Show: Squawk Box
Becky Quick: Let’s get to our next guest right now, Representative Ron Paul. He’s a member of the Financial Services and Joint Economic Committees, and Congressman, thank you for joining us.
Ron Paul: Thank you for having me.
Becky Quick: I’m not sure if you heard the conversation we were just having, but obviously the euro was under pressure earlier again this morning, hitting a 4 year low. You had gold prices that originally this morning were quite a bit higher. This is something, I guess, you’ve seen coming for some time with the problems with Greece. You think this is just the beginning?
Ron Paul: Yes, this shouldn’t surprise anybody. But, you know, how long should we have been anticipating this? I’ve anticipated the problem since 1971 because the system that replaced Bretton Woods was a non-viable system. And this is proving the point.
So this is the unwinding of the system and until we replace it with something else, you’re going to continue to see this. Some people think that what’s happening in Greece will spread to this country, and I see it somewhat differently. I see that the system that was devised in 1971 where we gained the power to issue the reserve currency of the world as building a system around the world. So we literally created the system that spread.
And it’s still trusted. The dollar is still trusted, people still buy treasury bills. But all of that will come to an end because the type of problem that Greece is following will eventually hit the United States because everything has too much debt. And you can’t correct the problems of debt with creating more debt and expect the Fed to endlessly create money and credit.
That is not the answer, even though it makes people feel better and will sort of delay some of the problems that we have. But we’re in for a lot more trouble, as far as I can see.
Becky Quick: Although we have seen a very strong global economy, there are a lot of companies and CEOs who have come and talked about the incredible strength they’ve seen. Is there a way that we can grow our way out of this debt that’s been issued and get back on the right path?
Ron Paul: I don’t think so, unless you do some other things. You’d have to cut taxes drastically, you’d have to cut spending drastically. Then you could. But politically you can’t cut any spending, you can’t cut spending from overseas and you can’t cut welfare spending. So people will resort to more spending, more deficits, and more inflation; inflation of the money supply. And that just temporizes things.
But if you see a GDP number go up and say, “Oh, there is economic growth” it’s about equivalent to money that we’ve created. And you don’t have any more growth than the artificial stimulus of the money that we put in. Most people say, “Well, that’s good. It’s working.” But it really isn’t. We have not allowed the liquidation of debt, we have not allowed the elimination of the malinvestment, it’s still in the system, we still have millions of houses to be sold.
And Washington is struggling up there on how to stimulate home building. Just momentarily “when are we going to build houses again” and “when are we going to manufacture automobiles again.” That is not going to come just by government spending more money and running up more debt.
Becky Quick: No, you’re right. But, Congressman, one of the ways that your party has been trying to cut back spending to get rid of some of the earmarks. And I believe you are one of the congressmen who refuses to adhere to this GOP moratorium on earmarks.
Ron Paul: Well, yes. But you have to understand what I’m talking about. I’ve never voted for an earmark because I never vote for appropriation bills. Therefore I’m on record for not voting for any of that spending. But what I make the point…
Becky Quick: You and Congressman Young were the first to submit earmark request in violation of the moratorium.
Ron Paul: Okay, but that’s a different issue. That issue is who designates how the money should be spent. To me it’s a constitutional issue. If you vote against an earmark when there is a single vote to cut 50 million dollars out of some project, if you vote to do that, you just to the administration, the executive branch to spend it; and that’s wrong. It should always be the Congress that designates how this money should be spent.
And besides, some return of highway funds is considered evil in an earmark, but if you designate a billion dollars to build an embassy overseas, that’s never an earmark. So I just don’t like the process. But the most important thing is if you’re a fiscal conservative you will always vote against the appropriation, because there is too much.
So I’m on record for never voting for earmarks, at the same time I work very hard to protect the prerogatives of the Congress and responsibilities of the Congress and never delivering more power to the executive branch.
Becky Quick: Let’s talk a little bit about your thoughts about Goldman Sachs. You’ve made some statements recently where you’ve said all that public anger at Goldman Sachs should really be directed at the Federal Reserve.
Ron Paul: Absolutely. The Federal Reserve, and if you want to go one step further back, you have to go back to the people who allowed the Congress to create the Federal Reserve system thinking that it would be forever able to take care of all the people from cradle to grave. So yes. But the Federal Reserve, behind the scenes, has the power to create money out thin air.
I mean, it’s absolutely bizarre and never in the history of the world has any one single bank been given the power to create the reserve currency of the world like we’ve had since 1971. So yes, they can bail out their friends and let the people they don’t like fail, and create a trillion dollars or more out of thin air in order to prop up some companies at the expense of others. It’s not viable, it makes no sense.
When the history of this time is written, people will say, “How in the world did they believe that a few people in a secret room can decide what interest rates should be, how much the money supply should be, who should fail, what bad assets, what worthless assets the tax payers have to buy?” It’s absolutely bizarre and yet the American people right now I think are waking up to it.
The Federal Reserve is a big issue and those individuals in the Senate who’ve voted against auditing the Fed, there will be a political price to pay for that, just as much as those who voted for the bailout. Because now the people know the TARP funds were a political bailout, and they’ve been punished for this, like Bennett was punished. But right now those who vote to enhance the Fed will get punished politically because the people are waking up and they realize the Fed is the culprit.
Becky Quick: You scored a huge victory in this fight against the Fed earlier when the House passed legislation that included your bill that would actually extend the audits of the Fed to go ahead to monetary policy as well. But it’s expected that when and if the Senate passes its version, when it goes to committee between the two Houses, that your amendment’s very likely to get stripped out. What do you think about that?
Ron Paul: Well, that’s possible. I’m surprised we’ve done this well. My main goal was to call attention to the American people of the importance of the Federal Reserve, and in economic terms we’ve achieved a whole lot. Win or lose, the people are not going to forget about the Federal Reserve.
So in some ways it will prove my point. Let’s say they strip my amendment out and they put in a watered down version and you don’t really have an audit of the Fed, it would just prove to the American people that this show is run by the Federal Reserve, they have unbelievable powers. We’ve had this crisis, they’re to blame for so much for it, and we’re going to give them more power.
Not only are we not going to have them audited in the true sense of the word, they’re going to end up with more power, more regulations, more control over the consumers. And it won’t go well with the American people. They’ll realize then how powerful the institution is, and those who benefit by the creation of money and credit.
I mean, you can’t have a military-industrial complex, you can’t run these wars without the Fed. You can’t have a welfare state without the Fed. So if you truly believe in limited government, you have to say sound money. This whole experiment of the last 35 years or so is a failure and that’s what we’re involved in right now.
Male News Anchor: I wonder how confident you are in that. I know it’s what you’d like to see happen, this renewed vigilance among the American people and demanding fiscal discipline from the leaders. But some of the pollsters who have advised the different teams on the UK elections say that the voters want more financial regulation, not less, want more government involvement, and not more markets. I wonder if you think that’s true.
Ron Paul: Yeah, I think that’s a pretty good point. I think you could even point to Greece. You think by now the Greek people would realize what the problem is. We might realize it and I certainly think I understand it. But 60% of the people are on the dole over there, so they’re yelling and screaming and rioting not because of the views I hold, but because they want more stuff. They don’t want one penny cut.
Buy you know why I don’t worry about that? It is because markets are more powerful than governments. Markets are even more powerful than the Fed. We fixed the price of gold at 35 dollars an ounce for years, but we knew the market couldn’t sustain it. You just can’t print money and think that the ratio of dollars to gold would remain the same. So that’s why we knew the Bretton Woods agreement would break down. This is why we knew in the year 2000 that the dollar would crash in measurement towards gold.
But the market will answer that question, not the political people in Washington.
Becky Quick: Congressman, you’ve been worried about it since 1971, though, and if you were betting against the markets you would have lost a lot of money with that view.
Ron Paul: Well, how would you say that, because since 1971 systematically I was so foolish as to buy gold coins at $35 an ounce. And that was my reserve. See, I’m on a reserve gold standard, and I don’t feel that badly about that, because my reserves now are in pretty good shape because of that belief and conviction. And I knew in 1971 that paper would lose its value.
Now, that gold surge recently, as people are discovering, “Oh, they’re really printing money.” Well, they’ve been really printing money for way too long, it’s just that they’re accelerating it, and you can expect a lot more price inflation. As a matter of fact, we have a lot of price inflation already. If you look at the cost of medical care and education and the cost of government, the cost of food – many of these things are still going up.
But the government says, “Oh, it’s only 2%, there is no inflation. So we have license to print.” No way, no way. They’re just kidding themselves and they’re kidding the American people that the Fed can keep doing what they’re doing because the economic laws will bring this to an end, and probably in the not too distant future.
Becky Quick: Alright, Congressman Paul, thank you very much for your time today. We appreciate it.
Ron Paul: Thank you.