Currency Wars: A Race to the Bottom of the Inflationary Barrel




by Ron Paul

Inflation fears are heating up this week as Fed Chairman Ben Bernanke gave a speech in Boston on Friday, causing further frantic flight into gold by those fearful of the coming “quantitative easing” the Fed is set to deliver in November. Others who view gold as a short term investment engaged in immediate profit-taking after Bernanke’s speech.

Gold is more correctly viewed as insurance against bad monetary policy decisions that erode the value of savings. Those bad decisions keep coming at an ever faster clip these days and we hear more and more talk of currency wars especially between the dollar, the Chinese yuan, the Japanese yen, the Australian dollar, and the Euro. As the economies of the world continue to stagnate or contract, monetary policy decisions become more relevant to people who once thought this topic arcane. We have several examples this week of major fumbles on the part of the US Central Bank:

  • The Federal Reserve continues to insist that inflation is too low, even while the monetary base remains at record levels, and food and gas prices continue to climb.
  • As the Fed continues to drive down the value of the dollar, the government accuses China of deliberately devaluing its currency, and the House has passed legislation aimed at punishing China for this alleged devaluation.
  • Low returns on US bonds are driving investors into higher-performing foreign bonds. Some of these countries are responding by reinstituting capital controls to guard against hot money and the carry trade.
  • The spat with China and reemergence of capital controls have led some to fear that we are in the first stages of an all-out currency war.
  • The instability in the international monetary system, the decreasing value of the dollar, and the large amounts of new US debt could lead the IMF and countries such as China, Japan, Russia, India, and Brazil to abandon the dollar and adopt a new multinational currency.

While the big players in these currency games sort everything out, the people hurt the most are the savers, the workers, and those on fixed incomes as their money buys less and less. Make no mistake – the Fed and the Treasury Department are playing games with our money, especially in how they report statistics like unemployment and inflation. These games erode our standard of living and hide just how much damage their inflationary policies are doing.

Official core inflation for the US is only 1.14%, but that excludes such crucial day-to-day goods such as food and energy. Real inflation certainly is higher, maybe much higher. John Williams of Shadow Government Statistics calculates true inflation at a whopping 8.48%! But manipulated inflation statistics give the government cover when they again deny seniors a cost of living increase in their social security checks. They also serve to convince the public that further expansion of the money supply will boost the economy without causing any real pain, which has essentially been the core argument of Greenspan-Bernanke fed policy for the last 20 years.

Of course, the United States is not alone in its disastrous monetary policy decisions. These pressures are inherent in any fiat monetary system where money is created at will, for the benefit of the special interests. As all these currencies race to the bottom of the inflationary barrel, the only security to be had will be in honest money like gold as the system falls apart. My hope is that we can return to the wisdom of the Constitution and get back to sound, commodity-backed money before our dollar suffers a wholesale collapse.



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91 Comments:

  1. The Federal Reserve needs to go away, that's for sure. Of course, this is not likely to happen, but in lieu of that I would like to see someone at the Fed with the same philosophy as Paul Volcker. Raise the Fed Funds rate/Overnight rate to 10% for a start.

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  2. The Federal Reserve needs to go away, that's for sure. Of course, this is not likely to happen, but in lieu of that I would like to see someone at the Fed with the same philosophy as Paul Volcker. Raise the Fed Funds rate/Overnight rate to 10% for a start.

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  3. economic historian

    In 1873, the United States returned to sound money. The results of this measure were bankruptcies, unemployment, contraction credit, thus, the economic chaos.

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    • If this happened, maybe it caused an artificially grown bubble to burst, as took place when the Great Depression. Don't blame sound money, blame the reasons it's needed.

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    • The panic of 1873 was due to an over-investment in the railroad industry, which was encouraged by government land grants and subsidies. Just like an over-investment in the housing market today. The coinage act, which depressed silver prices, and the fact Ulysses S. Grant was selling gold for greenbacks, didn't help matters. It wasn't because of sound money, but instead due to over-investment which led to bank failures when Ulysses S. Grant contracted the money supply with a poor monetary policy.

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    • Economic Historian,the crime of 1873 was the war between the elites who wanted gold to be the currency as apposed to the ordinary folk who wanted the freely available silver to be the currency.Ron Paul is only talking about having a % of our currency being backed by precious metals to stop the counterfeiting of the US Federal Reserve.They are the real crminals.They create new money to equal GDP which is not theirs.The extra GDP growth belongs to all Americans,not to a select group of banksters.

      see http://secretofoz.com/ by Bill Still

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  4. 1 Dislike? - Was Bernanke or Obama here?

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  5. youtube is hiding videos, not showing hardly anything from today , what B.S, u upload date and get 2 to 3 vids come on youtube , u belong to the wrong side u pigs

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  6. youtube is hiding videos, not showing hardly anything from today , what B.S, u upload date and get 2 to 3 vids come on youtube , u belong to the wrong side u pigs

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  7. What's with the one thumbs down? Was Bernanke here?

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  8. Hey, this isn't American Idol!

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  9. Here's your "new world order". Communist Red China manipulates the "free" market while people like Ron Paul call for the "unilateral elimination of tariffs". Ron Paul's definition of "free" is we will soon all be "free" to serve his masters in Communist China. Hey, as long as he got his 30 pieces of silver, why should he care?

    Japan’s Kyodo news agency reported on Wednesday that an unidentified diplomatic source in Beijing had said that rare earth shipments to the United States and Europe were being held up by customs officials for tighter inspections, one of the explanations that customs officials have also given in blocking shipments to Japan for the past month. But John Clancy, the trade spokesman for the European Commission, said in a statement on Wednesday that, “at this time, we cannot confirm claims made by European industry officials in media reports of China blocking rare-earth shipments to the” European Union.

    The signals of a tougher Chinese trade stance come after American trade officials announced on Friday that they would investigate whether China was violating World Trade Organization rules by subsidizing its clean energy exports and limiting clean energy imports. The inquiry includes whether China’s steady reductions in rare earth export quotas since 2005, along with steep export taxes on rare earths, are illegal attempts to force multinational companies to produce more of their high-technology goods in China. -- New York Times

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  10. 2012.

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  11. If the Fed. is announcing another 1 trillion in QE, wouldn't one be prudent to increase precious metal holdings knowing that their price is guaranteed to increase? Is it possible to even know the amount of increase with the knowledge of the QE quantity over a given time?

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  12. Ron Paul is more optimistic than I am. Barring a very serious administration shake up or intense pressure by congress, I'm pretty sure that the next 20 years of life in America are going to be the worst of our nation's history.

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  13. SweeterThanKisses

    giday from oz...lol usa currupt,,lower there buck put gold up with our buck then say invest in gold as alot advertising was spent..so the gov can get money back,if it was unsafe to pull it from banks they wudnt say this....

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  14. i live in Canada, we depend on a lower dollar to keep our exports competitive, recently the u.s dollar was at PARITY with the Canadian dollars. The American dollar is losing its value.

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  15. My warning is to not to allow the Government to confiscate your Gold because they will replace it with worthless paper and when the time comes to restart the economy should it crash we would have no real captilal to do it,

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  16. oh well, more teabagging nonsense from Dr. Paul, damn i respected that man.

    bye bye unsubscribe ,

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  17. I work at a Bakery and yesterday we raised our prices from .75 to .85 cents a piece. I then asked my coworker how much doughnuts cost 9 years ago when she first started working there and they were 59 cents a piece. This is gonna cause a chainreaction of priceups.

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  18. ironically the money concept and its value is the only tool bankers and the like have to keep all us sheep acting right. so destroying it will surely unsettle the sheep.
    thanks Ron!

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  19. The New World Order and a New World Currency !

    That's just where we are heading given the "quantitative easing"...
    Which is FED speak for
    >>Crank Up the Cyber Cash, full steam ahead and ignore the icebergs ahead!

    Start buying silver ounce coins as savings tokens!

    DO NOT keep your money in Fed Reserve Notes!

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    • "DO NOT keep your money in Fed Reserve Notes!"

      I'll give you two shiny quarters for that ugly Federal Reserve Note.

      --> How you separate a Libertarian and his money.

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  20. Dr. Ron Paul.

    How return to Sound Money?

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    • Good luck getting a framework with actual details. You'll get a bunch of gibbberish such as:

      "We need currencies that compete on the free market"
      "We need commodity-backed currencies"
      "Let markets control everything, because they are so magical and wise"
      "Don't worry about the complexities that come with having multiple currencies, this is all a hypothetical thought process intended to sucker people in, it's not a feasible solution in the least"
      "Ignore that if we have multiple, competing currencies, Ron Paul just re-started the MoneyChanger profession"

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    • "In times of change, the Patriot is a scarce man; brave, hated and scorned. When his cause succeeds, however, the timid join him, for then it costs nothing to be a Patriot." - Mark Twain

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