News Anchor: Are you concerned about this drop that we’ve seen in gold?
Ron Paul: I’m concerned about the erraticness of the dollar. The dollar goes up, the dollar goes down, we print a lot of dollar and the dollar gets devalued, that’s really the concern. If people think that the gold price going up and down is a reflection of something wrong with gold, then I say no, it’s something wrong with the dollar. Because people have been expressing a concern here in these last couple of month about gold, but compared to what? Compared to where gold went from when the Fed took over when it was $20/ounce, compared to what has happened in the past?
News Anchor: We have to talk about the stability here, to see the sharpest drop of gold in 30 years actually makes the dollar’s price activity recently look a little bit stable?
Ron Paul: Well, in a relative sense, that might be the case, but that’s the way markets work. I remember in the 1970s, when they finally allowed people to own gold, it went from $35/ounce up to $200/ounce rather rapidly, and then it lost 50%, and then it went up to $800/ounce. So to compare a couple of months or a couple of weeks and forget about a bull-market in the gold prices in relation to the dollar for 12 years, I would say the comparison is not an authentic comparison. What you have to look at is the inflation, inflation is when they increase the supply of money. And since 2008, they have quadrupled the supply of Federal Reserve credit, and they’re buying 85 billion dollars a month of treasury bills. And at the same time last week, they bought 60 billion dollars, that’s the inflation, that’s the distortion of the market, and that’s why we’re not getting economic growth.
News Anchor: We’re seeing the opposite of inflation right now.
Ron Paul: It depends on how you define it, inflation is when you increase the supply of money. Bond prices are going up, stocks are going up, housing prices are starting to go back up again, education costs are going up. But the gross distortion is the affect that the inflation of the money does on the price of money and the interest rates and how it causes economy problems and why you don’t get economic growth. So you have to look at the mal-investment and the destruction that occurs when you mess around with the price of money. So it’s not just the CPI, because the CPI isn’t reliable, the government fudges that as well, they change the way they measure it. The free market economists say the CPI is going up by about 8%, so there’s a lot of deception going on out there. And just talk to somebody on retirement getting Social Security, they are not happy with the purchasing power of the dollar, and you can’t tell them there’s no inflation.
News Anchor: Dr. Paul, let’s go back to gold for a moment. Talking about the prices, price stability helps to build confidence, confidence in paper money, and certainly confidence in hard assets. With all the speculative money that went into gold on the way up, and came out of gold on the recent plunge, how do you know what the real value of gold is?
Ron Paul: Nobody knows that, other than what is happening at that moment, because the supply and demand of gold is very important, that’s why it is money, because gold is used elsewhere and it is a commodity. But the supply and demand of money paper is the culprit, that’s the one that is causing all the trouble, but people ignore the supply and demand of paper money. Yes, paper money goes up and paper money goes down, but look at the long term purchasing power of the dollar, it’s been devastating. And believe me, at the rate they’re printing the money, you’re going to see a continual devastation of the value of the dollar, and you’re not going to see economic growth until you liquidate the debt and liquidate the mal-investment out there. Sure, you’re going to see housing go back up again, but you’re going to see more bubble-formation. Just because prices go up, that doesn’t mean there’s economic growth. So we’re a long way from the correction, mainly because they ignore the definition of inflation, and they ignore the need to liquidate debt and the need to liquidate and get rid of all the mal-investment. And by just watching the stock market … one good comparison would be to look at the price of stocks in gold. Although in the last couple of weeks it’s changed a bit, the stock market has crashed because you used to be able to buy the Dow with 44 ounces of gold, now it’s under 10 ounces of gold, and it’s probably going to go a lot lower.
News Anchor: Dr. Paul, how can we talk about the risk of a correction in financial assets – that’s what you were just discussing, the likelihood that the Fed may be creating a bubble for quantitative easing with low interest rates and priming the markets for a crash – when we’ve just seen something similar happen in gold. There was a correction in the gold price. We’re pressing you on this issue because we need you to reconcile the two, you see the characteristics, the [dual plan] of financial assets playing themselves out in hard assets, and it’s tough to understand. We want you to share your views with us.
Ron Paul: I think the way gold’s acting acts like a market does: you get ahead of yourself, and there has to be a correction. The amazing thing isn’t the correction, the amazing thing is the biggest bull-market of the century, when one commodity went up for 12 years straight. So you can’t ignore that. But to say there has to be an adjustment because prices are subjectively decided by many, many factors, so you can’t predict exactly where this money is going to go. Unfortunately, the money right now that the Fed creates goes into reserves, further distorting the market, further pumping up the prices of bonds, further building up a bubble that will burst, because our economic growth isn’t there and we’re in every bit as much trouble as Europe or Greece, so someday there will be a lack of confidence in our dollar, and then you’re going to see the correction in the paper a lot more severe than you see the correction in the dollar-gold ratio.
News Anchor: I’m curious, you don’t like the dollar, you don’t like Federal Reserve and other paper fiat currencies, what do you think about bitcoin, the virtual currency, that’s not backed by the governments or central banks?
Ron Paul: To tell you the truth, it’s a little bit too complicated. If it’s complicated to understand, and I’ve been studying the money for a long time, if I can’t put it in my pocket, I’d have some reservations about that. But it’s been designed in the free market, and if it’s a means of exchange, it would not ever be illegal, and you should not regulate it in the free market. But I don’t think it fits the definition of money which has been around for about 6,000 years. People want to see something that they can know what it is, they can define it, they can touch it, and they can put it in their pocket. And with the bitcoin, if you don’t have a computer, and somebody running the computer and the calculations, you don’t have it. So I am not a big supporter of that, but I’m not opposed it, and I admit I don’t fully understand exactly what’s going on.
News Anchor: So you’re sticking to the hard stuff. I’m just wondering if you’re looking at this price drop in gold as a buying opportunity. I know you also have your own portfolio of gold.
Ron Paul: Oh yes, this is the time people buy. If you look at it these last few weeks, there were some pictures in the paper that were astounding. I think it was in Thailand or someplace, it was a jewelry gold shop, and they were lined up 6 rows deep, hundreds and hundreds of people buying. They were running out of silver coins right now. I recently brought two, because I don’t like to buy when there’s a lot of energy with pushing them up, I wanted to see a correction. And this is very healthy for the economy, because the speculators, the people who are in it and are trading from minute to minute, are weak holders of gold. They don’t believe in gold, but they believe in helping to set the market, and they have a function to play. But the people who really believe in it, are buying now, and literally it was the commodities market that shook this thing out, it wasn’t in the hard assets. There was one person that dumped 53,000 contracts in one sale, so there’s some finagling going on there, I believe.
News Anchor: Yes, the speculative flair. Well, Dr. Paul, you are a believer, always opinionative, I want you to stay with us from Clute, Texas today for your thoughts on a potential historic fix on our nation’s immigration laws and gun control on Market Makers on Bloomberg Television. We’ll be back in a few minutes.
In Washington right now, there is an intense renewed debate about a proposed overhaul of our nation’s immigration system. After the Boston Marathon bombings, in which the suspects were Chechen immigrants, some members of Congress say a proposed legislation needs another look. Ron Paul is back with us here on Market Makers, he’s the former Congressman from Texas and presidential hopeful. Do you think, Dr. Paul, this tragedy is an opportunity to fix our immigration system?
Dr. Paul: Well, there’s always an opportunity because there’s a need for it, but I don’t think they’re going to solve any problems at all, because they’re too big and they’re very complicated and they’re very much involved with economics. I don’t think you can deal with immigration unless you deal with the welfare state: both, with the incentive for some people here not to work, and an incentive for others to come and get some free services. And also I think it is more important that we look at our work permit for letting people come and work, and put aside this idea of how we’re going to give automatic citizenship. That becomes a political football, because everybody is lining up for who’s going to get the vote, one side says, “We’re going to get all the votes because we want them all to be legalized”. But I think you have to deal with the economic policy and really open up the opportunities for people to come back and forth and to work, but not to insist that everybody is going to become a citizen because I don’t think that’s going to work under these circumstances.
News Anchor: Dr. Paul, I want to ask you about what’s happening in the GOP right now. Your son, Rand Paul, the senator from Kentucky, made himself even more famous than he already was with that fantastic filibuster, which was impressive at the very least, over the issue of drones. He has an opportunity to galvanize the Republican Party. But the old guard, with the help of people like Karl Rove, appears to be circling the wagons and try to keep the Tea Party up. Hows it going to end?
Ron Paul: Well, with a weakened Republican Party. Because we did fairly well in the presidential campaign, we had a lot of delegates, and they were excluded from the convention, and the rules have been written so it makes it even worse for anybody to challenge the status quo. The people who have been in charge don’t want their party to be broken up. So when the young people come in, they resist it. And it was the young people that were supporting me and my campaign to the tune of millions. People were very interested, but Republicans don’t come and ask me how we can get the young people interested, because I’d want them to change foreign policy, I’d want them to change economic policy, I’d want them to balance the budget, and I’d want them to talk about the Fed. And the establishment in both parties aren’t interested in talking about any of those issues, the young people are.
News Anchor: But if there’s no solidarity inside the Republican Party, Dr. Paul, how on earth does it win the next election?
Ron Paul: I think the solidarity is the same problem in the Democratic Party and the Republican Party, it’s ongoing, there are always factions. And, of course, I want to unify everybody into believing in the cause of liberty, sound money, balanced budget, and the constitution. So I would say, yes, that’s a good way to unify them, but to unify for the sake of unity makes no sense whatsoever. Why should everybody give up on their beliefs? But yes, the old guard are losing their way, the party is getting smaller, it is splintered, and they will have to face up to the fact that if they talk about limited government and personal liberties, they have to actually believe in it and do something about it, because the young people won’t be fooled, and if this continues, the party will become smaller.
News Anchor: So, quickly, do you think your son should run for President in 2016, as he has perhaps hinted?
Ron Paul: You’ll have to ask him, I have no idea what he wants to do.