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. Hes another arrogant elitist like Obama, don't make the mistake and vote for someone like that again, hes just in a different party and will support socialist policies.

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  2. The Federal Reserve and national banks have everything to gain from flucuating the economy to collect assets from defaulting loans. They have nothing to gain from a collapse of the dollar. The Fed is as likely to lose their source of power, the dollar, as we are to get into a second great depression. This time it does not seem to be purposefully caused, so it cant be stopped with huge loans.

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  3. The Federal Reserve and national banks have everything to gain from flucuating the economy to collect assets from defaulting loans. They have nothing to gain from a collapse of the dollar. The Fed is as likely to lose their source of power, the dollar, as we are to get into a second great depression. This time it does not seem to be purposefully caused, so it cant be stopped with huge loans.

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  4. I nominate jesse ventura

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  5. This message is to notify all of us that Saturday will be the first broadcast live of Mike´s new radio show, "mike montagne on mathematically perfected economy and absolute consensual representation." The 3-hour broadcast will be available live from http://www.tnsradio.ning.com at 3 PM to 6 PM Pacific Time. Please notify your friends, who can listen in from a live link at the top left-hand corner of the TNS Radio home page. You can also tune in directly from any iTunes installation by clicking the Advanced menu... Open audio stream... and tuning in to the URL: http://184.82.19.16:8300/listen.pls.
    --
    Warm regards,

    Friends of MPE

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    • I find it odd that Jack (not sure if Jake is the same person), is so against Ron Paul's monetary policy position, yet the MPE proponents will advertise/promote their views here.

      While I'm all up for lively debate, I don't know of any Ron Paul supporters on a Mike Montage (is that the right name) MPE forum arguing.

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  6. I don't think you can trust either politicians or private banks to control the money supply because they will always be more interested in carrying out their own agendas through abuse of the money supply than to do what's best for the country. Ron Paul supports a competing currency standard backed by commodities, with weighted gold coins issued along side paper, so the people have the option to opt out of the dollar if the politicians abuse the currency.

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  7. I don't think you can trust either politicians or private banks to control the money supply because they will always be more interested in carrying out their own agendas through abuse of the money supply than to do what's best for the country. Ron Paul supports a competing currency standard backed by commodities, with weighted gold coins issued along side paper, so the people have the option to opt out of the dollar if the politicians abuse the currency.

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  8. I know not what others will say , but as for myself , I would be willing to put my back to the wheel and help push start our economy when it crashes , however I realize that there is much too much damage for one person to fix , So with Ron Paul as President getting us back to the Constitution and ensuring a free market enviorment while Vice president Ross Perot or someone very much like him works to bring back manufacturing to the US< < anything less this than this will cause me to walk

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  9. I know not what others will say , but as for myself , I would be willing to put my back to the wheel and help push start our economy when it crashes , however I realize that there is much too much damage for one person to fix , So with Ron Paul as President getting us back to the Constitution and ensuring a free market enviorment while Vice president Ross Perot or someone very much like him works to bring back manufacturing to the US< < anything less this than this will cause me to walk

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  10. "that excludes things, such as Food and Energy". Oh my God. Who needs food and energy??

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  11. Ron Paul's "sound money" is a pipe dream. We can't have commodity backed money and run at a continual trade deficit. What are we going to do, borrow commodities and use those borrowed goods to back our money? That's absurd! Let's get our trade deficit under control first.

    Here are important key facts on why the Trade Deficit now threatens our future:

    1) First and foremost, there is absolutely no history that shows that any country including the U.S. can long sustain large yearly trade deficits without putting its future at risk. However, there are instances where empires have fallen due to trade deficit failures including the 17th Century Spanish Economy and a trade deficit was partially responsible for the fall of the great Roman Empire .

    2) In the last 10 years the trade deficit has averaged $0.55 trillion. The U.S. Trade Deficit since 1971 is over $7.5 trillion and $6.5 trillion in just the last 20 years. By comparison, the national debt is now about $13 trillion.

    3) This year the current trade deficit through May is $0.170 trillion on track for about $0.4 trillion. It's only lower than average due to the lingering modern recession. The NAFTA (from 1993 through 2003) free trade agreement displaced a reported 879,280 jobs. Since the entrance of China, the U.S. has lost another 2.4 million jobs. The two combine for about 3.5 million total jobs lost due to the free trade policy allowing for these large deficits. This number is growing as more and more outsourcing is occurring. Last year 60% of the U.S. trade deficit was with China.

    4) The free trade deficit profits have allowed foreigners to buy up America. According to the Grant Thornton report, "total assets at foreign-owned companies increased 15% to $9.2 trillion in 2005 from $8.0 trillion a year earlier and was more than three times the 1996 total of $3 trillion. Foreign-owned assets totaled just $37 billion in 1971".

    5) Foreign-owned companies in the United States have a work force of about 5.3 million, or some 3.5% of all workers. According to the last note (2005), they owned 15% of all U.S. businesses but only employ 3.5% of the workforce. Extrapolating this to 100% ownership (that we are on a crash course for) this would only equate to 25% employment in the U.S. This is our future.

    6) Most of the U.S. trade deficit is with China and their ownership is the largest share of U.S. businesses and debt. Thus the U.S. is slowly being sold mostly to China from trade deficit profits dollars obtained from U.S. consumers.

    7) The U.S. has a national debt crisis of about $13 Trillion. However with the massive trade deficit job losses, this author estimates lost tax revenues of about $1 trillion dollars. Thus the trade deficit contributes significantly to our national debt. Free trade is really not free!

    8 ) We have a viscous cycle, we outsource jobs, increase unemployment, this creates tax losses, the U.S. goes further into debt from these lost tax revenues, the U.S. must then sell more treasury bonds to China and foreigners, consumers are forced to purchase more and more foreign imports with few U.S. made alternative products, this enables foreign to make huge trade deficit profits, which allows them to purchase more U.S. businesses and debt, foreign owned business pay far less taxes then U.S. equivalent businesses and hire fewer American employers, this creates higher unemployment and more tax losses, and the cycle continues.

    9) Economic global greed is excessive; the U.S. free trade policy encourages foreigners to cheat as every country wants a piece of America. Well known is unethical trade deficit problems related to: Currency manipulation by U.S. trading partners, 2) Excessive Job outsourcing by U.S. businesses, 3) Product subsidies by foreign governments, 4) Unfair non tariff trade barriers by our trading partners, 5) Lack of intellectual property rights protection, and 6) Product counterfeiting.

    10) Because of these massive trade deficit tax losses, this is like a reverse tariff that U.S. citizens must pay on trade deficit goods. These lost revenues cause increase tax programs. Every citizen must pay more taxes which means in part we are actually supporting all the unethical foreign greed issues cited above. -- Economy in Crisis

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  12. Im not an expert economist by any means, and I am a huge Ron Paul fan, but after watching documentary "The secret of Oz" I have changed my views of what monetary policy should be. I still agree with Ron that the congress should control monetary policy but I disagree on the gold standard. The gold standard would just leave the power in the ultra rich that control the gold market and gold reserves. Money doesnt need to be backed by anything, just the supply of currency needs to be controlled

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  13. economic historian

    I'm not advocating the inflation. What I said was that after the greenback inflation during Civil War, the U.S. adopted a deflationary policy, back to the prewar gold parity. Ron Paul advocated this in a Interview to FoxBusiness (published here), without having weighed the pros and cons of that measure. Ricardo never would advise a government to restore a currency which had been depreciated 30 per cent to par.
    Mises and Hayek warned us about the problem deflation. If we want return to sound money, we must doing rightly, without repeat the errors of past.

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  14. The sad inescapable fact is that Bush and Greenspan, and now Obama and Bernanke, have sold out the American public because of their personal hubris. They are of the mistaken notion that they are smarter than the market, that their Ivy league degrees enpower them to ignore reality. They have nothing to lose-the elite power structure have outlets not available to average Americans.

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  15. If I was the elite I would inflate a little more and when gold hits 10000 then I would exchange my gold for currency and gain commodities. After I had all that I wanted I would stabilize the economy and get gold back down to 500. Then I would simply buy more gold. And repeat.

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  16. Hi to all,

    There’s been much going on behind the scenes. This email is to notify all of us that Saturday will be the first broadcast live of my new radio show, “mike montagne on mathematically perfected economy and absolute consensual representation.” The 3-hour broadcast will be available live from http://www.tnsradio.ning.com at 3 PM to 6 PM Pacific Time. Please notify your friends, who can listen in from a live link at the top left-hand corner of the TNS Radio home page. You can also tune in directly from any iTunes installation by clicking the Advanced menu… Open audio stream… and tuning in to the URL: http://184.82.19.16:8300/listen.pls.

    Warm regards,
    mike montagne

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  17. How return to sound money? How avoid the deflation? Already we know effects of inflation, but we must avoid only not the Inflation, but the deflation also. According to Mises, both are bad: deflation as inflation. Deflation never played a noticeable role in economic history. The effects were deflationary, when the United States return, after the wartime inflation of the War of Secession, to the sound money. Calamitous economic hardships resulted from this deflation; they stirred social unrest.

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    • Sound money does not cause deflation, only dis-inflation.

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      • If "Sound money does not cause deflation", this should subject of debate to Ron Paul, because in a Interview, he advocated the transition to gold after Civil War, that was a deflationist policy, when the U.S. returned to old parity before war.

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        • Fine. My point here is that, whether you call it deflation or disinflation, the "calamitous" effects are likely due to the correction of a problem caused by unsound money, i.e. bubbles. If we had sound money the whole time, there wouldn't be the need for the corrections.

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        • Deflation is not a bad thing. It's good for the American people. Prices go down and your money purchases more product. People are conditioned to believe inflation is a good, natural part of the market, but it's not. The exact opposite is true. When the Amazon Kindle came out, it was $349. Now you can get them for $189, and the newer versions are better. That's because there are more produced, which in turn, cranks up the buying power of the dollar in relation to the kindle. Prices were deflated. This is a good thing. We get a better product for a lower price, Amazon sells more, so its profit margin remains steady, and everyone comes out ahead. That is the free market. Deflation isn't a bad thing, contrary to what some "experts" tell you.

          The free-market, when allowed to function, wins every time. Sound money would prevent inflation, which would cause price deflation as popular products were mass produced.

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  18. systemdownfalldotorg - Fuck The System

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  19. systemdownfalldotorg - Fuck The System

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  20. Ron Paul, why wont they impeach obama before its forever to late ? I dont understand why that man is still in office

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