This is a rush transcript. If you notice any errors please report them using the “Help improve this post” link at the bottom of this post.
Larry Kudlow: Joining us now is Texas Republican congressman, presidential hopeful, Ron Paul. Congressman Paul, as always, welcome back.
Ron Paul: Thank you.
Larry Kudlow: This gold rush continues to explode, and I know from a bunch of reports that you yourself have been a long time investor in gold. Why is this happening right now, what’s your take, why the gold rush?
Ron Paul: Well, I never think about the price of gold, I always think about the value of the dollar. Traditionally, for thousands of years, the currencies have been measured by gold; the value of gold to the currency. And I got fascinated in 1971 when the last link to gold was severed and we devalued and we went from 35 dollars to 38 dollars, and then 2 years later we went up to 42 dollars. And that’s when I decided there was no limits on spending and that we were introducing a new era into the history of economics, because we were issuing paper money and we could spend it around the world. And there’ve been a lot of fiat currencies throughout history, but never one like we have today, and that’s what people are discovering; the financial crisis is discovering this. And this is why they’re not coming up with any answers. The bubble was just too big and they won’t allow the bubble to be liquidated and the bad debt to be liquidated.
Larry Kudlow: Is it fair to say that there’s more money-creating by the Fed and other central banks in Europe and Japan and elsewhere than ever more? Is there a link between the shooting up of gold and all this monetary pump-priming, Mr. Paul?
Ron Paul: Absolutely related, because they’re debasing the currency. They want to do this to liquidate the debt, they know we can’t work our way out of it because the debt has reached a limit where you can’t work your way out of it. So the debt has to be liquidated, but you know that we will never not send the checks out and pay for the treasury bills and take care of our foreign investors into our treasury bills and our bonds. So they have to liquidate the debt by devaluing the currency. So if you can get a 50% inflation rate over a period of time, you’ve gotten rid of 7 trillion dollars worth of debt. They’re purposely doing this and I’ve gotten Bernanke almost virtually admitting this. And they know what they’re doing, but they think it’s necessary even if it hurts the savers, the people who have CDs and they don’t make anything. Debasing the currency is the only tool they have in their pursuing it right now with a vengeance.
Larry Kudlow: Can I just shift gears slightly, although it’s a related issue. Speaking of money growth and speaking of spending, look, FEMA, can we just talk FEMA for a second? You’ve got this hurricane Irene, FEMA’s out of money, there’s going to be huge demands for FEMA flood disaster insurance and for helping the roads. Governor Chris Christie in New Jersey has already thrown out a 10 billion dollar number for repair; I don’t know whether he thinks it’s all going to come from FEMA. Should it come from FEMA, should Congress replenish FEMA’s depleting coffers?
Ron Paul: Well, who’s FEMA? I mean, it’s the people, it’s the tax payers. The question is, do we want to go further into debt to bail out the people that we encouraged to build in dangerous places? The whole program is wrong, they distorted completely the concept of insurance. Insurance is supposed to measure risk, instead we guaranteed that if you did risky things, we would bail you out regardless. And the flood program, insurance program is bankrupt, I think it’s around 20 million dollars in debt. So it’s just another program. But FEMA happens to be one of the worst. There’s no other program or bureaucracy that I’ve had to deal with in Congress, that I got more complaints for than FEMA, people really don’t like it. And I’ve never supported this and I live on a coastal district, I’ve gone through these hurricanes. We go to bat for the constituents because they’ve been told, “Get in the programs and we’ll bail you out”. But they don’t get bailed out, all they get is an invasion of national people, bureaucrats coming in and interfering, and it’s a disaster they create.
Larry Kudlow: Yes, but what happens? You know there is going to be a hue and cry, more disaster relief, whether it’s FEMA or not FEMA, “let’s spend a lot of money to bail out hurricane Irene”, which was very difficult in many places here on the East Coast. What is your response to that? There’s going to be a call for emergency spending.
Ron Paul: Right, and there’s one way I would actually vote for it, and I proposed this when the hurricanes hit Texas. I said I’m not going to vote for it because there’s no money and it’s a bad program. But if you cut a billion dollars or two billion dollars out of a program overseas that just gets us in trouble, put half of it towards the deficit, I will vote to put the other half into a domestic program that needs to be saved. So if they have this crisis and we can cut a billion dollars out of our debt and spend a billion dollars here or whatever, do it. But we just can’t keep printing the money and running up the debt, that’s how we got into this trouble, so have refused to do that ever since 1971 since I’ve been in Congress, and I’m not likely to change my opinion on that.
Larry Kudlow: I hear you, Amen. Congressman Ron Paul, thank you very much, Sir, as always.
Gold trading hit record territory recently. At one point today it was up almost 50 bucks, it’s nearly 30% year-to-date(?)higher. It’s on tract for the 11th straight year on the upside. All day long, Bob Pisani has literally being following the yellow brick road in our special CNBC gold rush series. Here’s Bob to tell the story.
Bob Pisani: Hi Larry. You know, all the gold ever mined would fit into just about 2 Olympic-size swimming pools, and gold is more in demand than its’ ever been before, even with prices at record highs. And the miners have to go to greater and greater debts just to get at it.
Johannesburg, South Africa, a city literally built on gold in a region that’s produced half of all the gold ever mined. And this is Mponeng, 40 miles west of town run by AngloGold Ashanti, the deepest goldmine in the world.
This is the employees’ elevator. Everyday 3,500 employees take this elevator to work in the mine. We’re travelling at about 30 miles an hour. This will go about 8,400 feet in the first part of the elevator ride, that’s about 6 Empire State Buildings.
But why 2 miles down? Because there’s almost no surface gold left on earth, forcing miners to drill deeper and deeper.
Bob: So this is it, the deepest part of the deepest mine in the world. We’re 12,600 feet below the surface, that’s about 2.2 miles. The biggest problems with mining down this far, there’s two of them: the first is just the heat, it’s almost a 100 degrees Fahrenheit here with almost a 100% humidity. Without the cooling system, it would go north of a 150 degrees in minutes. The other problem is seismic activity. This far down even small amounts of seismic activity can produce disturbances in this rock and in the support structure.
Gold from this rock is transported to the surface and smelted on site into a bar of about 90% purity, destined for the Rand Refinery. From here, the gold will be sent around the globe to places like London or New York; the epicenters of the gold bullion markets. Banks like HSBC trade much of the world’s bullion, which is housed in vaults all over the world, like this one in London. Bullion banks also play an important role in the daily in price of gold, and it all starts in London. For 100 years the spot or cash price of gold has been set at a twice-daily conference, known as ‘the fix’, now done by phone between 5 bullion dealers who settle the price based on the buy and sell orders of their customers.
About half of all the gold in the world ends up as jewelry, and for many investors that’s the way to go: physical gold. Now you don’t want to miss the rest of our series airing tomorrow. We’re going to take you to the largest private gold vault in the world, the spider gold trust, a 100,000 gold bars, you’re going to see it. That’s on “Squawk on the Streets” starting tomorrow. Larry, back to you.