Ron Paul on Money, Banking and the Crisis (1988)

In this 1988 interview, Ron Paul talks about money, banking and the Federal Reserve, and predicts the current financial crisis.

Show: American Power Structure
Date: August 1988


Voiceover: American Power Structure. We’re joined by John Cone.

Frank Morrow: Ron there’s an old statement I’ve read heard about people saying, in Congress, that banks never lose.

Ron Paul: Well, I think that’s a general statement. I think the big bankers never lose, but I think a little banker right now is losing a lot because a lot of little bankers are getting closed down; the big banks are gobbling them up. I don’t think David Rockefeller is going to lose, I don’t think he’s going to be out selling apples or pushing pencils anytime soon. But a lot of bankers that are being wiped out at the state level are losing, but the big banking power structure seems to have control because they’re on the inside and they have control of money and they know what policy is going to be down the road.

Frank Morrow: Can you specify this structure that you’re talking about, this power structure?

Ron Paul: Well, the power structure basically is made up of a lot of very powerful business and corporate leaders in the country, and in particular they have formed their organizations. They’ve been around for a good while and they don’t even hide it anymore, you know, the Trilateral Commission as well as the Council of Formulation. No matter what, which president which party is in power, they will appoint to the major offices members of these two committees, and they always have control of the Federal Reserve System. So the Wall Streeters, the big bankers, have inside information as far as what is happening and what’s going on.

And control over money is pretty significant because if you can control money you’re really controlling one half of every single transaction, so that is a tremendous amount of power. But it doesn’t look like we’re going to have any independence. They say the Federal Reserve is independent, but that’s a bunch of nonsense. The protection that the founders gave us to try to keep us from this happening never authorized the Central Bank and they were very strict in the writing of the Constitution to limit the power of Congress to only to the minting of gold coins, to allowing only gold and silver to be legal tender, and prohibiting the printing of paper money.

All those things we have failed to follow that’s why we have a Central Bank with a paper money system and a lot of inflation, high interest rates and a very, very shaky economy. So I would say that if we would have followed the advice of the founding fathers and not allow this power structure, this group of elitist bankers and industrialists who get control not only of the banking system and the monetary system, but really our foreign policy and our government.

I wrote a little speech and gave a speech right before I left Congress, and I said, I don’t think the members of Congress really know how little effect they have in controlling things. That means the Congress themselves doesn’t have much control to people, they don’t have much to say about it either. The control overall policy is really in the hands of a very small number of people who control all the administrations, all the appointments to cabinets and certainly all the appointments to the Federal Reserve.

Frank Morrow: That shows we have a single party political system in the United States, just maybe split in two a little bit.

Ron Paul: It’s a single party and if you look at the obstacles put in our way as libertarians to get on ballots it’s an outrage because we have to spend more than a third of our energies and our monies just to apply to get on state ballots and this distracts us, some say it’s almost impossible to get on. They say, and I have not personally investigated every law all around the world, but they say that we are one of the toughest countries in the world to get a new party system, and the American people being conditioned that it’s great to have two parties. We don’t want to be like Italy where there’s all these choices, we want to live with our choices, it’s easier that way.

Frank Morrow: And we don’t want to be like the Soviet Union where there’s only one party.

Ron Paul: Yeah that’s right, so they have two. But if policies never change, what’s the difference? So we do have one party and this policy is never changed. You know if there would have been a difference, maybe under the Republicans we would have had a closer to a balanced budget, but the deficits were worse with the Republicans. But foreign policy, the policy of intervention, subsidizing communism and helping rich allies that always continues Republicans and Democrats. It was the same policy, Republicans and Democrats that supported wars like Korea and Vietnam and the CIA operations and the FBI. All of these operations were endorsed by the other two parties, but for that reason what do they do?

They get control of the funding as well. The other two parties get over a hundred million dollars handed to them. You know, not too long ago we had the two conventions on national television, Republic and Democratic convention. The American people didn’t watch; they should have, they paid for it, they paid 9 million dollars. We as citizens were forced to pay to run these conventions; 9 million dollars apiece and therefore they had all this exposure making it again very difficult for an option, a third option to be heard. It’s very hard to get our message out. But the control is there whether it’s in the political control or the banking control or in government policy control in the administrations.

John Cone: I want to touch if I may just on your comment a moment ago about the departing speech that you left with your colleagues in Congress, and you were there for four terms and I think are aware of the general level of awareness of your colleagues in Congress at that time. Do they really not know that all of this is going on? That the power structure is there, unseen but really manipulating the strings?

Ron Paul: Most of them don’t know. Most of them are suspicious that there are, the problems are more serious that they would ever, ever admit publicly but they don’t understand the policies. I’ve had a lot of members on the banking committee come up and they ask me questions. “How does the Federal Reserve System work? What are special drawing rights? What is the IMF?” And they’ll do that quietly because they haven’t really studied it. So most of them are naive but very much aware that there’s some serious problem. If you get somebody that’s a head of a committee that’s been around for 30 years or so, I think that they know very much what’s happening. They’re very much attuned to what’s happening and I don’t think they get that far, I don’t think they get to head of a committee unless they more or less have been accepted you know, by the power structure.

Frank Morrow: I did a study or just a quick look a few years ago after reading the joint economic report or joint economic committee in Congress. And reading it, it looked like it came right out of the Trilateral Commission. It had all the little buzz words that the Trilateral Commission reports had, all the things that Trilateral Commission wanted, and so I looked to see if the memberships of organizations of these, the Congressmen and the Senators, and sure enough almost every one of them are a member of Trilateral Commission, or the Bilderberger or the Council of Foreign Relations.

Ron Paul: I can remember having a conversation with Barber Conable today.

Frank Morrow: He’s a biggie at the power struggle.

Ron Paul: He was complaining about, you know, there’s people always complaining about “Me belonging to the Trilateral Commission.” He was complaining to me and lo and behold it was Barber Conable, but as soon as he resigned from Congress, where did he end up? The head of the World Bank, you know. I left Congress, I studied the banking system, I understand something about the money, they haven’t called me to one of those appointments. I’ve been waiting at the telephone, waiting for them to appoint me.

Frank Morrow: But John, you’ve studied a lot on these banking industry structure and it’s not only interlocked here but there are international interlocks, aren’t there?

John Cone: Yes there are, and the ties with the foreign banking interests. We the people that settled this country and left Europe and came over here and settled down, and almost immediately the powers that be in the European continent and the money circles were reaching up those tentacles to gain control over the new country here, and that struggle has continued. We see it and who shall control our currency, they struggle back between Jefferson. As a matter of fact I have a quote from Jefferson that I think is very pertinent to our discussion here, “If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied.” So he warned us that far ago and here we are and what he said is coming true.

Ron Paul: Yes and his side certainly won the fight back then. They got the right position in the Constitution, they had the debate over the money issue, the hard money people won, the Federalists lost, the Hamiltonians lost. But then subsequently it’s been downhill and certainly in this century. It never happens at one time you know, it isn’t all or nothing.

Frank Morrow: They keep chipping away, huh.

Ron Paul: Even though we got our Central Bank in 1913, it wasn’t the total destruction of the system. It literally took from 1913 to 1971 to open up the flood gates, but it was in 71 that the last linkage to gold occurred. Of course in the 60s there was still some linkage to silver, but since 71 all you have to was look at economic record of spending and deficits and all the economic problems and interest rates and all the price increases. I mean it’s just been totally out of control, and then even in 1980 there was another law that increased tremendously the power of the Federal Reserve System.

Frank Morrow: The savings and loans.

Ron Paul: The increase in power to the Federal Reserve System incurred since 1913 was in 1980 further enhancing again more power into the Federal Reserve. This was a time when they introduced this idea that we could use anything, or the Federal Reserve could use anything as an asset to collateralize our Federal Reserve notes. In the old days you’d have gold and silver as collateral to issue a note, which isn’t too bad, you know. It’s collateral and it would restrict the monetary authorities and it would be a certificate you know, it would be a guaranteed certificate. But it was then that they changed and said you can use any asset, even a foreign bond. So it’s true now that you can use, and they have, use foreign bonds, they put it in the Federal Reserve and that’s the backing, that’s the collateral of our Federal Reserve note. That’s how strong our currency is. You wonder how the currency works, it doesn’t deserve to work. And someday the people are going to wake up and realize that money is worthless and that’s when you’re going to have runaway inflation. Today we just have gradual, steady inflation, depreciation of the money causing a lot of harm and suffering. But one day the country’s going to wake up and there’s going to be a catastrophe.

John Cone: I want to focus on the Federal Reserve itself for a moment. I wonder, what percentage of the people know that the Federal Reserve is not really a part of the government, a privately owned corporation, and who owns that you know, the Federal Reserve. Do you have a comment on that?

Ron Paul: Well I think very few people understand how it works, because the members of the Congress weren’t very much aware of it. But I think it’s a little bit worse than just saying it’s private. You know if it were just private, they’d have to live within the laws of the land on fraud, and they would have to be a public corporation.

John Cone: Open their books.

Ron Paul: And you know if there’s a public corporation you have a right to know what your corporation is doing if you own stock.

John Cone: And be audited.

Ron Paul: Here it’s secret. But where do they get their power? Is it the power of the marketplace that creates this corporation? No. They in addition to being very secretive have their authorization, their creation from government. So government creates them, and they create a special thing, so it’s much worse than just being a private corporation. It is a very secretive, private, government ordained corporation that has the power to counterfeit money, so it’s very, very unique and much worse than just being private. It’s the secrecy of it and the power that it gets through government legislation that makes it so evil.

John Cone: Now you were the ranking Republican on the House Banking Committee for a while.

Ron Paul: On one of the sub-committee, not on the entire committee.

John Cone: And do I understand correctly that members of the Congress can’t even go to the Fed meetings.

Ron Paul: That’s right. I was very interested in the issue, and I was on three sub-committees; two being on coinage and domestic monetary policy sub-committee, but I could not go to a meeting, I couldn’t get an audit, I couldn’t even check the books, and they’re the ones who create the money. Yet, I felt like I was elected to be responsible to the people when I would be inquisitive and looking into these things. Their attitude was, “when you need to know or when the people need to know we’ll tell you”. They’re in charge and we’re just on the outside looking in, rather than the people being in charge of the government sending me or somebody else’s Congressman to control the beaurocrats. But it’s turned upside down, they have control and they allow us to know what they think we should know.

Frank Morrow: Now what does the Federal Reserve System actually do? So many people say you know, I see this and the Federal Reserve, I don’t know what the Federal Reserve Bank does and why is it so significant?

Ron Paul: Well it does several things. One of the benign things it does that is in some ways efficiently and that is exchange checks you know, an exchange bureau, but that could be done very easily and privately. The real evil they do is create money and credit. If the Federal Government runs up a debt and they tend to have a have a habit of doing this. You know the Congress is you know, run by Republicans and Democrats and they all spend money, they run up the debt. Of course when they spend, they have to tax us; if they can’t tax enough then they have to borrow and if they can’t borrow enough then they one other option, they can tax and borrow, inflate.

Inflate; the most important thing to remember is inflating is not the prices. The prices go up after the money is inflated and the money loses its value, so the Fed is designed to accommodate the politicians in a very secretive manner. The politicians spend the money because the *special interest comes and says “e want this we want this”, the politician gets reelected so he’s rewarded, and the tax becomes an indirect tax instead of going directly to the people. What the Federal Reserve does is they can take a Treasury Bill, accept the Treasury Bill which now is just a mere computer entry. They accept the Treasury Bill of 10 billion dollars and they give Treasury 10 billion dollars in their checking account. Where did the Federal Reserve get the money? Right out of thin air, right from heaven. They create the money, they put it in a checking account and the Treasury spends it. And then that means that the people who got that money immediately get to spend it and has value. But as it circulates in the economy, the value of the purchasing power of the money goes down, the price is going up. The bad part about this is not everybody suffers equally. If the money supply went up 10% and every one of us had the cost of living go up identically as 10% it wouldn’t be nearly the great harm, but because of the system, it’s designed literally to benefit the politicians and the bankers and big corporations and those who get the money. They get the money, they get the benefit and then somebody else in a year or two or three suffers the consequences.

Frank Morrow: Well we read about the Federal Reserve as a bankers’ bank and we see them that they raise the discount rate or they increase the money supply. What do all these things mean?

Ron Paul: Well, the bankers’ bank means literally that the bankers are required to put their deposits in the Federal Reserve System and they’re accountable of the Federal Reserve System. They have to send in the reports to the Federal Reserve; the Federal Reserve has all these regulations and rules so they control the whole entire banking system. In their efforts to fine tune, although they literally destroy the money, they don’t want to destroy the money, they want to control things. So when inflation gets perking along, they’re aware of the same economic thoughts that I’m aware of, and they know that if they’re not a little bit cautious about this they could have you know, runaway inflation. So they tend to back off, but they benefit from the backing off.

That means they tighten the credit, raise the interest rates and cause a recession and they do it in the name of saving the economy, which they have to or the currency gets out of control. But if they know it’s coming then they benefit on it too, then they benefit, they know then to be in cash and earn high interest rates and the banks benefit by it, so they know whether the economy’s going up or down. If they’re designing the policy they can catch the swing, so it’s the inside information that they have. But if they didn’t give the recessions which are literally the results of the inflation, the system would crumble much faster. But our argument as hard money people is that in spite of their arrogance to think that they could keep this going forever, and as powerful as they are, the market is more powerful.

See, for decades they kept the gold price at thirty-five dollars an ounce, they said, “We will regulate the price of gold.” But they kept printing the money; the markets finally broke down the price of gold. Well the marketplace will finally win out and the people will wake up and say, “It’s all paper, it’s all a scam.” And that’s when there’s chaos and that’s when the bankers realize they’re getting out of control and that’s when the connection of the bankers to the politicians is critical, because then power is threatened. So that’s when they come down with political control of our lives. That’s why the emergency powers are already written. The president can declare an emergency and take over the industries and take over our lives and confiscate the gold, and that’s why we should be concerned. We should be concerned for, you know, our prosperity, you know, our state of living and all. But our greatest concern ought to be that when these crises come in the market, disrupts this political system and this monetary system, then we are threatened by political power taking away more of our personal liberties.

John Cone: Are these the FEMA Regulations that you’re talking about? The program?

Ron Paul: Yes. It’s done under the FEMA, the emergency powers and it came up even in the Contra Hearings that were there were emergency powers written, as a matter of fact, that great hero Oliver North was participating into signing some of these to literally, if necessary, suspend the Constitution; these are the kinds of things they’re talking about. I don’t know if you recall?

Frank Morrow: Set up concentration camps.

Ron Paul: But this was brought up in the FEMA, in the Iran Contra Hearings remember? They neatly suppressed it.

John Cone: Yeah.

Ron Paul: And said, “This is something we can’t discuss in the open.” The people aren’t allowed to know about this and that’s why. Who protected this information? Who protected Oliver North? the head Democrat. Which goes to show you the power structure is the same.

Frank Morrow: John, you’ve made a big study in the history of the Federal Reserve, how did it come about?

John Cone: Well it’s a murky story, and I think that maybe 1913 ought to be the year that went down in infamy in American History because not only do we get just barely in 1913 the Federal Reserve, we also got the income tax in that very same year and those two things have been a very negative thing in our society and in our economy ever since that time, but it was a very secretive thing. It really goes back to the bankers getting in a sealed railway car and sneaking off to Jekyll Island, Georgia and it was a very secret meeting. In fact, they called up the First Name Club, they’re only calling each other by their first names so that even people who worked there as waiters and servants and so forth later couldn’t identify for sure who had even participating in that meeting.

Frank Morrow: Well there was only about four or five people.

John Cone: Well there was about ten, I believe, ten.

Frank Morrow: Or twelve

John Cone: Or twelve. And that group of people literally laid the basis for what became the Federal Reserve.

Frank Morrow: Basically Rockefeller, Morgan Pierpont.

John Cone: That group. You probably know something in that area.

Ron Paul: Colonel House is involved there and Woodrow Wilson, people were there. Although this occurred I believe in 1910 or so when they met.

John Cone: Yeah that’s right. It was a couple of years later.

Ron Paul: That time it got planned, it was finally passed in 1913.

John Cone: It was kind of sneaked through Congress and Wilson actually signed that into law, the Federal Reserve Act like two days before Christmas. And when many of the Senators and Congressmen, of course with transportation in 1913 being what it was, they had long since left the Nation Capital, many of them. But the ones that had wanted to stay and vote, did stay and vote. Wilson signed the law two days before Christmas, and traditionally hasn’t that been a period where by gentleman’s agreement that important legislation is not enacted right around the Christmas holiday?

Ron Paul: It may be a gentleman’s agreement but that’s generally the time that I was always most vigilant because I realized that’s when most of the garbage would be passed and most, the more onerous. You know on the last day the session is unbelievable; stacks and stacks of pieces of legislation come in, nobody reads anything, so the worst things happen at that particular time but it is supposed to be that if the members aren’t attending that they wouldn’t be doing these kinds of things. But you’re absolutely right, there was a very low attendance and it was an unusual year because generally Congress didn’t meet that late in a year and I don’t know whether they were called back in a session, but it was unusual in Congress back in those days. Now it’s very common to meet all year round. Back then they were usually only in session two and three months of the year, but here they were on session in December; very unusual year.

John Cone: And one of the most important pieces of legislation certainly in our history kind of just rushed through at the last minute without anyone really paying that much attention to it.

Frank Morrow: I think it’s so interesting. There were a lot of people that weren’t fooled, there were a lot of Congressmen, the Western part of the United States even the South more populous areas weren’t fooled by what was happening; they recognized it is a gravvy train going to the bankers. So they naturally were opposed to it and in reading books “Secret of the Federal Reserve”, I thought it was fascinating that the bankers set up an organization to complain about this Federal Reserve Act which they secretly hatched up, and they were secretly trying to get passed, but they complained it was going to kill them just so the people would think that, “Oh, well we’re going to pass this, no harm is [?] to banks”.

Ron Paul: Yeah well they were literally getting a license to steal because that’s really permitted this fractional reserve banking system to occur where they can pyramid their deposits, loan out money that they don’t even have, so it was a tremendous benefit to the bankers.

Frank Morrow: Nothing of this you’ll find in history books or books on government or the economic history in the United States. Nothing about how this came about.

John Cone: They’re certainly not teaching it in school.

Ron Paul: Not in the public school. Hopefully we will see that it gets taught somewhere.

John Cone: Let’s come forward from 1913 to the depression era and the role that the Fed played in that. The inflation, deflation cycle, would you like to comment on that?

Ron Paul: Yes. A lot of people, and you can still find in history books that the economist were reassured in the 1920s that there was no inflation. Prices were relatively stable, and they always said that inflation was rising prices. But if you look at the monetary history there was a lot of monetary inflation during the 1920s, and the money instead of going into production it went into speculation, of course it bid up the price of stocks and real estate.

And then they finally came in that time when there is concern or they make the decision; “look, we can not only save the dollar and stop the inflation but we can make some money on it” and they say “We’re going to have this turn this off.” So they cut back on the credit and it caused the stock market crash, and of course then the Great Depression followed. Previous inflation always leads to a correction of a recession or depression, but if you compare what happened in the 1920s, very similar to what’s happening here in the 1980s. And you just think about how many times you’ve read in the last 6 or 8 years that the government’s told us there’s nothing to worry about, there’s no inflation.

Well there’s been a greater expansion of money now than there was in the 20s. Of course there was a greater speculation in the stock market and a bigger stock market crash. So I anticipate, and many Austrian free market economists anticipate, that the recession that’s coming will not be a recession at all but it will a depression and it will probably be bigger than the one we had in the 1930s, because it will be the correction for all the malinvestment, all the mistakes made because of this artificial credit pumped in by the Federal Reserve System; so we have to look for the correction. The next president will be blamed for the depression, but they shouldn’t get the blame. It should be the Federal Reserve policy and the Reagan administration and the Congress today who run up the debts and created the new money that has set the stage for the next recession.

John Cone: The next recession or slant depression if it becomes that, do you have an idea in mind for when that might begin? We see all these books out now “The Great Depression of 1990”.

Ron Paul: I have an idea, but the most important thing about Austrian economics is that you cannot project precisely, because events occur with emotional aspects; human beings making decisions. That’s why although many, including myself, keep saying there’s going to be a stock market crash, but I didn’t know it was going to be October 19; it could have been October 10th or could have been November 15th. It comes when people get frightened and scared and panicked. So Austrian economics teaches that yes we know a depression is coming but we don’t know the day it’s going to start but still a lot of people say “Well what do you think?”, because you just have to make a judgment for personal and financial reasons. I think it’s going to, there’s going to be another major financial event before the end of this year, close to the election; more likely before than afterwards. And that by next year, next spring, it will be very clear that this country is moving rapidly into a recession.

Frank Morrow: We put that question to Congressman Gonzales, your former colleague on the Housing, Banking, Currency Committee, and I said, “Well I’ve been reading a lot about how the next president’s going to be the next Herbert Hoover.” And he said, “If we’re lucky the depression will wait that long.”

Ron Paul: And I wouldn’t argue a whole lot but time is running short. Here we are in August already and a recession could start tomorrow, the next day it could be very clear. I think a matter of fact the standard of living has been going down, I think history is going to show that the country has been down in the downslope maybe for the past 10 years. It’s just not going rapidly and it’s not confirmed by the government’s statistics but they’re changing all the time. They use GNP figures to reassure us everything is okay and 40% of GNP is government spending and where do they get the money? They print it. And also you know, like for CPI, they’re changing that, if it’s going up too fast they change the way they calculate it. But you go to the average guy in the street and say, “Is your cost of living going up? Because I can’t even pay my bills; I’m not even buying steak anymore.” So things are a lot worse than the government leads us to believe.

Frank Morrow: Can we get back to this matter of political power, economic power and control of the economy. Were you in Congress when Wright Patman was still there?

Ron Paul: No, but I was in Congress when his son was there, I think it’s Bill Patman that was there, but I didn’t know Wright Patman. Wright Patman of course was the Chairman of the Banking Committee at the time. He had some good ideas about the Federal Reserve.

Frank Morrow: Oh, he had. In my studies on American power structure he was a real gold mine because his committee, the one which you came on later, made studies of how the big banks in the United States control the corporations in the United States and it’s incredible to interlocking directors and stock ownership. They I guess, did you see much of this when you were there in the committee?

Ron Paul: Not in the detail that he had looked at it, but it’s obviously very clear. The one thing that I picked from Wright Patman was his bill to audit the Federal Reserve, and I only made minor modifications to dug that out and he of course was a champion of openness in government. He wanted to know what the Federal Reserve was doing and he never… finally, I think in his older years they had voted him out of that power position, you know, even before he was out of the Congress, he lost his position, they put in Henry Reuss, who was much more controlled by the banking people. But he was a good person and he wanted more openness. I don’t know if he was as strong on the gold standard as I am, but he certainly was against the type of banking system and how the banking system of the Federal Reserve served the interest of the bankers and large corporations.

Frank Morrow: Do the bankers control the mass media? Do they control other major industries in the United States?

Ron Paul: Probably so, and certainly a lot of people say that. I guess I hesitate only that I don’t have, you know, the proof sitting in my hand, but I think it’s very clear. I can see it in government and I saw it in banking and certainly it can’t be surprising if they’re involved with other large corporations. The media wouldn’t be very much involved too, it would be more of a surprise to find that not to be the case, but I don’t think I could take them into court right now and give them that proof that is necessary, but I think those who have studied it feel that that is the case.

Frank Morrow: Can you see this scenario, assumed that you’re elected president of the United States, you’re sitting in the oval office, can you see yourself signing a bill or a directive of abolishing the Federal Reserve?

Ron Paul: Well a lot would have to happen, you know, if I went there and I was a libertarian president and the Congress remained the same and the spending was continuing and the people still wanted all this big government; no, I can’t sign a bill because it wouldn’t have been passed. In the first four years of a libertarian administration, I don’t think we’re going to achieve that unless we’re picking up the pieces, you know, and I don’t want that to happen. I’d like to avoid the chaos, and that’s my goal, but if there’s an economic calamity and they look to libertarians for solutions, then I think it’s conceivable. But that would be more like being a prophet than somebody running for president you know, and I just don’t know how it will happen. But I do believe though if we continue to do what we’re doing, continue to spend, run up the deficit, print the money; I think we are going to have the crises. But right now I’m terrified to think that the people in Washington aren’t going to look to us for the answers. They’re going to enforce these emergency powers and FEMA will be in control, not the American people.

Frank Morrow: Did your committee look into the matter of these debts which foreign countries owed to the so-called US banks?

Ron Paul: Yes that’s been ongoing and certainly 1982 was a key year, because there was a big bailout of Mexico and Argentina and Brazil in order to patch it together and they did everything illegal. It was illegally done, even admitted by Don Reagan who was the Secretary of Treasury. It was illegal how they bailed out Continental Illinois and they do whatever’s necessary to keep the structure together, the system together. Big banks gobble up little banks, but nothing disintegrates. It’s not like what was happening in the 1920s, 1930s, and they’ll do whatever’s necessary. So that’s what happened back in 1982, they work internationally too; the Federal Reserve, the Treasury, the World Bank, Bank of International Settlements, which is the depositor for all the Central Banks.

So you have the Federal Reserve Banks depositing in the Federal Reserve System but the Central Banks. I mean I’d say it’s all what the other countries use the Bank of International Settlements in Switzerland to be the international bankers’ bank and they all got involved to keep the structure together and they did. They restored order. That was back when gold went quickly from $300 up to $500 within a 6 month period. But then they saw the market “Is that up? It looks like that’s going to hold us together for a while longer,” and they certainly have; at the expense of the American taxpayer and at the expense of the dollar. Of course since then the dollar’s value has gone down 40, 50% in value of other currencies. Prices continue to rise but eventually, my argument is, that the marketplace will overwhelm even those men of great power and there will be a panic that the bankers won’t be able to maintain, and then they will want to maintain their power but not by fine-tuning the economy but then by the intimidation of political force.

Frank Morrow: I noticed a very little talked about thing, this is from the alternative press, where the head of the Fed, Paul Volcker, got a little bill earlier, sentence on the right passed through Congress that if necessary the foreign debt that these third world countries to the US banks will be monetarized. It’s just a way of saying that the US taxpayers will pay for it.

Ron Paul: Yes this was part of that monetary control act and that means that if the Fed can hold any asset, they can hold a foreign bond, they literally, another law today can buy a Mexican bond, that’s worthless, put it in the Federal Reserve and then what monetized means is that it can be collateral for issuing credit; issuing Federal Reserve notes. And that will be considered an asset probably at face value. They’re not going to, I mean the bond isn’t really worth anything obviously, but they can monetize that. That just mean they will take it as an asset, create new money and distribute the new money.

Frank Morrow: Hmmm… So that isn’t a direct bailout by the tax payers.

Ron Paul: It’s an indirect, because what we do is we buy the Mexican bond, and then put the bond in the Federal Reserve. But actually it works twice, because let’s say the Mexican bond is a billion dollars’ worth of Mexican bonds down there, so the Fed says “We’ll buy them, you need some hard cash, we’ll buy your bond from you.” And we give them the money and they take that out of the system and they send it to them, but then when they think it’s an asset it becomes an asset to the Federal Reserve and they say “Ah, we have something we can back up our currency with.” So they take this worthless instrument that they paid for with fiat money, and then they put it in their assets and then they use that to create more money. So they really monetize it twice so to speak.

Frank Morrow: How closely tied is the Federal Reserve System and the US banking system with the European banking system, the Rothschild, etc.?

Ron Paul: The international bankers are buddies you know, and they’re closer together and they deal with policy outside most of the legislative institutions. The Central Bankers are more powerful than say the Congresses of the different countries. They have much more power, and therefore through the Bank of International Settlement and the IMF and the World Bank, they have total control of this. And they have meetings where even the Secretary of the Treasury doesn’t attend. It’s strictly the bankers, the Federal Reserve and the Bundesbank and all the other banks of the world. They get together and they make these plans and that’s why they come up with the bailout system you know, if there’s a banking crisis some place. But they will do whatever they think is necessary by the creation of new credit.

Right now they have made the agreement that they will create more of these special drawing Rights which is nothing more than credit instruments in the IMF. They create them out of thin air; they have a monetary value based in all currencies, and they can give those to whomever needs them and they just agreed to create 40 billion dollars worth of new special drawing rights out of thin air.

Frank Morrow: What then is the role of the IMF? Seems to me that the taxpayer’s money goes to the IMF; they give it to the third world country which in turn turns it back over to the banks. So it looks like…

Ron Paul: A lot of it just goes directly from, you know, the taxpayers directly to the bank. It never goes to the third world it’s all like a computer, but that was you know, a few years back I guess it was ’83 and there was an IMF bailout. They were in financial trouble, there was 9 billion dollars. Most of that money was necessary to pay interest, you know, just to the big banks.

That’s why the Panama Canal Treaty existed; it was a banking deal too. Panama was having trouble making their payments to the banks and they needed a better cash flow. The Canal Treaty occurred, they had more income. Now their little old Noriega isn’t quite so obedient, and they’re a little bit annoyed by it all. But, you know, Torrijos and then Noriega were really the handpicked people from our business banking industry, they had a banking haven down there. But now Noriega isn’t quite so obedient, it’s making the bankers a little nervous. They’d like to get rid of him and so far they haven’t been able to, and I think one of the reasons is that he has a lot of information that he has threatened with, and he said “If you ever get too close to us we’re going to let the world know exactly how you’ve been dealing with this and subsidizing our drug trade.” So I think he’s doing a little blackmailing.

Frank Morrow: People who’ve studied the drug trade say that if we’re not for the collusion and facilitation and laundering of money by the big banks, the drug trade wouldn’t be able to operate.

Ron Paul: They’d have a great deal of difficulty because they literally end up buying some of these banks, and they own the banks and they do, you know, filter the money through, and now there’s a great pretence that there’s going to be a lot of crackdown on all these drug dealers and this money coming in, and they’re going to find out who it is. But I think that’s basically designed to use as an excuse to focus hysteria against drugs, so that they have currency controls on whom? On American citizens who finally wise up and they say, “Hey, I can’t preserve my wealth in this country. I’m going to put a couple of Krugerrands over in the Swiss banks.” So they try to take everybody near the time of runaway inflation, people want to take their money out of the country to preserve their wealth.

And that’s why they’re writing all these laws, not to catch the drug dealers. I think that’s just a, you know, a front. I think the real reason is to have currency controls over the American citizens, because once a large number of citizens decide to leave. Just think of how many people in Mexico tried to come here when their banking crisis occurred. You know the government clamped on, “You can’t take the money out,” they still did. But we had credit controls in the 1970s, currency controls, trying to keep people. Bretton had them on, off and on; they always resort to those kinds of things, so we can anticipate it. But I think that’s one of the purposes of the big drug issue, is order to write these laws so they control innocent American people who would like to preserve their wealth.

Frank Morrow: But they could clamp. They can do away with the dope trade pretty fast if they really clamped down on the big banks. But they’re the head people in the power structure.

Ron Paul: That’s right, but they’re not likely to do this.

Frank Morrow: But John, you’ve taken a look at foreign investment in the United States. Some of those statistics have…

John Cone: It’s startling when you look at it all in one lump-sum, Ron you’re from Houston and there was a story recently about Houston prime real estate there being about 36% foreign owned, that occurred in USA Today, a front page story. Prime real estate in Los Angeles 49%, 46% something like that foreign owned. We’re seeing investments every day, banks being bought, commercial properties, farm land. And the last that I saw there was a study release last month on it with it, but the foreign investment total in the United States now is an excess of 1.3 trillion dollars and growing at a tremendous rate. We call it the liquidation sale of America. Why is it happening?

Ron Paul: There are several reasons why it’s happening, but I think a lot of those investments are made by Japanese, Japanese investors. I think it’s rather interesting to know that we had to fight a war not too many years ago with Japan. We probably won the war, and now they own a lot of Houston and Los Angeles, they own Waikiki beach, they won due to our bad policy, what they couldn’t win is war. The main reason is it’s our sick currency, we have a balance of trade problem but we compound it by literally exporting a lot of our money through foreign aid and military aid. So even Japan gets a benefit of 50 billion dollars a year by us paying for all their national defense. So we sort of subsidize them, and because we’re less competitive and our interest rates are high, our interest rates’ at 8, 9% and Japan they are 2 or 3%. Labor costs are lower so we can’t compete anymore and that’s why we keep buying Japanese products.

A lot of people say “Well, the only solution is to write a law and say that Americans can’t buy Japanese cars and no foreign investors allowed to invest in this country.” We as libertarians don’t accept that; it’s treating the symptom rather than the disease. The disease is a foreign policy where we subsidize these rich allies, at the same time we have a currency that’s weak, we have economic conditions that made us non-competitive. We don’t want to take away the right of the individual to buy whatever product he wants, and we don’t want to start some type of walling off of our country and say, “nobody can come and go and people can’t come in”. I want the right to go out of the country and invest and that means we have to allow somebody else to come in here and invest. So our solution is: free market, sound money, low interest rates, competitiveness, free market prices and labor, quit subsidizing Japan, a different foreign policy, then I don’t think we’d have to worry. We never had to worry about the foreigners buying up this country until recent times, until we got into these economic problems.

Frank Morrow: It’s curious, people say we shouldn’t keep financing the defense of Western Europe and Japan, and yet it’s those people who are buying American securities and financing our deficits so they are.

Ron Paul: They foreigners?

Frank Morrow: Yeah so they are indirectly paying for their own defense.

Ron Paul: You know, there’s some truth in that and I think there’s bit of deal too. I think that sometimes they’re buying our debt when it doesn’t make a whole lot of sense, but yet to think about again of this internationalism. They do this in order to maintain their order for their benefit, so even if it isn’t to Japan’ Central Bank’s interest to buy our securities for a strict economic. They might be able to buy somebody else’s security and make more money; they might be able to buy Swiss security which might be a better deal. But if it’s best for order in their eyes, I think yes they will. And indirectly that is the case so I think long term we can’t pay this debt. So if we owe Japan a trillion dollars, if they bought a trillion dollars’ worth of our Treasury bills I think they’re going to be left holding the bag, and that’s when I think the panic’s going to come. But it finally dawns on them that they’re holding a lot of lousy debt and they quit buying our debt that will be the precipitating event for the crisis and that’s when the cartel, you now, this is a cartel of Central Banks. And they’re working pretty well together, there’s a lot of power there, but I think they’ll finally break up their little cartel and they’ll get a little bit antsy and they won’t buy our debt and then the panic will start.

Frank Morrow: Isn’t there a potential problem with the buying up of so much US industry and banks and land and that is… with ownership comes control and power. So are we through letting them do this actually giving the Japanese more and more power over our economic and central system?

Ron Paul: Oh I think so. That’s why we should change our policy, that’s why we should have sound money. I think it’s very dangerous because we literally will lose control. And that’s why I think it’s urgent that we look to balancing the budget as quickly as possible and restoring sound money and changing our foreign policy. If we’re concerned, which I think everybody is, I don’t think anybody is unconcerned. I think some people come up with different solutions but I want to not deal with it in the narrow sense or probably writing some little rigid rule and say, “Well I can solve this if we just keep Japan’s cars out of here. It’s going to solve our problem.” It’s not that easy, I mean we have to look at the big picture of the economy, the monetary system, the deficits; the whole thing put together in order to solve it. It means it’s not easy.

Frank Morrow: Well thank you for sharing your time with us.

Ron Paul: Thank you.

Frank Morrow: And your background and insight. We all got to look for some place to go when that big crash occurs. I don’t know where it going to be but.

Ron Paul: We got to prepare ourselves.

Frank Morrow: Maybe we all got to start studying Japanese.

Ron Paul: Hopefully not.

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  • dujac

    ron paul said, “I anticipate, and many Austrian free market economists anticipate, that the recession that’s coming will not be a recession at all but it will a depression and it will probably be bigger than the one we had in the 1930s”

    what happened? we haven’t had a depression in nearly 80 years


  • Simon

    The American need to be liberated and governed from Washington instead of Tel Aviv.

  • Brent

    I think it’s the Council on Foreign Relations, not the Council of Formulation. Please correct me if I’m wrong, but if I’m correct, please correct in the article, because it is very important for people to get accurate information about this.

    • Shirley

      In looking at the video I really think Dr. Paul says “Council on Foreign Relations”, so it must be a transcription error or typo, which does need to be corrected. Dr. Paul is too smart to a blunder like that.

  • End the FED!!!!!!!!!

    I wish the American people would wake up to the monster that is the Fed and the banksters in this country that really run the show.

  • Ross Johnson

    Free trade is only good for the preditors at the top end of the food chain.We should replace the term with fair trade,ie all countries should be able to balance imports with exports without any penalities.Don’t households balance budgets anymore? That’s right,we now have an insatiable monster called the credit card.It has become the god of consumerism.

    What is the point of being able to consume the cheapest products on the planet at the cost of imprisonment by debt? Many Chinese products are so inferior anyway,that they need replacing within a third of time of quality German or US products.Short term thinking and hedonistic lifestyles have enslaved the West.

    • Matthew Stone

      It’s hard to listen to people that don’t strive to simply learn to spell, nonetheless use a spellchecker, tell me about their determinations of the ramifications on behavioral economics.

      It’s like me calling you the wrong name, then telling you how your family totally needs to step up, do you really care about my opinion then?

      • the801

        Matthew, I think you wanted “much less,” rather than “nonetheless,” “ramifications of” rather than “ramifications on,” and to replace a few of your commas with more suitable punctuation.

        Regardless, though yours may not have contributed anything to the conversation, it was a comment nonetheless.

  • Sean

    American School of Economics..

    “1. protecting industry through selective high tariffs (especially 1861–1932) and some include through subsidies (especially 1932–70)
    2. government investments in infrastructure creating targeted internal improvements (especially in transportation)
    3. a national bank with policies that promote the growth of productive enterprises.[8][9][10][11]

    It is a capitalist economic school based on the Hamiltonian economic program.[12] The American School of capitalism was intended to allow the United States to become economically independent and nationally self-sufficient.

    The American School’s key elements were promoted by John Q. Adams and his National Republican Party, Henry Clay and the Whig Party, and Abraham Lincoln through the early Republican Party which embraced, implemented, and maintained this economic system.[13]

    During its American System period the United States grew into the largest economy in the world with the highest standard of living, surpassing the British Empire by the 1880s.” wiki

  • Sean

    I dont know why you have to follow Austrian School, or why our country has to follow Kenyesian economics.. We should be sticking with our founding fathers and promote American School (economics). Free trade has destroyed our trade deficit and is bankrupting America.

  • Gus

    This video is nothing short of amazing. It’s as if Ron Paul had precognitive powers, but in reality it just boils down to common sense and the courage to call it as he sees it. Much of what he talked about back then has now entered mainstream awareness and discussion. We can only hope that we learn the right lessons out of this mess.

    • Matthew Stone

      He totally has precognition!

      A joke:

      Question: “Since when does an Austrian economist always call for the failure of everything within the context of the most capitalistic society?”

      Answer: “When they ignore business cycles and just want to use people to get reelected.”