long time and then say, “Well what we need to do is borrow more money.” So the whole principle, even spending the first dollar is incorrect. The only thing that they’re doing which is close to doing the right thing and that is cutting taxes, but when you cut taxes you have to cut all the spending as well.
Paul Westcott: I mean are there any plans at this point in this package or in any foreseeable future to cut spending? I mean that doesn’t seem like to be part of the equation at all.
Ron Paul: No, they absolutely aren’t considering it, and they’re warning the people that they’ll spend a lot more if necessary, and the stage has been set when the financial markets were bailed out the banks in Wall Street to the tune of literally trillions of dollars when you add up what the Federal Reserve pumped in. So therefore, it justified a more populist approach, and said, well, if you can bail out the bankers and the car companies and insurance companies, why can’t you bail out the little guy? So, it’s contagious and now everybody gets bailed out, and all the weight is being placed on the dollar, and right now it seems to be absorbing it fairly well under the conditions. But it won’t last, because you just can’t print dollars endlessly and expect the money to maintain its value.
Paul Westcott: Absolutely and at this point, what do you think the government should be doing? I mean, is some spending prudent in your eyes, like on roads or infrastructure? Or is it just seems like to be throwing money at this one private industry should be working its magic?
Ron Paul: Well, they should be out of the business of spending, but under the circumstances that highways and all have been a part of the federal government for a long time, you could have a transition or you could say, “Look, if the government has to spend money, highways wouldn’t be the worst way to do it, but so much of this other spending is just pure pork and intervention.” But, if they just take money out of the productive economy and put it in the highways, who knows? This money could have been more productively spent. But if you’re going to put it in infrastructure, you should get the money from overseas spending. We’re spending up to a trillion dollars a year maintaining an empire that I don’t think we should be doing, and we’re now expanding our role around the world because we’re talking about a lot more troops in Afghanistan and continuing the bombing of Pakistan. So, if you do that, it just is endless, but, if you cut 50 billion dollars out of the foreign operations and put 25 toward the deficit, and pump 25 billion into the roads, that wouldn’t be the worst thing in the world for us.
Paul Westcott: So a much more limited package, and just sort of a prediction. I mean, you called this about a month or two months ago when we were talking during the first bailout and you said, “Well, now it’s going to be the little guy. They’re going to start to get the bail on individuals.” What do we see from here? Is there going to be more spending? Are we going to be giving out more of our tax dollars to individuals, small businesses and foreign countries? I mean, who knows what’s next?
Ron Paul: Yeah, there’s no sign it’s going to slow up, it’s going to continue. To me the significant shift has been when the deflationary pressures were there in the financial market of bankruptcies of banks. The tremendous increase in the credit propped it up, although it didn’t salvage the whole system, at least it propped up the financial markets. Now, the shift toward the individual and the smaller guy means that dollars will be put into the hands of average people. I think this will be to the price inflation. So far, all this printing of money has not led to price inflation, but I think we’re shifting now. In the next six months to a year, I think everybody should expect to see a lot more inflation. Already we’re witnessing the lack of enthusiasm to buy our debt. Even this week, you know, the ten year Treasury Bill’s interest rate is going up and that’s a sign that inflation is coming.
Paul Westcott: Absolutely. Dr. Ron Paul, thank you so much for joining us.
Ron Paul: Thank you.
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There is obviously a lot to know about this. I think you made some good points in Features also.
Nate, always a pleasure to talk to someone who can think/write coherently, thanks for your further explication. I do understand about mortgages though, having just finally paid down my own; and happy to say that my house seems to holding it’s value. Toronto, at least in my neighborhood, has not yet been hit like the U.S. has.
There’s no escaping the pain of recession, or of inflation either. True enough. And as for pain, it would not hurt me greatly to see the chickens come home to roost in the banks and lending institutions that have gotten us into this mess. My concern, though, is still about the social dimension. Say our dude works at a job connected with the automobile industry. GM, Ford and others go into a deep recession, or they go bust. Hard to feel sorry for the CEOs, the managers, the big owners and so on. They will survive handily. But tens, maybe hundreds of thousands laid off, the repercussions and reveberations throughout the country, Canada too of course, the world? This is another story seems to me. Huge costs, however you look at it. Canada BTW has already been hit heavily as you probably know.
Dr Paul says that he and his colleagues never even had adequate time to review this last ’stimulus’ package. If he doesn’t know about it, I sure can’t comment intelligently. All done in a big panic rush it seems–like the others. I’ve lost track. I wonder, How carefully has this so-called bailout been crafted. Is it simply a case of Uh-oh we’ve got this terrible problem, a threatening catstrophe, lets throw ‘money’ at it? Or has some consideration been given to allocating the pain equitably? It’s the threat of depression with all the horrors of the last one that scares me, the possibly very large scale wounding of societies that can and is happening. You know, there is an old Chinese saying, I think from the Book of Tao, ‘Govern as you would fry small fish’. Our glorious leaders, and their critics too, need to be vary careful about tweaking things. It’s like a game of pick-up-sticks, remember that childhood game? One wrong move and the whole thing comes down. Which leaves me just as wary about the free-marketers as it does the banknote printers. Fact is, I hardly trust anyone. Sad.
To make myself clear: much as I dislike like saying so, I don’t think we, the world, can avoid a ‘collectivist’ approach. This is another issue I suppose, and fraught with all sorts of ideological landmines too. But there you go. In a way I’d like to think that we could go back to the old verities–sound money, whatever it might look like today, a free market with lots of scope for individual freedom, the Constitution, an end to bloated bureaucracies and so on. But as I said somewhere else, I doubt it’s in the cards.
Phil,
Likewise and I hope I didn’t come off as condescending as that was certainly not my intent.
Again your heart is in the right place. You concern yourself with the workers and “the social dimension”. Let’s stick with the auto industry. Let’s say “The Big 3″ were allowed to fail and go bankrupt. What would happen? Yes, many would lose their jobs (at least for a while). But the companies would go through a restructuring process. New investors would come in and buy up anything of value. The auto industry in the US wouldn’t disappear forever. After the restructuring (courtesy of the free market) we would be left with a much more efficient US auto industry. One that could actually function at a profit providing cars people want to buy.
We humans have a habit of focusing on the seen at the expense of the unseen. We see the short term consequences for one group without considering the long run consequences for all groups. When the government bails out an industry, we see the jobs that are saved and the products that are produced. We do not see the jobs/products destroyed elsewhere and the jobs/products that were never allowed to come to be because of the subsidy. And since the bailouts are financed through inflation, we all pay through higher prices. By bailing out the auto industry, the government ensures that both human capital (labor) and physical capital are being used inefficiently. They cannot create capital, they can only redirect it.
We must realize that the collectivist approach has not been sustainable. It is collectivism and intervention that has brought us to where we are today. We need to put our faith in the free market and liberty once again.
Good points Nate and worth following up. But I’m thinking that we are now marooned here in this thread which has seen it’s best days. I suppose we could hook up again in another thread (you are still arguing somewhere I suppose with Sean?) or, if you want, we could also carry on directly. Might be less awkward. I just remebered that I have an old throw-away email address you could use if you feel it: dotptz@yahoo.ca
Good call.
Hmm…that email addres doesn’t work.
should work, just got some spam. so try p.lee.thompson@gmail.com
Dear Dr. Paul,
How do you maintain faith in the US in the face of all that you know and are sharing with us? I’m frightened, appalled, and disgusted; I want to emigrate.
Jenny
i’m with u jenny
[...] Stimulus Will Weaken The Dollar | Ron Paul .com Quote: [...]
The value of the dollar is determined by productivity to comsumption. Not printing money is not going raise the value of the dollar. Producing more goods, and importing less is the only way to raise the dollar value.. We can’t just open new production businesses here in america because its so much more expensive. We need to end the free trade agreements so the price of foreign products can resemble those of domestic value. We don’t need to just look at our financial industry, we should look at capitalism as a whole.
Sean’s comments strike me as reasonable. From what I’ve learned it’s true that productivity is a key element here. Some argue that Schact in Weimer Germany deliberately hyper-inflated the Reichsmark to make it clear that Germany could not be expected to meet it’s insane debt load. After 1923 they devalued, basically ignored the sacred gold standard and production went up, giving Germany some good years.
For the U.S. now, yes, more productive spending is needed. Productive spending though, not military-related spending. Dr Paul is surely right about that. But as for ending free-trade agreements, moving as the European states and the U.S. did in the direction of autarchy, no, I don’t see this as being in the cards. In the 30s this led directly to war. Maybe it would be better to funnel credit into the underdeveloped world, and without tying this credit to all sorts of Neocon restrictions as in South America, Iraq etc. I would hate to see a fully developed Fortress America. Again, think of Germany.
Just a thought. I don’t think we can turn the clock back.
Yes more productive spending (and investing) is needed. But the source should be the private sector. It is impossible for the government to know what to spend the money on. Also, in order to spend, the government has to tax, borrow, or inflate which takes much needed capital from the private sector where it would be more efficiently allocated and implemented.
Yes there should be more spending and investment. But it should come from the private sector. It is impossible for the government to know how to spend the money. Also, in order for the government to spend, it has to tax, borrow, or inflate. This action creates economic distortions because it takes/redirects capital that would be more efficiently allocated and implemented by the free market.
Also, your argument about Germany devaluing and ignoring “the sacred gold standard” is a complete mischaracterization of what occured in Weimar Republic Germany from 1923-29. To be brief, what happened was the hyperinflation was put to an end by issuing a new currency backed by land.
“Stresemann’s first move as foreign minister was to issue a new currency, the Rentenmark, to halt the extreme hyperinflation crippling German society and the economy. It was successful because Stresemann refused to issue more currency, the cause of the inflationary spiral. In addition the currency was based on land, and restored confidence into the economy.”
Also…
“Hans Luther was also appointed as Finance minister who helped balance the budget by dismissing 700 000 public employees.”
Sounds reasonable but misses some key points. The spending we want to see in productive enterprises is best spent/invested by the private sector. It is impossible for the government to know what will prove to be productive spending/investing. Also, in order to spend, the government has to tax, borrow, or inflate. This causes economic distortions and the misallocation of scarce capital. Best to let the unhampered free market work.
Also, the “good years” of 1923-1929 in Weimar Republic Germany were brought about not by devaluing and ignoring “the sacred gold standard”. They came to be because they stopped the inflation by issuing a new currency (i believe backed by land), slashing government spending, and dismissing government officials.
Whoops sorry for repeating myself a couple times. But when I clicked the submit button, the internet took a dump and said the page couldn’t be displayed. Carry on…
Yep.. At least all the housing mortgages are going to be distributed in the private sector.
What the hell are you talking about with this nonsense? Fannie Mae and Freddie Mac were taken over by the government. Banks with a bunch of Collateralized Debt Obligations and Mortgage Backed Securities were bailed out by the Fed. Of course the mortgages are going to be “distributed in the private sector”! That’s the only place they can be distributed. What’s important is that they are PRICED by the private sector. The gov/fed isn’t letting that happen. As a result, a few will prosper (the bailed out banks and politically well-connected) and many will suffer (the average person who just wants to live a quiet life and has no idea he’s being quietly raped by his government)
What nonsense are you talking about? Fannie Mae and Freddie Mac have always been government programs..
Fannie may- Federal National Mortgage Association
Freddie mac- Federal Home Loan Mortgage Corporation.
Money is put into the economy thru loans or credit, so if the banks tighten up their credit, it stunts the flow of money… And mortgages are auctioned off, so it IS PRICED by the private sector.
Apparently you do not understand what prices are. It’s actually pretty simple. Prices are essentially agreements between two parties about the monetary value of an item. Now, if both parties are private, then the price is set by the free market. However, if one of the parties is the government (as is the case in the auctions you speak of) the price is not set by the private sector.
To elaborate and repeat…
Yes, they (the government) hold auctions. Yet you (and they) fail to see that this is a giant intrusion into the marketplace and corrupts the pricing system. Since the government is holding auctions (or the asset being auctioned belongs to the government), it cannot by definition be a private transaction. So, you are wrong again. The private sector is NOT pricing the auctioned off mortgages. Why? Because that could only occur if both parties were private. The private sector is BUYING and the GOVERNMENT is selling. Hence, the price is not set by the private sector.
As if this intervention wasn’t bad enough we must also remember that during this smokescreen process, the people who originally owned the toxic asset are bailed out by the gov/fed with newly “printed” money. So they gain and are insulated from risk while the people lose and bear the burden. Again, terrible morality and horrible economics.
Apparently you do not understand what prices are. It’s actually pretty simple. Prices are essentially agreements between two parties about the monetary value of an item. -nate
isn’t this what an auction is?? two or a more private individuals whom agree on the monetary value, or how high they will pay for the asset? The individuals set the prices, not the government. The different parties that have any say on the pricing are private individuals.
Did you not read past the first two sentences of my post? Read it again. The whole thing this time.
The government owns the assets on auction. Since the government is the seller and the buyer is private, it cannot be said that the private sector set the price. It is straight government intervention in the price system.
listen… i do work for the government. i build schools and city halls.. When the government bids out the jobs, it is up to the free market to make estimated decisions on the price of the labor.. The government doesn’t tell us how much they will pay us, we set the price, we auction off the job. Are you trying to say that my job doesn’t participate in a free market just because it does business with the government? Look.. the jobs in iraq have no bid contracts. That means that the government intervenes and sets the prices and wages of construction. That is government intervention, a closed market.. All the federal reserve did was liquidate toxic assets so the banks would start lending again, and then they auction off the assets in the market, or the private sector, so it could set the prices with bids. Just like how we set prices in our construction business.
Thanks for reining me in on the Weimar thing Nate. You are right.
Nate adds ‘The spending we want to see in productive enterprises is best spent/invested by the private sector.’ Perhaps this is so, but under present conditions, where in the private sector could the apparently massive amounts of required credit be found?
I’m tired so this will be a rambling response…
I don’t know what companies would rise up and pick up the pieces. But if the failed companies have anything of value on their balance sheets, it can be guaranteed that they would be bought during the liquidation (for the right price). If they are not bought then it means the assets are worthless and the company that holds them takes the hit (this is how free market capitalism is supposed to work). What’s happening with the “quantitative easing” (inflation) coming from the Fed is they are not allowing the free market to function. The prices have to be allowed to adjust to the level set by the free market so we know what the assets are worth. When the fed buys these assets they overpay for them. This means the banks (or whoever is holding these toxic assets) get newly “printed” money and the Fed takes the assets onto its balance sheet. Eventually these assets are paid for by the people through taxes or the inevitable higher prices which result from inflation.
So your concern about the “apparently massive amounts of credit required” is unfounded. Such massive amounts would be required to purchase the assets only at their artifically high price. If prices are allowed to adjust down, then all of a sudden the credit (or cash) required to purchase them isn’t so massive. It’s like some dude trying to sell his house for 1.5 million. The only problem is no one will buy it for that price. So he has to keep lowering his asking price in order to sell the thing. If he has to lower it to 100,000 and takes a massive loss, that’s his just burden to bear because he took the risk. When the fed purchases these illiquid assets, they absolve the risk from the banks and transfer the loss to the people. Horrible morality and terrible economics.
hahahahaha! All the toxic assets that we are talking about are homes. Companies wont buy the homes if individuals are not able to get credit to purchase the mortgages.. The treasury is setting up where private organizations can buy toxic assets and sell them on the market at market value. Your complaining for no reason.
Nate writes clearly and has made his position easy to understand. But let’s look at his example, the dude who has to sell his overvalued house for 100,000. Nate says, well he took a risk, it’s his burden to bear. The market has in a sense spoken it seems. Fine. However if, as a consequence, our dude and his family are rendered homeless, are pauperized, then what? You have exchanged what appeared to be an economic problem for what it really is, a social problem. And it still has to be paid for.
Phil,
Thank you for the compliment but allow me to clear up a little confusion between my analogy and the consequences (rendered homeless, pauperized) of which you speak. My “Dude is trying to sell his house” analogy was only meant to illustrate that there is no need for “massive amounts of credit” if prices are allowed to adjust to their market level.
You rightly concern yourself with who will suffer as a result of prices being set by the market. However, your fears are slightly misplaced. I believe the error comes from the common confusion that if you take a mortgage on a home, you therefore own the home. This is not the case. You only own the home after you have paid the mortgage. As has become clear to most everyone now, many mortgages were written and sold to people who never had any chance in hell of actually paying them off. The person owns the MORTGAGE, the BANK (or whatever lending institution) owns the house.
Yes, people would suffer losses. There is no escaping the pain that comes from recessions. But you know who would suffer more? The banks and lending institutions. Prices for houses would and should come down fast and far. Yes, people would be upset to see the equity of their “investment” vanish but absent a government bailout, there would be a huge incentive for the banks to rewrite the absurd mortgages into which people have been locked. If the banks didn’t do so, people would simply default, or turn in the keys (maybe after smashing the place up a bit as has been reported). Prices for houses have already come down quite a bit but the gov/fed is trying to prevent that from happening through inflation. So, instead of the BANKS and other lending institutions reaping what they sowed, the PEOPLE will suffer the ravages of inflation. It is a perfect example of privatising the gains and socializing the losses.
You are correct about running our american empire.. We should get rid of free trade agreements to lower foreign consumer good consumption. This would raise the value of the dollar so we could in the future purchase the same amount of goods for less amount of money.. Then it would be cheaper to run our empire and it would reduce the amount of borrowed money needed.
This is what I was trying to say over and over.. That price inflation does not come from printing money. It comes from spending.. This is why hyperinflation didn’t occur in Germany till 10 years down the road, because spending didn’t occur until after ten years of excess printing of money.. The reason why we’re seeing deflation right now is because there hasn’t been enough spending, so people lower the prices of their goods.. These implications totally back up the stimulus plan theory. We need to spend more money, but we don’t need to print excess money because too much money would lead to too much spending and inflation.. The question is not wheather we should go ahead with the stimulus because we should all know that deflation can be just as harmful as inflation, so not printing money can be just as harmful as printing money.. The question is how much spending do we need to increase and how fast will this stimulus plan reach consumers hands.. The smartest thing we could do is stretch this stimulus over so many years and adjust accordingly to the market results.. A stimulus should first be put into tax payers hands for a “tax rebate” as we could call it, and the rest should be put into the economy in increments.
Pure nonsense, all of it. But let’s just take one part.
“we need to spend more money”
Completely wrong. We need to save more money. Savings are the foundation of economic growth. Savings are deferred consumption. That is, delayed imediate consumption so that more can be produced (and hence, consumed) in the future. Savings create legitimate credit and allows for proper capital formation and allocation. We need to save but the government is trying to get everyone to borrow and spend again. Exactly the wrong thing to do.
Yes more productive spending (and investing) is needed. – Nate
We need domestic spending to be correct. There is no harm from spending money to domestic companies because it will increase jobs and investments. THINK BEFORE YOU SPEAK
This is such a simple concept that Ron Paul eloquently argues. He is absolutely right that we are essentially throwing kerosine on an already out of control fire. What is sad is people keep looking to the Government to solve everything, what these same people dont understand is that the government is us. Thank you Ron Paul for sticking up for this Countries best interest despite current popular beliefs.
It is a simple concept and, true, Dr Paul argues it eloquently. Convincing and well-argued though his ideas are, I am reluctantly coming to the conclusion his ideas may be flawed. Doubtless government spending, spending of the wrong kind certainly, needs curtailing. Clearly too, banking reforms are required. However, having recently carefully re-read Karl Polanyi’s clssic book The Great Transformation and then the just-published excellent book by L. Ahamed, The Lords of Finance I have misgivings. Those of us who are seriously concerned about the economy, should read these books. Forget the Internet as a source of information. It is not reliable. And, forgive me for this, but read Keynes too.
I like Ron Paul; would have voted for him probably, but now I’m thinking that there is a strong Utopian component in his approach, maybe even some danger. This simply may not be a good time to be thinking about shrinking the money supply. Sure inflation is a threat but deflationary policies could be catastrophic at this juncture.
“The Coming Collapse of the Middle Class” presentation at UC Berkley featuring Elizabeth Warren, Harvard Law Professor.
http://www.youtube.com/watch?v=akVL7QY0S8A&feature=PlayList&p=3B6EB4A9B6F71AF0&playnext=1&index=12
I would love to assist in your campaign for president 2012. Please let me know how I can be of help. You seem to be the only light at the end of a very dark tunnel.
I would love to help as well. We need someone with common sense like Ron Paul to help repair the damage that has been made and will continue to be made for the next years. I think we all are going to be so sick of the situation that he’ll have a great chance to succeed in 2012.