Ron Paul’s Warning: The Coming Economic Collapse

collapse

Financial bubbles are never permanent and eventually they will burst.

The day when that happens is not far off.

The coming race to the exits will be a gigantic event, warns Ron Paul in his latest video update.

Ron Paul: The problems we face today come from an attitude that there is such a thing as a free lunch. Thought the majority of the people may endorse it, rarely do those who seek a free lunch bother to ask who ends up paying for it. It is not just the poor who are looking for a free lunch—the rich do so as well. It’s called welfarism.

Endorsing the use of aggression to achieve this redistribution of wealth is acceptable for those who believe they’ll benefit from it. Generally, that’s the majority of the people. Some know that the principle of welfarism is a scam in that one group, the recipients of the free lunch, will benefit at the expense of another—the producers of wealth.

Others believe it to be moral and the only way society can care for the poor, and therefore they endorse government force to redistribute all wealth in a free and equitable manner. They ignore the challenging question as to who will produce the wealth to be passed out.

Economists like Paul Krugman belong to this group. If we give Krugman and the philosophic allies the benefit of doubt the main selfish motive that drives their efforts is an intellectual need in gratification that their views must never be abandoned, or it will be seen as an admission of mistaken economic and social theories.

It is this intellectual stubbornness to prove they are right regardless that has driven our economy and much of the rest of the world’s as well since the 1930s Great Depression. The current fragility of the world economy is a consequence of that policy. Understanding the cause and effect of central economic planning, especially with the emphasis on central banking and fiat money, is required. If sound economic growth is to be restored, certain principles must be understood and followed.

One of the most important economic items to contend with is the need for a market rate of interest. This must replace the silly notion that the Federal Open Market Committee or even the chairman of the Federal Reserve alone is so all wise that they can know what the rate of interest should be to regulate the economy. This one policy of manipulating interest rates to a lower-than-market level has caused great harm to the economy. And the full effects of pretending our money managers have the wisdom to know what the proper rate should be, especially since the 2008 recession has not yet been felt.

The consequences will not be minor. Surprises will be many, since we are in uncertain waters and the world has never faced the gross misallocation of capital that exists today. The process is self-limiting. It will come to an end, and it’s not going to be far into the future.

Interest rates, which are the cost of borrowing money, when set by economic authoritarians are literally price fixing. Fixing prices fouls up the machinery of a smooth-running economy. Interest rates have a pervasive influence on all economic transactions. Fictitious interest rates assure that accurate economic calculation is impossible. While it may seem to work for significant periods of time, the results are fragile, requiring corrections to restore true economic growth.

Capital in a free market comes from savings and not from a central bank creating credit out of thin air. This in itself is inflation, regardless of what government optimistic reports of the CPI claim. The central bank’s ability to plan the economy in this manner is a fiction and only leads to problems that overwhelm the markets, eventually wiping out the middle class.

The credit and new money, when created by a central bank, is delivered to the market in a political fashion for which the one percent receive special benefits. It allows the pyramiding of debt to fractional reserve banking, which compounds the long-term problems.

It may be fun while it lasts, but it always ends with a crash.

The system enables the politicians to be totally irresponsible in fiscal affairs with no restraints on deficits, as the Federal Reserve monetizes all debt as the crisis worsens. This involves excesses in
domestic, foreign, private and sovereign debt.

The planners deliberately deceived the people while others truly believe that rigged price measurements, such as the CPI, assure them that no crisis is pending. Besides, if the CPI rises higher than they think is desirable, the solution is simple, and foolishly to bring on an economic slump to lower prices.

A deliberate economic slowdown, as practiced by central bankers, is never required by a free-market economy. If the rate of inflation is too low, according to their theories, say less than 2%, the solution is easy for the planners. Everybody, including the government officials, are told to spend more, borrow more, print more, and bail out all those entities that are “too big too fail” and anyone else in need.

There’s only one problem: this nutty solution hasn’t worked over the past 6 years, yet from the planners’ view the 2009 crash was curtailed for the big banks and the large corporations, while the 93 million underemployed sank deeper into economic malaise. We now have a labor participation rate of lower than 63%.

Keeping afloat a flawed economic system such as ours occurs for several reasons. We have been and still are, compared to others, a very rich nation. It takes a long time to squander huge wealth.

Confidence in the markets is a major factor, even though manipulated. Compared to others around the world we still look good. Being able to issue the reserve currency of the world has allowed the United States to export many of the ill effects of inflation.

Our military might allows us to intimidate others and force them to obey our commands. When they do, we just print up more money and reward them with financial assistance. If they disobey, we freeze their financial assets, place economic sanctions on them, and threaten them with military force. If our interfering in their elections fails to succeed in placing “our guy” in charge, we merely support regime change and look for another puppet.

Our policies are carried out in the name of American “exceptionalism” and a supposed need for a “good” world superpower to police the world against the international evildoers.

This process and today’s circumstances have allowed the United States’ sovereign debt and private debt to exceed all rational expectations of any period in history. This is about to end.

We have enjoyed tremendous benefits from being able to issue the reserve currency of the world. But today there is much talk of an alternative currency replacing the dollar. Already we see the Chinese paying Russia for oil purchases with the Chinese yuan. It could very well be the ushering in of the petro-yuan which will replace the petro-dollar.

How we got here and where we are going…

The motivating factor has been the acceptance of welfare transfers to both rich and poor. Modern day Keynesian economics has taught several generations that paying for this transfer system should be of no concern. Their belief is that debt and monetary inflation can handle the problem with smart money managers without inflicting a cost on the people. Those who know this is a lie support the policy for selfish reasons.

To their great dismay the economic planners have run into multiple unintended consequences. They build an economy on sand and destroy the foundation on which a free market system is built. All the markets have been distorted. Bubbles have come and gone yet continue to develop. Excessive government growth is an obvious consequence of such a system. And as has happened so many times throughout history, liberty is diminished in the process. This type of system, built without concern about productivity and free markets requires corrections called recessions and depressions to erase the mistakes that are characteristic of all central economic planning. The planners, who never admit a mistake, will not change policy but instead will place all the blame for the downturns on too much freedom and not enough government regulations and spending.

The tragedy of course is that when the corrections come, they are very painful and injure some groups much more than others. The middle class gets wiped out as the poor demand more benefits while the rich reap the rewards of a monetary system designed to protect those who claim they are too big to fail. This includes special interests like the military-industrial complex, which could not exist without a system of debt, financial bubbles, inflation, and an aggressive foreign policy.

There are many signs on the horizon today that a correction much bigger than that of 2009 is on the horizon. The size of the world debt is unbelievably huge. Despite the government reports, the economy remains very weak worldwide. Inflation, though denied by the government, is significant both as measured by the money supply as well as by the cost of many products. There’s little doubt that this process has motivated many to anticipate the serious changes coming.

The reports that are worth paying specific attention to are: interest rates, the dollar price of gold, stock markets, but most importantly the bond market. There are many warning signs of the danger lurking in this market that Washington politicians and central bankers refuse to see as a problem.

For the most part in the last 100 years recessions and depressions were brought on by the Fed deliberately raising interest rates. Markets however can force interest rates up even if the central bank tries to hold interest rates at 1%. Today were seeing signs that the 35 year bond bull market has ended. If this is true it will prove to be a huge event, not only for the US economy, but for the world economy as well.

This bull market in bonds started in September 1981 when the 10 year bond interest rate reached slightly over 15%. Ironically at that time nobody wanted them. At the beginning of the bull market in bonds in 1981, short-term rates reached 21% and mortgages were as high as 16%.

But under today’s circumstances how much higher can bond prices go since the government and the Federal Reserve have manipulated interest rates down to barely more than 1%? When inflation is taken into consideration, it’s less than 1%. But there have been signs in the past couple years that the exuberant bond market is coming to an end. Just possibly the beginning of the bear market in bonds occurred on June 1, 2012, when 10 year treasury bills reached 1.44%. Since that time they have been lingering and trying to show that the bull market is over and a bear market has started. Interestingly now when these bonds are not much of a bargain everybody seems to be wanting them. Even a year after the rates hit 1.44% by April 2013 they were still as low as 1.67%, and almost 2 years later in February 2015 they were still under 2% at 1.68%. Demand has remained high as one would expect in a bubble.

Obviously individuals who buy 10 and 30 year government bonds aren’t actually “investing” in them but merely parking their cash for hours or maybe a few weeks. Government bonds are not seen as a wise investment to provide a nest egg for your children or to send them to college at a later date.

Today however, the interest rate for the 10 year bond is 2.4% and the odds are that we are more likely to see a 4% rate than a rate below 2% again. Though the Federal Reserve has tremendous power and influence over the markets, there is a limit and the market can overwhelm the Fed’s plans. Just as our government has in the past tried to fix the ratio between dollars and gold and print as many dollars as they pleased, eventually the market took over and assured that the ratio reflected a market value. This was obvious when the Bretton Woods agreement broke down and gold went from $35 an ounce on its way to $100 and even $1200 and higher.

Inflation, i.e. the increase in the supply of money and credit by the Federal Reserve, will inevitably lead to higher interest rates. Though inflation of the money supply is unbelievably high, the markets have avoided an inflation premium under today’s conditions since many investors believe the Fed is capable of increasing the price of a bond for an indefinite period of time. Likewise the same sentiment is recognized in the stock market. They believe the Federal Reserve along with the Plunge Protection Team can indefinitely prop up the stock market as well. But knowledgeable people realize that these bubbles are never permanent and eventually they will burst. And it just may be that that day is not far off. A race to the exits by both bonds and stocks holders will be a gigantic event.

Most likely it will be the breaking out of interest rates on US sovereign debt, in spite of what the Fed says or does, that will convince the government optimists that their policies have been a total failure.

At the present time most of these economic planners have convinced themselves that they are a lot smarter than their critics claim. They point to the “success” of their efforts to contain the debt crisis of 2009. Instead of providing a solution, the money managers have only delayed the inevitable correction that must come if we’re ever to see true economic growth again.

My suggestions are these: Keep an eye on the price of gold. Watch for a spike in interest rates, especially for the 10 year U.S. Treasury bond. Anticipate the beginning of a sharp correction in the stock market. Look for a sharp fall in bond prices associated with panic selling. Another QE may be tried but will not restore confidence the next go-around. The money lost in the coming bear market in bonds will far exceed the very big losses that will occur in the stock market. Turmoil will surely come to Wall Street and beyond.

My assessment…

The 35 year bond bubble has ended. No more 10 year treasury yields below 2%. A bear market in bonds will last for a long period with inexorable increases in all interest rates. This will lead to stock market chaos along with exacerbating the current great recession in an environment of a very fragile economy. The Federal Reserve will lose control. The dollar will remain under attack and will eventually be replaced as the reserve currency of the world, a process that has already begun. The great fiction that the creation of debt is equivalent to money will no longer remain credible.

Federal Reserve policy removed gold and silver as the monetary reserve and replaced it with a promissory note issued by our government to pay in another promissory note of less value. The fractional reserve system and the pyramiding of debt that has been a driving force during this 35 year bull market in bonds, with abnormally low interest rates, will be reversed. It will then be necessary for the current monetary system to be replaced by a new monetary order based on honest commodity money and elimination of the fraudulent system forced upon us in 1913. Defining this replacement in a positive manner should occupy our attention in order to promote peace and prosperity.

This video was published by the Ron Paul Institute.

(If you’ve found a spelling or transcription error, please notify us anonymously by selecting the misspelled text and then pressing Ctrl+Enter. Thank you!)

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  • edward stengel

    The military-industrial complex will continue to bankrupt our country, while the poor and middle classes are told except the status quo in the name of patriotism.

    • Flyercrazy

      What foreign country are you from that you think we don’t need military protection from foreign despots and those such as ISIS who would take us over if given the chance?
      Study the past, especially WW2, I don’t know whether you are stupid, ignorant or someone who wants this country to fail. But I do know one thing, you are most likely voting for Hillary Clinton and definitely voted for Obama.

      • edward stengel

        You’re wrong on everything you say. I’m voting for Donald Trump. I voted for Obama the 1st time, but not the 2nd. Donald Trump has the right idea – you go to war to win, not to occupy foreign countries forever, which is what the American policy has been since the end of World War 11. The only people who benefit from the endless wars of occupation are the defense contractors, and all they care about it profits.

        • Flyercrazy

          There is a difference between winning a war and occupying it and winning a war and making them assimilate to your culture.
          We have never won a war in which we made that country become like America. We allowed all Axis countries to maintain their own cultures, we helped them rebuild (occupy) their own countries just as we found them even though they were the aggressors. Of course we took away their aggression and made Japan and Germany look inward, the German people embarrassed at what their leaders did and the Japanese humbled and the hunger for Imperialism removed from their blood.
          I was not wrong on everything I said about you said, you voted for Obama, at least you admitted it. I am glad you came to your senses, how anyone could have voted for Obama even once blows my mind based on his affiliations with Ayres, Wright and the Muslims etc, I knew from day one what his plans were Then those who voted for him a second time after his lack luster performance and his revealingg book “Sins of My Father”.

          Naturally we go to win, another lesson you were smart enough to learn from this traitor we have in the White House who kisses the hands, bows down and apologies to all foreign dignitaries for what this great country has done.,
          WW1, WW2 Korea, swept under the rug, tired as we could we could not win in Vietnam but we realized we shouldn’t have been there in the first place.
          I have to run but will be back.
          You and I are basically on the same page, just realize had we lost to the Axis powers we would be speaking German and Japanese with no American flag flying at our institutions.

          • edward stengel

            You’re right that you’re not all wrong – I did vote for Obama the 1st time, and that was due to ignorance. However, the 2nd time, I came to my senses and voted for Romney. Concerning our occupations in Europe and Japan, you’re absolutely right that we had every right to do that and still do. I just don’t want to see us starting wars all over the world and using them as an excuse to occupy more countries.

          • Flyercrazy

            You’re a good man Edward, I appreciate your candor, many people would have responded with a defensive back hand, however I feel we have both realized, as I mentioned before, we are on the same page.
            I would hope we never get in a situation where we are like the Axis powers were in WW2, We are dealing with a similar evil with ISIS and Iran potentially can be a big player against us, if things get out of hand financially we could be in for a fist fight with China down the road but our biggest concern is radical Islam, certainly not global warming at this stage of the game.
            Once again I have an appointment but will check back later if I receive a reply from you, if not keep doing the right thing and don’t allow people to insist they receive free handouts unless they are incapable of working for themselves.
            Take care,

  • AmericaWakeUpNow

    So it looks like the banking elites that control the world central banking system are losing their grip on the world monetary system??!! I believe that these same crooks that ruined our dollar and the rest of the world economies are in bed with the Chinese and are behind this “new” banking system!!! It won’t be long before they scuttle our dollar and are sitting pretty with their new banking system and currency!!! It will be business as usual with the same group of blood lines!! Never missing a beat!!!

  • Luc Bedard

    The sheeple of America living in oblivion and easily distracted by things like showbizz,election and other useless nonsense,are absent from this discussion and will be left holding the bag.

  • Truth

    Unless you use 2 words: JEWS and MARXISM you also have failed to perceive both the threat and the solution.

    • Cheez_Whiz

      Is this satire or are you serious?

      • Flyercrazy

        I have a feeling the guy is a fascist still living his fathers life from the past, in the SS. The guy should be castrated and thrown to the lions of wild dogs preferably a more slow death.

    • Flyercrazy

      Go put on your fathers SS jacket and play fascist with your little toy soldiers. Your father is probably in hell if he willing killed Jews and you are headed there unless you change big time.

      • The word “Jew” did not come into usage until Solomon went into idolatry and the Kingdom of Israel was consequently split into two. The House of Israel (10 tribes) was exiled by the Assyrians, and the House of Judah (tribes of Benjamin and Judah) were led into captivity into Babylon. The word Jew after the return described those who lived in Judea, and later-those who converted to the religion of Judaism (not the Mosaic religion, but based on Babylonian ideology). Dr. Paul most likely mean these whom Jesus described as “call themselves Jews but are not, and are the synagogue of satan” (Rev. 2:9 and 3:9). Unfortunately, the word has come to mean all those who are in the Torah, and the Talmud–a very grave mistake indeed. I know those from Abraham/Judah who now try to define the difference by calling themselves–HEBREWS –the ancient name of Israel–before Jacob was called Israel. Consider this, before condemning Dr. Ron Paul.

        • Flyercrazy

          You misunderstood who I addressed in my comment, my comment was addressed to the person above me. I don’t think I would ever condemn Dr. Paul, he gives me advise on buying and selling silver

          • I guess you were applying to the contributor who calls himself “Truth.”

          • Flyercrazy

            Yes, that was the case. I did enjoy your history lesson, I will need to do some research but I am sure you are on target with your statements.
            Thank you

  • So what does a person like me, who lives paycheck to paycheck, do in preparation?

  • christine

    So, what do I do to protect my SAVINGS?